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July 30, 2018

How to Set Prices for Home Services, and When to Raise Them

When you provide any home improvement, remodeling, or repair services, one of the toughest parts of running your business is knowing how to set prices for your services, and knowing when to raise those prices!

To set prices for home services, consider your costs, the rates charged by your competitor, any specialized services or advanced skills and experience you offer, as well as the average income in the area in which you work.

To make it easier for you to set prices for home services, consider a few quick tips to keep in mind when it's time to charge your customers.

How to set prices for services, by the hour or by the job

One of the first considerations when it comes to how to set prices for home services is if you should charge by the hour or by the job. The best way to determine this is to consider the actual work you do, and if it will vary significantly from job to job, or if you'll be doing the same type of work for each customer.

Consider an example of what this means. A housecleaning company may offer the same type of service from one job to another; vacuuming, scrubbing toilets and showers, mopping floors, and so on. This type of service provider could then charge a flat fee based on the size of a home since the actual work and the materials used will be relatively unchanged from one job to another. All three-bedroom, two bathroom homes would be charged one price, all one-bedroom apartments given another quote, and so on.

However, if you repair residential furnaces, you don't know what type of work will be doing from one job to another. You may need to spend several hours at one job, taking apart the entire furnace to find a broken part or leak, whereas another job may be speedy and straightforward. Since your work will vary significantly from one job site to another, it might be good to charge an hourly fee versus a flat rate.

Using a pricing formula for services

how do contractors set pricesThere is no perfect pricing formula that you can use when determining a price for home services, but it can be easier for you to quote potential jobs if you create a method you can use repeatedly. To do this, note a few factors you'll need to remember when creating a pricing formula for your business:

• An hourly rate for your work alone. For example, you might want to earn $20 per hour for your actual work itself. This hourly rate is in addition to materials used on the job.
• Cost of materials needed for the job. This cost is essential for housecleaning, carpet shampooing, painting, and other such home services that use a tremendous amount of materials, versus a job like furnace repair, where you may not use any supplies at all. Get familiar with the cost of materials for your work, depending on the size of a home, if something needs added attention and extra work, and so on.
• Cost of materials you will be selling to clients and customers. As an example, if you make electrical repairs, you'll need to figure the price you will charge customers for electrical wiring, new circuit breaker switches, and the like.
• An hourly rate for any workers or assistants you bring with you.

When it comes to your rates for the materials you will use and sell to customers, consider charging half over again or doubling your own cost. This price will then cover the time you spend shopping for such materials, customizing them for your use on the job, and repackaging them if needed.

As an example, if you pay $2.50 for a certain amount of electrical wiring, you would charge your customer $5 for that same wiring. A house painter who pays $5 for a gallon of paint might invoice their customer half over again, or $7.50, for every gallon used on the job.

Other factors when setting prices for home services

There are many other factors you might need to consider when setting prices for home services, so you know you're fair to yourself and your customers. As an example, a piano tuner might charge more money to tune a piano used for performances and instruction, versus ones used by hobbyists. A performer may be very particular about the sound coming from their piano, so the work may need to be more precise, whereas a hobbyist may not be overly concerned with getting an accurate, crisp sound from their instrument.

As another example, you may want to charge more money to service delicate or expensive household items, as they may need more care during those services. An old plaster ceiling or rare silk rug may need more delicacy when being repaired or cleaned than a standard plaster ceiling or everyday wool rug. An antique piano may be more delicate than a modern piece so that you need to exercise caution when tuning it, and old single-glazed windows may need hand washing so that they don't shatter under the pressure of a power washer; again, you might charge more for these services in particular.

Note if a particular job would require more work or materials on your part. Many carpet cleaners charge extra for carpets that are especially filthy, and a housecleaning company might do the same for a home that is extraordinarily messy and dirty. In some cases, you might even adjust your pricing for a particular time of the year when your jobs will require more work, such as window washing after storm season, or housecleaning after the holidays.

You might also be able to charge more money in a wealthier area. A homeowner with more money may be suspicious of a service provider who undercharges, perhaps assuming that their services will not be professional and reliable. Wealthier homeowners may also merely be accustomed to paying more for specific services, so they would never question if they get an estimate that is higher than those offered to persons in another area.

