raising your prices

[huggytree]

the plumbing union i belong to gives itself raises every 6 months...roughly $1.60 per 6 months...$3.20 a year..roughly 80% of the plumbers in my area are union (it used to be 90%)

to come up with my hourly rate i add up all my expenses once a year and come up with a 'at cost' labor rate..this rate includes office time,insurance,gasoline,vehicle payments,etc.. then i take that $ and multiply by 1.20- basically giving myself a 20% profit....well 6 months ago i decided not to touch my hourly rate when we had our bi-annual raise....now its getting close to the yearly raise. it would raise my price $4 per hour...im getting complaints and comments where it currently is....so im not sure if i should raise it right now...(some of the customers would complain if it was $20 less)

here's the problem.....lets say in 2 years the economy improves and i havent raised my prices in 3 years....if i want to go back to my 20% profit i will have to add $12 per hour...its enough to make all my customers notice and possibly start shopping for a cheaper plumber...i could slowly raise it back up every 6 months over a couple of years too....creep it up..

im probably going to add something for sure...i dont think anyone would think much if i added $2 and $2 to my trip charge...

times are horrible around here and some plumbers are actually lowering their hourly rate...yet some are raising it correctly and now worrying about it.

this is one of those gut feeling decisions. my gut says not to go $4 per hour because it will be noticed...my gut says $2

[nealrm]

Looks like you are summing up your overhead costs and spreading them across the hours you work. That method is valid provided that the overhead generally rises with the number of hours worked. If the overhead is the same regardless of the hours worked, you may end up pricing yourself out of the market.

As for the "Office time" that is not really an overhead cost but an addition to the total hours work on a job. You can either lump it into the total hours or add it as a "Billing & service charge"

As for the price increase. What is the result of dividing the total overhead by the number of hours? Has your overhead increased by enough to warrant increasing your rate by $2 or is it just that the total number of hours has decreased. If your overhead cost have increased 3%, I would raise my rates 3%.

A price increase by the union every 6 months does not necessary justify a small business increasing its rate every 6 months. What a union wants and does is not alway based on what is going on in the real world.

[huggytree]

i divide my overhead into 160 hours a month and divide it down to an hourly rate. i do my overhead assuming im working 40 hours a week. Some weeks i work 10, some weeks i work 60. it all averages out. I give myself 1 hour in the office for every 5 in the field. that # works out pretty accurately too.

none of it is perfect, but it works...i cant put office time separate onto each job because where would i put the office time on the jobs i never got..at times i get 1 out of 10 jobs...sometimes i get 9 out of 10...depends

the union raised its hourly rate and i am a union contractor (with no employees). So if i dont raise my prices i dont get the raise....i could look for efficiencies to offset it, but im as lean as i can be....

a good question for any business:

CAN YOU RAISE YOUR PRICES IN A RECESSION???

im going to.

[nealrm]

Raising your prices in a recession is possible, if you have a strong market position. Really raising prices in a recession is not much different than raising them at other times. It just that during a recession there are fewer jobs going around so losing out on one hurts more. Plus those that are hurting more will accept a lower price for their work. Your market position must be able to overcome that.

I would worry less about what the union is doing and more about what is best for your business. If increasing your wage prevents you from being competitive in your bids, then it is not in your best interest.

[huggytree]

i am losing alot of jobs because of price, but $2 more per hour wont hurt that...im losing them by hundreds and thousands in some cases.

its more the builders noticing that ive raised my prices when i do small t&m jobs for them.

im going to do it....im up 35% for the year...i see that as a strong position i guess...no one will probably notice...im probably thinking too much about it...Kohler raises their fixtures every year..3 years ago they raised it 3x in 1 year...i still use them