Many years ago, a good friend in the industry told me something I will never forget: “Never abandon what got you to where you are.” That statement can mean lots of things, but when it comes to being successful within the trades industry, the meaning is pretty clear.
At some point in building your trades company, a little light
bulb went off. Actually, it didn’t just happen to go off, it was forced to go
off because you had been working really hard, for a number of years. Sales were
increasing, but profit was missing. If the company was growing — and it was —
profits should be going up, but they weren’t. After exploring the obvious
reasons for reduced profitability, you suddenly have a realization: “Maybe we aren’t charging enough to
make a profit.”
This makes common sense as well as good business sense. Upon
reflection, it all becomes clear. “I
need to raise my hourly rates in each department.”
Since most owners within the trades industry used to be a
technician before starting their own business, it can be tough to determine how
much you need to charge per hour to cover real costs of doing business, all
while generating a reasonable profit. The solution may have become obvious, but
the process of reaching that solution is often unclear.
Over the coming weeks or months, the company owner does research,
talks to industry colleagues, attends a seminar or two and/or reads books or
articles on hourly rates. Armed with this knowledge, new profitable rates are
calculated based on the company’s unique costs of doing business, not what Joe
or Mary charge down the street. With fear and trembling, the new rates are
instituted, and two amazing things happen.
First, the vast majority of the customer base never even realized
rates went up, and the volume of complaints you expected did not take place.
Second, after the hourly rates were increased, there was a
Fast forward a few years. The company has grown and continues to
grow. However, it seems harder to make a profit. The company has put systems
into place, excelled in customer service and invested huge amounts of money
into marketing. Staff has attended classes on leadership and teamwork;
equipment and vehicles are in great working order; and the staff and techs
actually seem to have bought into the company vision. The only thing missing is
profit — again — which can be solved by adjusting hourly rates as things change
within the business. Any time costs change within the company (overhead, price
of materials/parts, hire additional employees, etc.), there is always a
necessary change in what the company needs to charge per hour to maintain
As the new year begins, review your real costs of doing business
from a cash-flow perspective. If costs have changed over the past year, your
hourly rates need to be adjusted as well.
The company may be the best in the area. The quality of work
might be outstanding, and your customer relations may be far above your
competition. Everything from an operations standpoint might exceed your
customers’ expectations. However, if the company is not priced for a profit in
each department, it is going to go out of business sooner or later.