Raising Prices During Busy Times
Shop owners discuss the strategy of using calibrated price increases to improve profits and cut their work backlog. August 12, 2014
Question
After a few quiet years I am now happy to be really busy again, but now worried that we have too much work going on. It's been said a few times on these forums that if you're too busy you should raise your prices until the work and capacity balance. Has anyone actually done this successfully and did it work as you expected?
Forum Responses
(Business and Management Forum)
From contributor B:
There is nothing wrong with raising prices to what the market will bear, especially if you do good work. We raise prices when busy and are often surprised to see that clients will pay. The poor contractors will usually tell you the price is too high, while the good contractors will say the price is too high but they go with it anyway because they know the quality of the product is there. It has the effect of weeding out the guys who are just looking for price.
From contributor D:
Four percent won't reduce your workload a bit, you just get paid a little more for your work. Eight percent would have some customers balking, but you would definitely get to relax a little from the money situation, and require lowering your prices again if the market dips badly.
From Contributor K:
Raising prices has worked for us for the better part of 20 years. These are slow and mostly unnoticed - no 20% jumps for sure. Our shop rate is now almost three times what it was in 1990. From 2008 to 2011 we could not raise prices and had to scramble to find work. We are back to a slow increase to try to keep things in balance. It is a good problem to have.
From Contributor J:
What we do is really boost the quoted prices on the twitchy jobs that that we take when the backlog is light, but would rather not when we are flush. This is essentially saying "no, we don't want to do this because we can do other jobs that are right in our sweet spot instead" without actually saying no. If they come in anyway, our opportunity costs are covered.
From contributor L:
Work has finally picked up to the point that we can be more selective. Since our customers pay by the job and not by the hour they don't know when our hourly rates change. Our costs have increased and need to be passed on along with attempting to find the level the market will bear. Discouraging to find you left money on the table. If you make more it allows you to pay the employees a bonus as a thank you and bank some for a rainy day or expansion.
From Contributor M:
Yes I have and I was always happy I did. At times I have also lowered my profit margin to keep the doors open. Unlike Walmart custom shops seldom publish pricing so we can basically adapt our pricing to match the current situations. Resist the urge to change your pricing too often or without a lot of consideration; this can lead to you never knowing when you are making money or not.
From Contributor O:
I should add that there is also a lag time. You get busy, and are booked solid for a good while, so you raise prices. Keep in mind this won't kick in until you finish the work already on the schedule. By the time you get to that higher priced work, you may be back scrambling again, and considering lowering prices. The first objective is to hold prices on that work you know well, and know you costs on. Or budge them up just a bit. This keeps things flowing. Then, if you are asked to do a left-handed contra hosta whozzit, you can bump up the prices to cover what will be a less than well-known project/cost.
