Our last article was a reminder that without the construction industry, people wouldn’t have warm homes with running water and electricity. Your work is vital.
Unfortunately, there are still way too many contractors who believe it’s okay to let their clients determine the price of their work. They spend time worrying that their price is too high rather than realizing, and selling, the value they bring to the project. If the price you’re charging is the price you need to pay all job costs, overhead expenses, and make a fair profit, your price isn’t too high, assuming of course that you calculated that price based on your own financials.
A letter I received some time back asked about calculating an hourly wage for his work:
“I really like your courses and have taken them online. I have a quick question.
If I am figuring up the actual cost of the job, with me doing the work, I figure it at $50/hr and then I add up time and materials, I put in the 50% or multiply by 1.5. Is this correct or am I too expensive for carpenter/laborer rates at $50/hour.
Thanks for your time. Your direct approach is just what people need to hear.
It looks to me like he’s doing the math right. Assuming those are the figures he’s calculated for his own business, he’s using markup correctly and charging for his own time on the job.
But I told him that he needs to stop worrying about being too expensive at $50/hour. Fussing and worrying about your price is the first step on the path to going out of business. The price is what it is. Calculate what your costs are, what your overhead is and what profit you want to make (eight percent at minimum). Quote that price and only that price, or maybe more depending on the customer’s attitude.
In our book Markup & Profit; A Contractor’s Guide Revisited, I recommend that the owner of a company charge at least $45.00 an hour for his or her time when working on a job. I’d use a much higher figure now; the important thing is that you recognize what your business needs. You also need to recognize that as the owner of the company, your time is valuable.
He later made this statement:
“I figure I’m a little on the high side, but I’d rather see what the market can bear than close my doors.”
How do you know you’re on the high side? Did that come from your customers? They aren’t a credible source on whether your rates are too high. Seeing what the market can bear isn’t a good measuring stick, either. Do your math, get the right number together and go sell the job. Your price is your price.
Don’t compare your hourly rate to what another company charges when you compile the price for your work. For all you know, their hourly rate might be too low. Based on how many construction companies go out of business every year, it probably is too low.
Good salespeople, top producers, make their own market. Learn to sell what you do and the value you provide, not your price.
In our book, Profitable Sales; A Contractor’s Guide, we explain that when you hear that your price is too high, it’s because you haven’t done your job as a salesperson. You’ve missed some very important steps of the sale. In the book, we talk about how to move the focus off the price. Price isn’t why people buy.
Your work has value. You deserve to be paid fairly for it.
Closing Thought
If you have time over the Christmas holidays, invest some of it to improve your business skills.
If you like to read or listen to books, a friend of ours sent a suggested list of business-related books you can peruse here. If you prefer to watch, consider our twelve hour course on making the numbers work in construction. Purchase it once and watch as often as you like for as long as you like.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations as needed.
Listen to the audio here, or select dots on the right to download:
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