Should you offer flexible pricing for home services?

how contractors should set their pricesOne way to grow your business is to offer flexible pricing for home services. This flexibility allows a potential customer to use your services even if your original quote is out of their price range. To offer some flexibility while still ensuring you maintain a healthy profit margin, note a few tips:

• Consider if the homeowner can manage any services themselves, to make your job easier and therefore more affordable. If you shampoo carpets, you might offer a discount if all furniture is out of a room. A housepainter might offer a lower price if the homeowner power washes the home's exterior before arrival, or you might offer to repair holes in interior walls, but the homeowner would need to then paint over those patches once your work is finished.
• Be aware of services that are important to the customer, and offer these alone. For instance, shampooing just the traffic areas of a carpet rather than its entire surface, or performing a light mopping of floors when you clean a house, rather than scrubbing them with a scrub brush. These services may be faster and easier for you, so you can then reduce your quote to a customer.
• You may also offer alternatives to your standard services which are less work, or that require fewer materials and supplies. As an example, steam cleaning carpets without shampoo or painting concrete driveways rather than stamping and staining them can be more affordable for you so that you can offer these at a reduced rate for your customer.
• Break up your work over time, so your customers can spread out their costs. A roofer might repair or replace one-quarter of a homeowner's roof each year, so the homeowner has four years to pay for their new roof! Tell the customer you'll keep their quote valid for a specific time, whether it's months or years, so they are more likely to hire you even if they can't pay for an entire job at once.

Be careful of discounts for home services

While you don't want to price yourself out of your chosen industry, you also want to be careful of too many discounts for home services. Undercutting your prices can mean working for virtually no profit, or for so little money per hour that you can't afford to pay your bills!

Note a few tips and precautions you might consider about offering discounts on home services:

• Make sure customers cannot combine offers so that you avoid working for free! Coupons and offers should also have an expiration date and a way of being collected or tracked so they can't be used indefinitely.
• Don't offer too steep of a discount, as customers may readily respond to even a small reduction in price. Ten percent or even fifteen percent off a service or product is often enough to get customers interested, so don't assume you need to slash your prices in half for customers to respond to your discount offer.
• Consider offering a discount for an upgrade or added service, such as 15% off piano repair when a customer schedules a tuning or 15% off wall washing with a standard housecleaning. This price plan ensures you're still getting paid full price for the bulk of your work.
• Offer discounts on services down the road, meaning a customer's fourth housecleaning service, their first maintenance call after their new roof is installed, and so on. This pricing is especially important for service providers who are just starting a business, as you may need to have money coming in immediately, to cover your startup costs.

When to raise prices for home services

Once you set your prices for home services, don't assume that they're written in stone, as you may need or want to eventually raise those prices. Consider a few tips when it comes to raising rates for home services, no matter your industry:

• Keep track of your costs for materials and supplies. When you see your costs for these going up by any noticeable amount, it's time to raise your prices to compensate.
• You also want to keep track of your overall profits, as you always need to maintain a healthy profit margin. Your cost for gasoline for driving to various job sites or your worker's compensation insurance costs may be going up, or you may have lost some business over the past year. In turn, you may need to raise your prices to ensure you're still earning a profit from your company.
• Note the prices of your competitors. If they raise their rates, it's usually good to raise yours, as under-pricing your work may make a potential customer question the quality and value of your work and services.
• If your business has been successful and you're now in high demand, you can raise your prices slightly, and note if some potential customers stop calling you. In turn, you may be able to better manage your business by only working for your highest-paying customers, without any actual loss of revenue.
• Keep a rise in prices low, even if you are successful in your business, as customers may be less inclined to go through the work and hassle of finding a new service provider if your price increase is manageable for them. However, if you raise your prices by too much, they may gladly take the time to shop around and see if a competitor will beat your price.

Remember, too, that it often takes time for a new business to become successful. If you're confused with how to set prices for home services and aren't sure when to raise them, be patient with your current pricing strategy, and then make some small changes if needed, and give those changes some time to work. Eventually, you'll realize the best price to charge customers so that they're happy to hire you while you still maintain a healthy profit from your business.

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