Your charge out rate can influence if you make a profit or a loss in your trade business.
There are traps to be aware of when setting your rate. In determining your rate to be careful not to underprice but do not over price unless your strategy is high end! It is hard to get the balance right. Reviewing your charge out regularly is also important to maintain profitability.
Here a couple of industry charge out fallacies
- Charge out rates are all the customer worries about when engaging with your services!
- I should set the same price as others to make sure I am competitive!
- I must be the lowest in the market to win the work at all costs!
- Price low to get the work and discount to blow my competitor out of the space!
- You can charge a different rate depending upon how rich the customer is!
Charge out rates come back to why the customer buys from you in the first place.
Customer perception on price and charge out rates can vary. Think about the customer perception. Does the customer believe that your rates are:
- A premium rate for high end work!
- Good value!
- Cheap and nasty!
- Ripoff !
- Great and fair price!
Those customers basing a purchase decision purely on price may go for the lowest charge out rate or quote. Typically these customers lurked around the online web service quoting sites where it’s cut throat. They do not care about the quality they are focused on the job price and getting a solution.
Sometimes tradies who try to go too cheap try and cut corners to save a $ for you and them. It can backfire for all when there is a problem on or after completion of the job.
Then you have the customer who values service and wants things done for a fair price. These should be your ideal customer.They understand that cheapest isn’t always the best. In setting your charge out rate think about what the customer will expect compared to the cheap and cheerful tradie who may not deliver in the areas that command a better charge out rate:
- Poor service
- No turning up
- No backup
- Not finishing off a job
- Shoddy materials
These dictate why you maybe be more expensive to that of your competitor. Selling your outstanding service with your quote will win you the job. As one client said we focus on customer perception. We dress impeccably as in many cases we are coming to your home. It’s part of why we charge what we charge and don’t base our sale proposition on price.
Finally, there are those who can charge the customer what ever they like as the customer demands immediate response like fix it today and hang the cost.
This article is about the psychology of charge out rates but of course the accounting calculations should not be ignored. The profitability needs to be based on your overheads, labour costs and margin. Eating into your margin leaves you with weak cash flow and tax debts. Watching your profitability position should be on every tradies radar.
Setting your charge out rate is one aspect of profitability, but productivity is the other area that many trade businesses lose out. Some of our clients monitor employee time via Tradify plugin for XERO or MYOB. It is easy to charge time to a job but is it all recoverable. Where you also need to return to a job because of poor workmanship can also impact your bottom line.
We recommend you review your XERO or MYOB reports monthly to make sure your business is meeting your targets.