What is it about the service trades that drives people to take pride in their poverty? Why do so many contractors think they're nobler than their peers because they charge half as much? Can't they see the message that they're sending?
Fail to charge enough and you tell the world you aren't worth much. Worse, you tell your customers you aren't worth much. Even worse, you tell your employees you aren't worth much. Worst of all, you tell yourself you aren't worth much. That's a horrible message to send.
Lowest Common Denominator - In contracting, offering a low price is a quest for the lowest common denominator. It's seeking a low standard. It's seeking a standard to live down to, not one to aspire to.
With plan/spec commercial work, the plans and specifications describe a minimum standard. In residential service and replacement, minimum standards are set by the contractor's conscience and swayed by the necessity to profit in order to survive. Profit is the difference between the price contractor charges and the service he delivers.
Rather than find ways to be of greater service and to deliver more value to their customers, low price contractors find ways to do less, to make their service cheaper than their price. They price low. They deliver less.
Cheating - Even the most honest contractor cheats others when he plays the low price game. He cheats customers by offering less than they deserve, and by taking care of problems that might arise with extra charges or with a snarl of resentment — if he responds at all.
He cheats employees when he pays them less than they might earn in other industries, when he skimps on benefits, and when he cannot afford training to help them improve their craft. He cheats his suppliers when he falls behind on bills. He cheats his peers when he pulls down market pricing, reduces the attractiveness of the industry to the next generation, and tarnishes industry reputation by the condition of his tangibles and quality of his service and business practices.
He cheats his family when he can't afford luxuries for them, including the greatest luxury of all, his time. Since he's always hustling, always chasing nickels, time becomes the scarcest commodity he owns.
He cheats his spouse when he drags her into the business without pay, to perform a job she never bargained for when she walked down the aisle. She may have promised "for better or worse," but she never agreed to indentured servitude.
He cheats himself when he fails to build a business that will allow him to get out of the field before his body is broken and his attitude is shot. He cheats himself when he no longer sees a future of possibilities.
He cheats everyone when he fails to keep his service below his pricing, and closes. The business that closes serves no one.
Contractors should charge enough to pay rent, whether they rent an office or work out of their garage. They should charge enough to pay themselves an owner's salary. They should charge enough to pay employees well, including employees related to the owner. They should charge enough to cover employee benefits. They should charge enough to provide training, to replace old vehicles and tools, to generate funds for marketing, to pay for professional legal and financial advice, to cover callbacks and problems, and to reinvest in the business for future growth. Last, but not least, contractors should charge enough to generate a financial return on the capital and sweat equity they invested in their business.
Proper pricing will not solve all problems, but it will make many problems solvable.
Contractors who charge enough can afford to deliver a service their customers deserve. They can afford to take care of their suppliers, customers, employees, family, and themselves. They can build a business that can operate without them and will live beyond them. They can build a future.
Matt Michel is CEO & President of the Service Roundtable (www.ServiceRoundtable.com), the industry's largest private contractor group. Subscribe to his free marketing newsletter at www.ComancheMarketing.com. Do you need help setting your prices? Email Matt at firstname.lastname@example.org, tell him you want to price for profits, and he'll send you a free copy of his Microsoft® Excel based pricing calculators.