There’s a weird dichotomy in the trade right now: On one hand, the market is very competitive. On the other hand, there aren’t enough of us to do the wor How these two problems co-exist, I can’t say for sure — but they do, at least in the Mid-Atlantic, where my company operates. I suspect that it’s primarily due to two factors.

First, handymen are still out there undercutting the pros, and they always will be. However, I think this will become less pronounced in the years to come — not necessarily on the plumbing side, but certainly on the HVAC side. Boilers and heat pumps are becoming more complex. They require a higher level of skill and specific knowledge, which will make it challenging for handymen.

Second, too many of us are afraid to raise our prices. I can say that because I was in the same place a decade ago. Maybe you’re operating the company your father started, doing great work and trying to hire the best people, yet still using prices from the early 2000s, adjusted for material cost increases, of course. That won’t work, not in the long term anyway, and it makes running a profitable business harder for companies that charge what they’re truly worth.

Trying to out-discount the next guy rarely leads to sustainability. In fact, it can lead to burnout, poor workmanship and a business that barely survives. It also makes hiring harder. You can’t offer premium wages and benefits to professional technicians while charging less than what those techs are worth. 

Smart contractors understand that pricing for profit, not just survival, is the only path to long-term growth. 

That brings up another trend I’ve witnessed in our trade. More and more owner/operators say they don’t want to grow. They’d rather stay in their “sweet spot” and avoid the pitfalls of managing a 20-truck crew. That’s a personal choice, and there’s nothing wrong with it. Even if your goal is to maintain the company’s current size, you can’t provide a high quality of life for yourself and your small crew if you’re underpaid.

Rushed jobs and a damaged reputation 

The race to the bottom is a vicious cycle. Ask me how I know. 

It starts small. A customer says, “The other guy quoted $1,500 less.” So, you cut your price to win the job. Then it happens again. And again. Eventually, you’re working for pennies on the dollar, barely covering overhead and too busy to take a breath, let alone grow, organize, market and show appreciation to your team.

That’s when the wheels start to come off the wagon. You rush jobs to stay on schedule. You skimp on tools, training and vehicle maintenance. You stop investing in yourself and your people. You don’t have time, money or energy to market properly (more on that later). You lose the personal contact you used to have with your customers. Your reputation slips, not because your people aren’t good, but because you’re pushing them too hard. 

Eventually, you lose the passion for what you do. It’s a vicious cycle, but fear keeps you in it. 

Fear of what? Fear of being slow?

When was the last time you were actually slow? I don’t mean you had a free day between projects that allowed you to catch up on office work and maybe give the team a day off. I mean, the last time you were actively looking for work and worried about making payroll. If you can’t remember, it’s time to raise your prices. And if you’re busy but still having trouble making payroll, you have serious changes to make.

Perceived value

A Jeep Grand Cherokee costs far less than a Range Rover. They’re both mid-sized SUVs with four-wheel drive, air conditioning, storage space, moderate fuel economy, etc. It costs significantly more to repair a Range Rover than a Jeep, yet people pay the extra $60,000 for the British car due to its perceived value.

The price tag is higher, so it must be worth more, right? That’s how the American brain works. Lower pricing might seem like a way to stay competitive, but it often sends the wrong message. If you’re underpricing your work, customers assume that’s all you’re worth. Who could blame them? Even you think that’s all you’re worth.

The low bidder is also perceived as inexperienced, desperate, low quality and willing to cut corners.

That’s not the image I want to project, and I don’t want customers who appreciate cheap things. I want customers who appreciate quality and value. If you can communicate the value you provide — whether it’s superior craftsmanship, fast response, longer warranties or better components — the right customer will pay for it. 

First, however, you need to see that value in yourself. If you can’t see it, they certainly won’t.

So, if you’re willing to admit that you’ve been undercharging, how do you determine what you should be charging?

Know the numbers

The first step in pricing for profit is understanding what it actually costs to run your business. Many contractors estimate pricing or base it on what their competitors charge. However, every business is different. If you’re not tracking costs and margins, you’re flying blind. I like to break it down as follows:

What’s my overhead? This includes rent or facility payments (if they are paid, pretend they are not), insurance, trucks, phones, software, uniforms, tools and more. Tools and trucks wear out. Calculate for depreciation.

How about my labor burden? This isn’t limited to wages. Include payroll taxes, workers’ comp, paid time off, benefits, training and an emergency fund. 

If you don’t already know what an emergency fund is, you will at some point. Someday, one of your best people will experience a very bad time in life. If you can provide what they desperately need in that dark time, it will be one of the most rewarding things you’ve ever done. I’m sure some of you already know this feeling. Accounting for your labor burden will make you become the employer everyone in town wants to work for.

One more word on labor. When you’re calculating what to charge customers, don’t figure in what you’re currently paying your people. Consider how much you’d like to pay them when you start charging more.

Material and equipment costs are next: This includes delivery, returns and handling time. In July, my column explored the impact of tariffs on material costs. The rapid cost fluctuations we’re currently experiencing make this line item hard to tally, so plan for the worst-case scenario.

Finally, the “P” word, profit: Yes, you need to include profit as a line item. Profit is not what’s “left over.” It’s what your business earns for taking on risk. Don’t short yourself here.

When you know your true cost per hour or cost per job, you can price in a way that ensures every job is contributing to your growth — not just keeping the lights on. If it’s not growth you’re chasing, then it’s quality of life and employee satisfaction.

Some contractors feel guilty about charging more, especially if they started out as sole proprietors. Profit isn’t greed; it’s stability that allows you to pay yourself and your people what they’re worth. It allows you to keep them in fresh trucks, offer better benefits and grow your company through a slow economy when it comes. Profit also enables you to deliver a better customer experience.

Your customers benefit from your business being strong and stable. They want to work with a company that will still be around when they need service.

Let’s continue this conversation next month; there’s much to be said about finding the right customers.