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How to deal with increasing prices.

Posted by Linda Chambers on Tue, Feb 08, 2022 @ 12:20 PM

Rising CostsPrice Increase Ahead

Everyone is aware that over the last two years with the Pandemic the cost of everything has gone up. And the costs to the small business pressure washer is no different. The cost for fuel, chemicals, parts, supplies, repairs, new equipment have all gone up. So how do you make sure that what you are charging is fair to you so you can stay in business? And what can you do when the customer doesn’t want to hear that you are raising your service prices too? You need to first examine your current costs, figure in more increases that are still coming down the pike, have monthly percentage increases already in place, and then have a plan to explain your prices to your customers. No one likes to pay more for something then they use to, but if you have not increased your prices at all in the last two years your profit margin may have decreased by 75%.

Do a complete cost analysis of what it costs today to run your business for a day, a week an entire month. Every job price must cover all your costs. Not just the cost of the soap, water and gas to get you there but also some of the cost to purchase equipment, operate and maintain it, along with all your bookkeeping and other costs it takes to get and process the job. Every business needs to know its basic hourly overhead for a whole month even if you do not do a single bit of work that month. You need to know your fixed expenses: rent, insurance, taxes, labor, phone, for your base cost and then you can figure your flexible costs that change with the work: chemicals, supplies, fuel. Calculate what you need to make an hour to earn enough to pay your bills, make your profit, and pay yourself.

Know the difference between markup and margin. Markup is based on your costs and Margin is based on the price. If you price a service with a 20% mark up on the cost of the products you use for the job and then offer your customer even a 10% discount on the total service you may end up with not making the margin you need to make for that work.

You do not have to use the same margin for every type of work. No one says you must make the same % of profit for everything you do. You may need to decrease the margin on less time-consuming work, and increase the margin on the infrequent or costlier jobs. You can afford a smaller margin on the higher sales volume of the quicker jobs. Say the fast concrete driveway cleaning at the front of a house vs. a time consuming complete strip, stain and reseal job for a 3000 square foot deck at the back.

Now that you know your costs and what you need to make for each job how do you break the news to the customer?

Best is just to explain to them why. Make it clear that you're not raising the prices just to make more money but to maintain the quality of your service and to match higher operating costs. You should explain what caused the price increase. For instance, as some raw materials become increasingly scarce and expensive, due to the supply chain issues, companies like your chemical manufacture that utilize these materials are forced to increase the prices for products that use them. You do not want to buy less expensive inferior chemicals because you want your customers to be happy with the results and to maintain your quality of service. Laying that out to customers will prove your willingness to be transparent. Show them in writing, in percentages only, how much your costs have increased. They do not need to know the 5-gallon pail of chemical cost you $95 and that the price use to be $50 but that the cost has increased 90%. That gas use to run $2.50 / gal now it is $3.20, an increase of 35%. Then when you tell them you are having to increase their job price by 30%, to cover these cost increases, it feels better to the customer.

If you have repeat customers that have scheduled work that are not already grandfathered into a price with a contract, contact them as soon as possible with the news of your increases. Yes you may lose a few customers that are sensitive to any price change but most when they start shopping around will find out that everyone has had to raise prices and that what you are asking is reasonable. You might also explain that doing a job now may in fact save them money by locking in today’s price that may have to be higher next month.

If you still have long time clients that are pushing back to the price increase you might want to throw in a value-added service. DO NOT give a Discount. Once you give a discount, that discount price is the one they will remember, not the increased price and they will want that same lower amount again. With a one-time value-added service, you show them you appreciate their business, without compromising yours or your new prices. Things like a free outdoor furniture cleaning with their patio or deck cleaning, a free 50 feet of sidewalk cleaned with their driveway cleaning, an air-conditioner or heat pump cleaning with their house wash, etc. Plus with discounts it takes much more work to make up that lose. Remember: a discount offered to a customer is not a discount on the full price. It’s a discount on your profit.

Also this is a good time to remind them of your referral program where they can earn money back through gift cards, or whatever your incentive is. Reducing their cost of the current service you are providing.

Here is to a very good new year and one we wish will be profitable, too.

Tags: New Pricing, pricing

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