Learning how to price services for your business is often a painful lesson for business owners, especially in bid or contract work companies. It might seem straightforward, but before you know it, we fall victim to profit leaks and lose productivity when things go wrong.
To be profitable, we need to spend more time carefully estimating our pricing using minimum gross margin targets, followed by a rigorous business post-mortem analysis to identify your ending gross margin and calculate the profit shrink.
Scope creep is the enemy of learning how to price services for your business. Here’s how it happens:
We are asked to provide a bid or quote for a job. We estimate our labor and material costs and add some wiggle room if we estimate poorly. If sophisticated, we calculate the gross and net profit for the job to ensure it’s profitable enough, and we research whether this is a reputable client. We also must know what our break-even margin needs to be.
We submit our quote and win the job. Then disaster strikes. We receive lots of add-ons for additional work. If we’re good, we seek additional payment. If we’re average, we miss the chance to ask for an additional fee and get crushed when our profits aren’t what we expected.
Ultimately, we do a big job for an unacceptable profit margin. Then we ask the client for more work to make more of a profit. What could go wrong with this strategy?
Too often, companies don’t consider scope creep when figuring out how to price services for your business.
Here are the steps you need to take to calculate an accurate estimate and complete a job with profit in tow:
Learning to price services for your business doesn’t have to hurt your bottom line while you figure it out. Instead, a professional business coach can help you reduce trial and error to ensure you’re on the right track for profit growth. So please fill out my contact form and discuss your pricing strategy.
Coach Dave
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