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ForumsOver the course of time the cost of living constantly increases and you also gain more experience doing what you do. Am I Charging Enough? is a question all businesses need to ask themselves every few months to make sure we are keeping our heads above water financially and to make sure our prices match our reputation.
Here are a few questions you need to ask yourself to help you determine whether you need to raise your prices:
Do People Frequently Overpay You?
One of the most obvious signs that your prices are too low is when people pay you significantly more than your usual rate. I’m not talking about a five dollar tip here and there. I’m talking about a full 20 to 50 dollars extra. When this happens its a good sign people value your service more than the prices you are charging and its a good time to raise your rates.
What Are Your Competitions Prices?
Research your competitions prices. Are they much higher than yours? If there is a large gap between their prices and yours, you can often increase yours significantly and but still remain cheaper than them.
How Much Do You REALLY Earn Per Job?
Lets say you go out to a onsite repair job that took one hour and your hourly rate is $75.
You may believe that you made $75 once you completed that job but you also need to take into account the value of the petrol that it took (lets say $5) and the thirty minutes out of your day it took to drive there.
You then need to take into account how much it cost to gain that client. If you were advertising in the local paper for $100 per week and you get five new clients per week from that ad, that client cost you $20 in advertising.
Once you complete the job successfully, you still need to return to base and spend another five dollars worth of petrol and another thirty minutes out of your day. The reason why I count the driving time in both directions is because this adds up to one hour that I could have been using to fix computers in my workshop. Remember when you turn your hobby into a business, your time is no longer free.
Last but not least, you have to give the taxman his percentage as well.
So lets do the math with our 1 hour onsite repair job
:
You charge $75 for the hour
- $10 petrol
- $20 advertising
- 10% tax ($7.50)
/ 2 to account for the hour of driving
__________________
$18.75 is what you really earned for that 1 hour job
This is one of the main reasons why so many computer business go broke in their first few years. The owners believe that other businesses are charging too much and they would be more than happy earning $50 per hour since their last job “working for the man” only paid them $25 an hour. The problem they don’t take into account all these other expenses and wonder why their bank balance isn’t as large as they expected it to be at the end of the month.
Do the math with your own rates and you might be surprised how little you really earn. If you find that you do need to increase your rates, check out our “Raising your Prices” article to learn how to raise your rates with minimal backlash from your clients.
Good article. If all of the businesses in your area are charging $XX/hr, chances are that’s how much it costs to stay in business. If you have one guy that’s charging half of what everybody else is charging, chances are he’s cutting corners somewhere or going to be out of business soon.
We had a local business that was able to sell new computers for very cheap for a couple years. He had pretty much cornered the local market on new computers. Well come to find out, Microsoft audits him and shut him down for using the same Windows OS and Office software licenses on all of the computers he sold. So now, the owner is out of business and owes Microsoft tens of thousands of dollars. Even worse, his customers are all breaking the law with pirated software.
When you undervalue your services and destroy the value in the market all you do is force yourself and your competitors to cut corners or go out of business. If you find you have to charge next to nothing for your services, chances are you’re not providing the value that your customers expect.
Great article…Setting price for service is more difficult than pricing goods. Your guidance above must be applied to another kind of business service such as, consulting, hair dressing, tayloring etc.
While I admit that I am guilty of undercharging at times, I disagree with someone thinking that just because I charge less my service is sub par. Like I have said before, I can charge less than half of what my competition charges and still make a good living. That being said, I have had to raise my rates because of fuel.
gunslinger, based on your posts both here and on the forums, I know your a very good technician.
I totally understand what you are saying. Cost does not equal quality. I am sure you are way better than your competition even though you charge half the price.
However, there is the perception by consumers that price DOES equal quality.
“The $25 technician is obviously a hobbist in his moms basement. However, these $90 per hour guys are obviously a professional setup. They charge those rates because they probably have a shop, staff to pay etc.. This place is a REAL business”
I know that perception is total crap since Geeksquads prices are higher than just about all freelance computer technicians and they do a terrible job. However, people still use them dispite their ripoff prices. Its all about perception.
I think that we should charge a fee of 25% of the value of the software, hardware or other stuff that we install on the customers computer.
Mmmm perception… what a wonderful thing! It’s really true though. I’ve raised my prices a few times and it’s rare that anyone questions it. Maybe a couple times a month… but people realize that you get what you pay for!
