Electrical Pricing Book: 6 Electrical Business Pricing Strategies to Boost Profitability

A rising number of electrical contractors and electrical service companies are ditching the time and materials pricing model for estimating and paying customers. 

They are instead favoring the flat rate pricing model.

It is because the traditional electrical time and materials pricing strategy is not rewarding in the long run. 

But worry not; there are other reliable strategies that can boost your profitability.

Let’s dive into this electrical pricing book (guide) and learn about the time and materials pricing model, its drawbacks, and strategies to adopt and implement after ditching this model.

What is Electrical Traditional Time and Materials Pricing?

In essence, traditional electrical time and materials pricing is when you charge clients for an electrician’s time and afterward add all additional charges once the job is finished. This pricing strategy could be more difficult to market to clients, especially first-time customers.

Time and material pricing contribute to ensuring that jobs are profitable. As a result, some electrical service companies prefer to bill clients in this model. However, this model also has several drawbacks.

The Drawbacks of Time and Materials Pricing

Electrical contractors who employ time and materials pricing basically charge their clients for equipment parts, plus a markup, and labor cost, which is often between $90 and $140 per hour. Most contractors that charge their customers for time and materials do not use what is commonly referred to as a pricebook.

The time and materials pricing model has a lot of flaws in terms of basic financials. Shops that adopt this pricing model typically have lower markup profits, hourly rates, and average ticket prices than organizations that employ a flat rate pricing model. Contractors who employ a flat rate method often include hourly rates of $200–$250 in their quotes.

Without a work pricing guide, technicians create proposals manually, using pens and paper to record the specifications of each project, such as fittings, wiring, screws, switches, and so forth. To arrive at a final quote, they additionally include the markup and labor prices.

The procedure provides several potentials for mistakes, such as numerical errors, forgotten work items like circuit breakers, and, occasionally, unreported changes in material pricing.

Misapplying labor rates is a very common mistake, which frequently results in underbidding a contract. To prevent situations like this, several contractors require their technicians to obtain approval from their company before presenting accurate estimates to clients.

However, this workaround adds to inefficiency by shortening the time technicians spend marketing and delivering electrical services.

To counter the many inefficiencies produced by the time and materials pricing model, you can also adopt some effective strategies and increase your net income.

6 Electrical Business Pricing Strategies to Boost Profitability

1. Gather information about the local target market

It is critical to gather some information about your local target market in order to market your services more effectively to prospective clients. 

For instance, if you want to gain more residential customers, you can conduct a survey to determine their:

• Age
• Marital status
• Children (if any)
• Level of education 
• Occupation
• Household income
• Social interests

Remember that the more specific you’re in identifying your perfect consumer, the more efficiently you will be able to market to them.

Next, determine what your ideal customers desire by conducting a survey of your existing customer base and asking them questions such as:

What about our electrical business company do you like the most?

Why did you choose our electrical company for services above other expert advice?

What factors are most important to you when selecting an electrical service provider?

Analyze their responses to the preceding questions to discover trends, hidden patterns, and popular services.

Find out when your busiest and slowest seasons are. Seasonal patterns in your area will inform you which electrical services are popular during particular seasons. Use these insights to gain a sustainable competitive advantage and improve client conversion rates.

2. Determine the break-even point

When you identify the break-even point, you’ll know how much you need to charge to service a home generator or building. To determine this, tally all of your monthly overhead expenses:

• Utility costs
• Electrical Contractor Software
• Payments for automobiles
• Insurance for automobiles
• Insurance for businesses
• Rental expenses of the property
• Compensation for office workers
• Maintenance of vehicles and tools

You’ll have estimated the overall monthly business overhead charges once you’ve taken into account all monthly overhead costs related to jobs. Next, multiply these figures to get the total estimated labor expenses:

• The total number of electricians on the team
• Average salary
• Hours worked

Then, using the formula below, calculate the Total Monthly Revenue Required (also known as the break-even point) by incorporating the results of the previous calculations:

Overall Monthly Business Overhead Charges + Total Estimated Labor Expenses = Total Monthly Revenue Required

You can utilize your break-even point to prevent losing money on projects and assess which projects are or are not worth pursuing. As ever, consult with a reputable CPA (certified public accountant) to confirm the break-even point you’ve determined.

