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3 Ways Contracting Businesses Can Strategically Set Prices

May 9, 2023
The right pricing isn’t just important for profits, but often influences a potential customer’s view of the quality of your service.

Over the past few years, contractors have been faced with a variety of challenges from labor shortages and rising materials costs, to economic uncertainty and delays. While there’s no immediate end in sight to these ongoing issues, one fundamental takeaway has emerged: it’s more important than ever for business owners to price their work correctly in order to maximize profits while keeping customers happy.

While pricing projects may appear straightforward, choosing the right pricing strategy involves a number of factors including market conditions, variable costs, margins, anda customer’s ability and willingness to pay for your services. The right pricing isn’t just important for profits, but often influences a potential customer’s view of the quality of your service—simply offering the lowest price may be perceived as a signal for poor quality. While there’s no one-size-fits-all approach to pricing, the right strategy can help businesses grow their market share, outperform competitors, and ultimately build a loyal customer base.

1) Pricing that Scales with Your Business

It’s crucial for you to select a pricing strategy at the start that sets your company up for success. Pricing strategies can also change over time to support your business as it grows. Market Penetration Strategy and Price Skimming are two approaches that evolve over time to reflect changes in your business.

Market Penetration Strategy is where you initially set pricing low to grow market share, then increase your rates over time as your customer base grows. While this isn’t a common pricing strategy for service businesses, it can help you scale your customer base quickly. With this strategy, you will book more jobs at a lower fee, so you will have to work harder to cover your overhead costs.

Meanwhile, Price Skimming is where you set a high price and lower it over time. Using this strategy will maximize your profits upfront and help you grow a more sustainable business. However, if you can’t justify the price, you’ll struggle to get your business off the ground.

2) Pricing that Helps to Differentiate

While pricing reflects the status of your business, it can also be used to attract new customers and differentiate your business. Premium Pricing allows you to charge higher prices if you provide a unique offering. For example, if you provide a warranty or service guarantee that your competitors do not, or if you use exclusive tools or technology that make your business easier to work with or improve your results.

Economy Pricing allows you to set pricing low because overheads are low. Your costs may be low for several reasons, such as using software to organize and manage your business instead of hiring back office support.

Psychological Pricing is the practice of setting prices lower than a whole number⁠—for example $19.97 as opposed to $20⁠—as it’s believed that odd numbers are more attractive than round numbers. Meanwhile, some contractors use Competitive Pricing where theycharge what their competition charges. The key is to remember that your business is unique and just because someone is charging a specific price doesn’t always mean you should price-match.

3) Pricing that Empowers Customers

In addition to attracting customers, certain pricing strategies can help you offer the highest quality customer service. Bundled Pricing involves bundling various services together and charging one price, which is a great technique for creating customer loyalty and upselling more services to boost profits. Good, Better, Best Pricing or tiered pricing offers clients the option of choosing between different levels of service or packages. This strategy allows customers to compare your packages against each other instead of comparing them to the competition.

How to choose the right strategy

While there are many options when it comes to pricing, there’s no silver bullet solution when choosing a pricing strategy. Multiple strategies can even work together to meet customer needs. For instance, value and bundled pricing compliment one another because you’re illustrating to clients that you understand their needs. By offering different pricing solutions, business owners can show that they understand their customers and set prices that are aligned with the value that’s provided.

There’s no doubt that pricing services is often harder than pricing products, and the process can be known for instilling fear into many business owners. The bottom line is, while pricing can be difficult to master, it’ll only be a matter of time before you find out what works best for your business. After all, you’ve already mastered one craft  and the more jobs you bid for, the more comfortable you will become with pricing, too.

Chris Gardner currently leads the franchise partnerships team at Jobber, an operations management platform for home service businesses. Prior to joining Jobber four years ago, Chris owned a lawn care business with his friend that he ran entirely on pen and paper prior to discovering Jobber. Once he started using the software to help him run a smoother business, he loved it so much that he decided to join the company.

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