Working this out was always a problem. I din’t know what to charge for and what to leave off, what to include in my expenses and in the end couldn’t work out if it was profitable or not.
@Remote Computer Repair
Thats my point, you don’t always get what you pay for. The reason the bigger shops charge much more than me is because they have a store front, more advertising, and employees to pay. The work that comes from them is sub-par I’d say 30-40% of the time and is over priced 100% of the time. C’mon, $350 to replace an 80 gig laptop HD? $150 for virus removal? Thats insane I don’t care who you are. These are just some of what people have told me they paid.
I understand what you are saying Bryce and agree that perception means a lot. My way of doing things may cost me a few snobby first time customers, but the ones I do get are loyal for life. Mainly because they see how bad they have been getting screwed by the other guys.
I think a big problem is charging one hour but working 2 hours or more. Many technicians charge 75$ per hour when they are at the customer but they charge little or nothing for all the work that is necessary at the office preparing for the job, setting up a system, monitoring some hardware or similar jobs.
I find that I usually spend way more time than I could doing jobs. I think it’s because I like to take things slow and thorough to make sure I do a good job. This means scanning a computer with multiple virus scanners, defragging and cleaning up temp files, disabling misc startup items, blowing out the case with compressed air and generally going the extra mile to show the the customer the difference between a professional and the geek squad. I have never had a complaint about this extra work.
One more thing is that I usually only charge for the highest fee when doing multiple services. For instance, if a users hard drive is bad and I need to reinstall, I charge them for the reinstall, but not the changing of the drive, that takes about 2 and a half seconds. Then, I let them know that so that they think that they got $80 in free service when it really only cost me about 5 minutes of time. When I do that, there are almost ALWAYS more jobs for me from that customer and their friends. It turns out that I get more work than I can handle sometimes.
This is often the case for real estate agents. They get asked how much are they going to spend to earn a certain commission, when the real question is what is the total cost of doing business.
For my web design business, I charge $50 an hour on paper, but I am efficient so I always finished well under my estimated time. In the end, I make very close to $50 if not a little more.
@Remote Computer Repair
Thats my point, you don’t always get what you pay for. The reason the bigger shops charge much more than me is because they have a store front, more advertising, and employees to pay. The work that comes from them is sub-par I’d say 30-40% of the time and is over priced 100% of the time. C’mon, $350 to replace an 80 gig laptop HD? $150 for virus removal? Thats insane I don’t care who you are. These are just some of what people have told me they paid.
Very interesting question. I myself seem to be on the dark side of the force here ! I currently run one larger software company and three computer repair shops in Europe. The shops have between 3 and 8 full time employees. Monthly bills and salaries (in Europe) make up for roughly 75 percent of charges, leaving approximately 20 percent profit before taxes. 5% go for keeping current software licences etc.
$350 for changeing a laptop hard drive, including data transfer from a corrupted drive (otherwise you wouldn’t have to change the drive, right?) is a good bargain, at least if it’s done correctly. I would be tempted to challenge you to do a REAL virus removal (rootkit + several nasty trojans) for less than $150. Taking a mean time of 3 hours for this job you would be clearing $50 bucks an hour (at 20% before taxes this means a $20 net worth !! in your pocket after taxes)
For being sub par, I believe that most of the repair work done on a personal computer can not be done on site today. From our repair logs, mean intervention time per machine in the shop is just less than 3 hours (this is calculated every year for my three shops from several thousand repaired computers). It’s just not possible to do bill three onsite hours if most of what you do is sit around and wait for completion of your third virus scan on a 250 Gig drive full of music and divxes.
Oh, for rates.
We charge 95 Euros per hour (128 dollars) per hour in the shop and 120 Euros for onsite work (162 dollars) for baseline prices.
This may be obvious, but it’s a wise idea to do some research before arbitrarily setting prices based on competitors.
For example, open excel and create a budget. It needs to include all expenses, such as advertising, education, insurance, etc. etc. It needs to include some fudge factor, and a salary that you could live comfortably on.
Next, calculate how many hours at what rate do you need to bill to meet that budget.
Compare your numbers against what the competition is charging. Factor in the quality of services and the type of work you’ll get based on that price perception.
Finally, have an accountant go over your numbers and offer any relevant advice.
Anyway, that’s a starting place.