The Five Biggest Pricing Mistakes to Avoid in 2024
How much time do you invest in understanding and creating pricing models for your business? The reality is many business owners in the trade and construction industry are ‘winging it ‘when it comes to their pricing and in the process are compromising the ability of the business to generate consistently high profit margins.
In this article, we will share with you the biggest mistakes that we regularly see with business owners when it comes to pricing their work.
- Aiming to be the ‘average’.
A trap for newcomers when pricing is often gathering information around what other businesses in their industry are charging, and then looking to price based on the average. I trust you are not an average business, and you are a professional of your trade. Therefore, it’s important to price accordingly. The other mistake made is pricing below the average so that you can win work. This is a pitfall as it may become your default way of operating and it becomes challenging to change. We believe at PROTRADE United that aiming to price in the top 10% to 20% of your sector is where your sights should be set.
- Underestimating costs
One of the biggest errors made is underestimating the true costs associated with a project. Whether it's the cost of materials, labour, or unforeseen complications, failing to account for these expenses can lead to financial disaster. To dodge this bullet, conduct a comprehensive cost analysis before providing a price. Consider the time required for the job, the cost of materials, additional costs that are related to labour time, and any potential complications that may arise. It’s better to slightly overestimate than to face financial strain mid-project.
- Failing to factor in overhead
Many business owners often overlook the importance of factoring in overhead costs when pricing their services. Overhead includes expenses such as insurance, motor vehicles, licensing fees, software, tools and equipment maintenance, and administrative costs. Be meticulous in accounting for all overhead costs to establish a pricing structure that covers both direct project expenses and ongoing operational costs.
- Charging for time vs. outcome/results
Your customers are paying for results and a solution to their problems. When you get drawn continuously with charging, just for your time, it can de-value the results that you’re delivering. Think of going to the dentist. The price to eradicate a toothache is the same regardless of whether it takes 60 minutes or 10 minutes to fix. Which timeframe would you prefer? Apply this to your own business, as your customers want quality delivered in the shortest period of time. Be a specialist versus being a generalist and look at the problem you are solving for your customer and what it would cost them for that problem to continue.
- Not investing enough time and thought on your pricing
The most profitable businesses spend time regularly evaluating their pricing structure and how to package their product/solutions in a way the delivers great value for the customer, as well as generating consistently high profit margins for the business. If you want to master your money and become financially successful, then allocate regular time to this aspect of your business. What you nurture, grows, and develops. What you neglect, withers, and dies.
In conclusion, determine a fair and value-based pricing strategy that not only covers your costs but also allows for a healthy profit margin. A well-thought-out pricing model ensures you can reinvest in your business and provide quality service to your clients.
In the end, it’s up to you, what action you take, depending on how committed you are. Avoiding these mistakes is simple, however consistently applying key steps to win profitable work is not easy. Reach out to the team at PROTRADE United for any support you require in this area.
Written by Jon Mailer
PROTRADE United
CEO& Founder
