The pricing you use to create estimates can make or break your business. Many contractors rely on standardized price lists, often provided by insurance companies or estimating software. However, these one-size-fits-all solutions may fall short in reflecting the true costs and fair market value of your company’s restoration work. This guide explores the benefits of developing custom, independently created price lists and explains how to implement this strategy effectively.
Developing independently created price lists offers four advantages that can significantly impact your company’s bottom line:
1. First and foremost, custom pricing allows for higher profit margins. By accurately reflecting your local labor and material costs and desired profit margins, you can ensure that each job contributes meaningfully to your business's financial health, growth and longevity. This precision in pricing helps prevent two common pitfalls: undervaluing restoration contracting services and having to absorb unexpected costs.
Proof that it Works:
According to the Restoration Industry Association’s 2024 Cost of Doing Business Report, half of the companies the association surveyed (49.5%) use independently created price lists rather than relying on the standardized lists provided by software providers. Interestingly, those using their own price lists see about a 5% increase in net profit margins. This effect is even more pronounced for smaller companies (those with less than $3 million in revenue), which report 8.5 times higher net income when using custom pricing.
2. Improved adaptability is another key benefit of custom price lists. With your own pricing structure, you have the flexibility to quickly adjust to market changes, whether it's fluctuations in material costs or shifts in labor availability. This agility allows you to remain competitive and profitable even in volatile market conditions.
3. Custom pricing also enhances professionalism in the eyes of clients and insurance adjusters. By presenting a well-researched and substantiated price list, you demonstrate a thorough understanding of your company’s costs and the value your company provides. This level of transparency and precision can foster trust and credibility, potentially leading to more successful negotiations and long-term relationships.
4. Independently created price lists enable you to differentiate your services in a crowded market. By accurately pricing unique skills, specialized equipment and superior-quality materials, you can justify higher rates and position your business as a premium service provider. This differentiation can be particularly valuable in attracting discerning clients who prioritize quality over the lowest price.
But don’t view that as a bad thing. Instead, look at the extra work as a worthwhile investment in your business! The long-term benefits in terms of profitability and control can far outweigh this upfront inconvenience.
Creating your own price list may seem daunting. However, if you have a systematic approach, it's an achievable and gratifying process. Try following these steps:
This includes direct expenses like labor and materials, as well as indirect costs such as overhead, insurance, and equipment depreciation. Be meticulous in this step, as accurate cost data forms the foundation of effective pricing.
This involves understanding the going rates for similar services, identifying any unique regional factors that affect costs, and assessing the competitive landscape. Tools such as industry surveys, local contractor networks, and even discreet inquiries with suppliers can provide valuable insights.
Consider This: If you are charging restoration prices that other companies frequently charge in your market for your level of service, you have a strong position that your prices are customary and the carrier should pay them.
Leveraging technology can significantly streamline the process of creating, maintaining and using custom price lists. For example, the magicplan app has a new Estimator module that offers the following solutions:
Categorize your services and materials, ensuring that each item is clearly defined. For labor costs, consider creating tiered rates that reflect different skill levels or job complexities. Don't forget to build in a profit margin that aligns with your business goals and market positioning.
This documentation will be invaluable when you are justifying your prices to clients or insurance adjusters — especially if some of your prices are higher than what’s shown in standardized pricing. For example, you could justify your material prices with links to local suppliers’ web pages that show what you are paying for materials. Also, explain other factors that influence your pricing, such as specialized training, equipment costs, and any unique value propositions your business offers. All of this documentation will prove that your pricing decisions are well-thought-out.
Remember that pricing is an evolving process. Market conditions, material costs and labor rates can change rapidly, so staying current is essential. Many successful contractors review their pricing quarterly or biannually to ensure it remains accurate and competitive.
While developing a custom price list does require some initial time and effort and ongoing attention, it's a powerful strategy for boosting profitability and gaining better control over your business's future. That’s why there’s no better time than now to get started. So, take the leap and begin following the steps outlined above. You’re sure to find the process is financially rewarding!
SEE HOW YOU CAN MANAGE YOUR PRICING WITH EASE AND ACCURACY:
Learn More About the magicplan Estimator Right Here