What do you charge? A few things to consider when setting a price
Those of you who are not union contractors may not have looked at your costs (both direct and overhead) in a while to see if a price increase is justified. If you are on flat rate, the costs can get masked because the customer just sees one labor and materials price. You'll notice it in slightly lower gross margins. However, if you don't have a consistent gross margin, you won't notice it.
For replacement pricing, any equipment price increases could be masked through the divisors you use to determine the sales price. You may not have compared last year's numbers to this year's numbers with respect to individual jobs. If you've achieved higher sale volume, was it due to an increased number of jobs at the same price as the previous year or the same number of jobs as the previous year at a higher price? The number of jobs increase is as significant as the dollars per job increase.
A false sense of securityWe have been lulled into a false sense of security during the past few years. Inflation has been relatively tame, the economy has been good, etc., and costs have not increased much - until lately. Gasoline prices have soared. This is the first indication that things are not as stable as they used to be.
It recently had a story with the headline, "Residential housing starts decline." A few weeks ago, they said multifamily housing starts were declining. Whether you do new construction or not, the housing statistics have a ripple effect into the economy and affect your business.
By now your employees have started feeling the pinch of higher gasoline prices and may be grumbling about needing a raise. You've definitely noticed it in increased company gasoline costs.
Do you charge more to the customers or take a smaller profit? Federal Express has made its statement - a fuel surcharge. It's your choice. You can increase your truck materials charges on the invoices (after all, gasoline is a truck material), increase your labor rates (which are easy to compare with your competition), or increase your materials multipliers slightly to cover the additional fuel costs. Or you can do nothing and gripe about the invoices.
On a very real note, when the cost of a loaf of bread goes up, the supermarket raises the price on that loaf of bread. Do we complain? Yes. Do we pay it? Yes - if you want to eat bread. The analogy is that the customers may gripe about an increase, but they'll pay it - if you provide a quality service, fix the problem right the first time and show the value of what you do.
Remember that you have to have a certain level of profit to survive and grow the business, pay the increases in salaries that your employees want, and the bonuses that you want.