Pete Marentay
Distinguished Professors
This is an article I sent out recently in our newsletter. I share it because I think it is an important thought for all contractors to consider.
It’s time to raise your prices. Whether your power washing work is seasonal or year ‘round, some basic economic facts are inescapable. Your costs are going up, and you have to raise prices just to stay even.
It is assumed that inflation will finish the year at about a 3% - 3.5% increase over last year. The Consumer Price Index has already risen 5% over the last two years. If your business costs are increasing at 3% per year and, on top of that, you need to make 3% more than last year to have the same personal buying power, you really need to increase prices as much as 6% to keep pace with the economy!
You only need to look at the cost of gasoline, a staple commodity of the mobile contract cleaner, to see what is happening to your business.
Sometimes I think we all get a little stuck. Looking at the prices we were charging in 1997, I see little average increase in many areas since that time. The one exception seems to be deck restoration, which appears to have climbed significantly. The craziest example I found was flatwork, which was at ten cents a square foot in 1997 and is about at the same price as we go into 2007. The best contractors at keeping pace with inflation seem to be the hood cleaning folks, with steady annual increases that are small but effective.
Over those same years, gasoline has climbed from 79¢ to around $2.35 in our area. Heck, gas prices are now averaging around $2.92 nationally according to the website http://inflationdata.com
Too many contractors try to “eat” the increase in costs, probably out of fear that they will lose customers. Then, after four or five years of this kind of pressure on their bottom line, they put out a HUGE price increase to get themselves back into line. These are the ones who experience strong consumer backlash because the increase was SOOOO noticeable.
Picture using a completely different tactic. Imagine increasing prices somewhere between 3% and 5% every year around January first. What customer pays any critical attention to a bill going up $10 or $20 from one year to the next? If a customer does comment on an increase, it is so easy to point to gas prices and shrug your shoulders. A modest increase will help you maintain your profitability without alienating your customers. It never looks like a greedy grab. Make it a point to do this every January, and you will stay ahead of the game.
As a supplier, I am used to this kind of pressure. I start getting letters in October and they continue through February each year. The letters all read the same. “Prices are going up, but just a little. We have no choice.” And so it goes in this retailer’s world. We have to pass these increases on to you, and you have to pass them on to your customers.
I know. No one ever gets ahead. That is not actually the goal in this price increase strategy. The real goal is not to lose ground, or not lose too much ground if you can help it.
So, to each of you I wish a safe, healthy, and above all a prosperous New Year.
Pete
It’s time to raise your prices. Whether your power washing work is seasonal or year ‘round, some basic economic facts are inescapable. Your costs are going up, and you have to raise prices just to stay even.
It is assumed that inflation will finish the year at about a 3% - 3.5% increase over last year. The Consumer Price Index has already risen 5% over the last two years. If your business costs are increasing at 3% per year and, on top of that, you need to make 3% more than last year to have the same personal buying power, you really need to increase prices as much as 6% to keep pace with the economy!
You only need to look at the cost of gasoline, a staple commodity of the mobile contract cleaner, to see what is happening to your business.
Sometimes I think we all get a little stuck. Looking at the prices we were charging in 1997, I see little average increase in many areas since that time. The one exception seems to be deck restoration, which appears to have climbed significantly. The craziest example I found was flatwork, which was at ten cents a square foot in 1997 and is about at the same price as we go into 2007. The best contractors at keeping pace with inflation seem to be the hood cleaning folks, with steady annual increases that are small but effective.
Over those same years, gasoline has climbed from 79¢ to around $2.35 in our area. Heck, gas prices are now averaging around $2.92 nationally according to the website http://inflationdata.com
Too many contractors try to “eat” the increase in costs, probably out of fear that they will lose customers. Then, after four or five years of this kind of pressure on their bottom line, they put out a HUGE price increase to get themselves back into line. These are the ones who experience strong consumer backlash because the increase was SOOOO noticeable.
Picture using a completely different tactic. Imagine increasing prices somewhere between 3% and 5% every year around January first. What customer pays any critical attention to a bill going up $10 or $20 from one year to the next? If a customer does comment on an increase, it is so easy to point to gas prices and shrug your shoulders. A modest increase will help you maintain your profitability without alienating your customers. It never looks like a greedy grab. Make it a point to do this every January, and you will stay ahead of the game.
As a supplier, I am used to this kind of pressure. I start getting letters in October and they continue through February each year. The letters all read the same. “Prices are going up, but just a little. We have no choice.” And so it goes in this retailer’s world. We have to pass these increases on to you, and you have to pass them on to your customers.
I know. No one ever gets ahead. That is not actually the goal in this price increase strategy. The real goal is not to lose ground, or not lose too much ground if you can help it.
So, to each of you I wish a safe, healthy, and above all a prosperous New Year.
Pete
