Comparing pricing models: how do you charge customers?
“How should I charge customers?” – this is the million dollar question on every trade business owners lips. There are two pricing models:
1. The ‘do-and-charge’ pricing model
2. The ‘quoting’ pricing model
In our trade business, we use the ‘quoting’ pricing model, in conjunction with the flat-rate book. We have found it results in happier customers and increases our profits. However, we understand this may not work for everyone. So, we’re here to share the advantages and disadvantages of both to provide some clarity on the debate.
Do-and-charge pricing model
The ‘do-and-charge’ pricing model accommodates a set price per hour of labour and a materials, plus profit margin. The final price will vary, based on the hours completed by the tradesman.
1. Easy to communicate to the customer. This means any tradesman can use this method, not just the trade business owner.
2. As the owner, you set the rate that is charged in the first hour, this does not change. So, if a job is completed within an hour, you’ve made more profits on the job.
3. Tradesmen can take their time as they are charging per hour so not set on a time limit per job.
4. For higher average dollar sale work (landscapers and builders this is you), there is transparency in the communication. You can charge a set hourly rate for labour and set a profit margin on materials and sub-contractors, all of which is outlined in a contract.
1. The customer can easily price shop.
2. Often the tradesman has picked an hourly rate that his previous boss charged, not knowing if it will make him money or not.
3. The customer watches the clock while you are working, nervous you are taking longer than you should as they are paying by the hour.
4. The tradesman ends up doing additional work for no extra money. For example, if the tradesman is finished in half an hour, the customer may notice this and ask them to do something else to fill in time.
5. The tradesmen could take twice the amount of time to complete a job. This affects the rest of the day and may result in rescheduling or cancelling other customer’s appointments.
6. Customer is disappointed when additional work is not completed as the tradesman may run out of time.
7. Lost opportunity to increase average dollar sale through upselling as you are often rushing to the next job and can’t stay to complete additional work if there is any.
8. Losing time and money when unable to stay on site and therefore have to reschedule a return visit. This sometimes can mean a lost job.
9. Hard to answer the phone whilst working as the customer will note that they are paying for you to talk to other customers. You are forced to offer some form of discount to compensate.
10. No price certainty for customer. When the customer hears $90 per hour but the final invoice comes in and it says $460, the customer will be shocked and disappointed.
Quoting pricing model
The quoting model sets a fixed price for the work, regardless of the number of hours it takes to complete the work. This is primarily done through the flat-rate pricing book. Not only does a quote provide an immediate reference to a list of all services and their price value, but also, the price value of each service captures the tradesman’s labour and other costs associated with the work, with a profit margin added on top.
1. Easy and faster to communicate to the customer (when flat rate).
2. When done right, guaranteed to make profit
3. Certainty for the customer as the price is the price. No hidden surprises.
4. Increase average dollar sale through upselling by actively seeking additional
quoted work to assist customer while on site and stay to complete work.
5. Customer is happy when you’re able to stay longer to complete additional work as you’re not rushing.
6. Saving time and money when staying on site versus having to return.
7. Easy to answer your work phone as customer isn’t clocking your time.
8. Less stress for the tradesman as the customer is not clock watching while they work.
9. Less stress for the tradesman as they can estimate how long it will take them, and focus on helping the customer rather than rushing off.
1. Can take some trade business owners weeks to provide a quote and by then they have already lost the customer.
2. Quoting incorrectly and hence losing money
3. Many trade business owners feel only they can quote and no one else in the team.
4. Need to be conscious of time on the job based on what was within the quote. More time spent at the job will reduce profit.
5. In some geographic areas, such as small country towns, the flat rate system may not work well.
So, there you have it. The top advantages and disadvantages of both do-and-charge pricing and quoting pricing.
Now, the decision of which you implement (or continue using) in your trade business is up to you. We, of course, have an opinion about which is best. What do you think?
- Join our Kick-Ass Tradies Facebook Group, for access to trade business specific conversations, tips and resources, plus a like-minded community of tradies.
- Book a 15-minute Game Plan Call with Andy, owner of Dr. DRiP plumbing and co-founder of Lifestyle Tradie, to clarify your priorities and get clear action steps.