3. Choose an electrical pricing model

Following the determination of the break-even point, you must select an electrical pricing model—time and materials or flat rate pricing. However, keep in mind that the price model you choose may have an impact on variables such as profitability targets and cost calculations.

As we have already highlighted the drawbacks of the time and materials pricing model, switching to the flat rate pricing model would be more profitable.

Flat rate pricing model

In a nutshell, the flat rate pricing model is when a company combines the electrician’s hourly compensation with the part costs required (service calls and travel expenses are often included at an additional flat rate price). Because flat rate pricing is offered on-site, many residential clients prefer it over the time and materials pricing model.

The time and materials pricing model, on the other hand, is frequently utilized for billing projects with unpredictability. While flat rate pricing is less flexible, time and materials pricing can better account for any unexpected expenditures within a complex work.

Although average timeframes and material costs are required to estimate set flat rate charges, the best electrician’s estimating software automatically maintains this data.

Advantages of flat rate pricing model

• Because the expense is known ahead of time, it may be easier to sell to clients.
• There’s no need to invest endless hours developing new parts-based forecasts for each job. Simply use your flat rate pricing software or book.

What is the best way to implement flat rate pricing?

Remember that flat rate pricing must be reliable and uniform. This means that with the right software solutions and techniques, hire an electrician should be equipped to finish their jobs on time. As a matter of fact, flat rate pricing differs from service to service rather than electrician to electrician. And that’s why you will not charge by the hour rate after that.

You don’t have to be intimidated by flat rate pricing. By understanding your figures and having established equipment and task pricing processes, you can ensure that every project is lucrative. Therefore, you can spend less time on predictions and calculations.

Also, when choosing your flat rate pricing software or book, keep in mind the huge range of software and equipment costs. After all, proper flat rate pricing makes it much easier to meet profit targets.

4. Estimate project costs

Following the selection of an electrical pricing model, it is essential to compute project costs in order to ascertain average costs for particular tasks. Based on normal on-site expenditures or from location like based on zip code, you can calculate how much to charge for set projects.

To begin, add these figures together to calculate the total project material expenditures:

• The total cost of parts/equipment per task 
• Disposal expenses

Don’t forget to double-check that you’ve included any project-specific expenditures. Next, enter the results of the previous computations into the formula below to calculate the total project material cost:

Total Project Material Expenditures + (Total Project Material Expenditures x Net Profit) = Total Project Material Cost

After that, multiply these two figures to get the total project labor cost:

• Hourly pay
• Number of hours estimated

Finally, enter the preceding computation into the formula below to determine the total project cost:

Total Project Labor Cost + Total Project Material Cost = Total Project Cost

5. Set attainable profit targets

After you’ve determined the project costs, you’ll need to establish a realistic profit target per electrical work to incorporate into your electrical pricing.

Step 1: Evaluate your net income

To begin, implement the following formula to evaluate net income in order to set realistic profit targets:

Net Income = Total Revenue – Material Costs – Overhead Costs  – Labor Costs

Then, using the result of the previous calculation, estimate the profit margin:

Profit Margin = Net Income/Total Revenue

Step 2: Include profit margin targets in the total price

You’ll need to experiment with different profit margin goals to figure out what works best for your electrical business. However, keep in mind that sales goals rise in tandem with profit margin targets. Furthermore, it is imperative to create high but realistic goals.

Step 3: Analyze the electrical pricing of your competitors

It’s critical to analyze the electrical pricing of your competitors to ensure you’re within a fair price bracket. However, keep in mind that while price comparisons with competitors are useful, you cannot adopt their prices. After all, the competition’s core goals and costs differ from those of your electrical service company.

However, before analyzing your electrical pricing with the competitors, remember to include profitability goals in the pricing of each task.

6. Use a flat rate electrical pricing guide

Using an electrical task pricing book and the flat rate pricing model, you could provide detailed service and cost descriptions to customers.

A pricing book or digital software is required to explain pricing to clients, minimize frequently asked questions, and more.

Watch this: Electrical Flat Rate Pricing that Works!

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