What should I charge for service calls? This is the question on every tradesman’s lips and the pinned post on every forum. Truth of the matter is that every contracting business, whether it’s electrical, plumbing and heating, HVAC, fire and security – you name it – will have to find an answer at some point.
According to Forbes contributor and author, Kathy Caprino, undercharging is a terrible practice for both employees and customers, and is often the result of mental blocks against charging what your business is worth. Not to mention how it affects the industry. We’ve spoken a lot about how pricing trades should not be a fight to the bottom but a fair reward for a skilled worker.
But how do you not undercharge? What is a reasonable rate? How much should you charge for services in plain numbers? Here are three methods:
Without further ado, this is how to calculate what to charge for your services:
Calculate your living expenses.
Calculate your business expenses.
Figure out your taxes.
Use the formula L/[H * (1 – T)] + B/H to determine your day rate. (Don’t worry, we’ll explain this below!)
Let’s break it down:
Yearly Living Expenses = (L)
Yearly Business Expenses = B
Total billable days/year = H
Total Taxes (%) = T
Your Day Rate = L/[H * (1 – T)] + B/H
Example: Let’s say you’re a one-man-band for now and need to make $36,000 per year to meet your living expenses. You expect your business expenses to be about $14,000 per year, your taxes are estimated at around 30%, and you plan to work 261 billable days per year.
Yearly living expenses = $36,000
Business Expenses = $14,000
Yearly Billable days = 261
Total Tax Rate = 30% = 0.30
Day Rate = $36,000/[261 *(1-0.3)] + $14,000/261
Day rate = $251
Method 2: Check your financial records!
This is more of a retrospective method aimed at older companies that have already gathered data on their costs and profits. To start, gather the financial documents that detail the money you’ve earned on a particular job. That can include your receipts, tax documents, or signed contracts. Calculate the total amount paid for the work you did and the amount of time you spent on them.
Step 1. Compare your hourly pricing and revenue history when deciding what you should charge.
Is your historical pricing adequate to meet your needs? If not, you’re undercharging. It’s important to identify why and to correct your pricing accordingly. For example, it could be that you’re often called out to diagnose a fault. If so, it’s key that you make clients aware they’ll pay a call-out charge plus an hourly charge after the first hour. That will make your prices transparent from the beginning.
If you’re afraid that this will upset customers, remember: It’s better to give them an accurate idea of your pricing up front than to have to chase them for money later. Or worse, they might post a negative review online if they think you’ve been dishonest!
Step 2. Take care of practical considerations.
Typically, customers will ask for a fixed price for a work order because then they know there will be no nasty surprises when the bill comes in. So it’s vital to provide one, even for relatively small work orders. The advantage for you is that you can plan your schedule accordingly.
The disadvantage is what we know as Murphy’s Law. If something can go wrong, it will go wrong. To overcome this, you’ll need to add in a minimum of 15-25% buffer to the price to give yourself a chance of breaking even on work that causes you a headache. So when asking what should I charge, you should always take this into consideration.
Another risk is that while you’re on the site, the customer will make a casual request like “Since you’re here anyway, could you fit a new plug socket?”. This is especially likely to happen if the commissioning customer is not the same individual as the paying customer (e.g. in a tenant/landlord situation). Nice guy that you are, you’ll agree to carry out the job and then be afraid to add it to the invoice since it was never included on the original quote.
In Commusoft, a great electrician software, we have a useful feature to cover this eventuality called Additional Work Orders. This way the time and parts won’t get lost in your paper trail and if the (paying) customer inquires about anything, you’ll be able to provide a professional answer.
Method 3: What should I charge? Whatever you think your value is!
Here are the basic steps to figuring out how to price your services in regards to what they’re truly worth to your customers.
Know what value means. It’s not the time you spend on-site!
Set your base hourly rate using your business expenses, desired income, and hours worked.
Figure out pricing that reflects the value of each type of work order. You can charge more for an after-hours emergency call!
Consider other factors that determine customer value.
Put it in writing. A pricing document will ensure your prices are clear to customers.
If you offer a premium customer experience, then you can and should charge a premium price.
Let’s break it down:
1. Know what value means. It’s not the time you spend on-site!
As we mentioned in Method 1, the answer to “what should I charge” should never be a simple addition of immediate costs (fuel, tools, parts) and hours spent but the actual, intangible value that you bring to a customer. Here is an out of the box example. Think of the last time you bought a perfume. You probably spent somewhere between $60 and $100, depending on your preferences. A study reported by AOL has shown that the literal value of the item is less than that of a cappuccino: no more than $4.
If you find yourself thinking what should I charge, this is worth keeping in mind. Think of the needs that these products and services satisfy. A perfume doesn’t have much practical value. It keeps you from smelling bad but so does a shower and that doesn’t cost $60! What about being without power in the middle of the winter? It might be just because of a faulty wire that costs little more than change to fix but the value you bring to your customer far exceeds that of the materials.
What about the value of a code correction to a company that stood to be fined a fortune for electrical code violations? We’re not saying that you should take advantage of customers in difficult situations but don’t fall into the trap of thinking your work isn’t worth the reward.
2. Set your base hourly rate using your business expenses, desired income, and hours worked.
Of course, there are industries where the margins are naturally higher compared to the production costs. What we’re trying to say is that the rest added on top of immediate costs needs to cover everything, from marketing to warehouse rent to delivery. The answer to what should I charge is that only what you add on top of this will be your profit.
Going back to the previous example: If a bottle of perfume costs $4 to make and you’ve paid $60, that doesn’t mean that $56 is pure profit. More likely that less than half of that goes into the pocket of the company. Don’t even get us started on how much profit should go back into the business. That’s a lesson for another day! (And one you can read more about here).
So make sure that when you settle on a price, you’ve covered every cost and if you’re not certain, just scroll up to our first method, or click below to see how the invoice email should look like with our communication templates set!
3. Figure out pricing that reflects the value of each type of job. You can charge more for an after-hours emergency call!
Always consider more than just hourly labor when calculating your charge. A standard installation inspection with 25 appliances should have a different price from fitting a new alarm system!
Remember, the value to the customer is unrelated to your time. The value to your customer isn’t how much time you spent, but that they now have a pool pump that won’t break down. That’s where call-out charges and standard service fees come in. A call-out charge makes sure every job is worth your while, and a standard service charge aligns your price to take into account customer value.
So in your Terms and Conditions, you might state that a standard check-up costs $80. That makes it crystal clear to the customer that your time has value and will also give you a good margin.
4. Consider other factors that determine customer value.
What makes it more difficult to understand what should you charge is that many outside factors specific to your business come into play. The most important is your target market. For example, where you operate in the country makes a big difference. A city center is more expensive than a small town. Customers will have different means of covering costs and different priorities.
Someone with a day job will appreciate it all the more if you can send a tech around after work hours, saving them having to take a full day off. But if you find that you’re working for retired individuals or work-from-home types more often than not, it’s worth factoring that into your work day and prices.
If you’re still feeling unsure, it’s always a good idea to see how much the competitors are charging for their services and how they’ve structured their pricing. For example, are the majority of their jobs billed as flat rate fees, or are they charging by time and materials? Would it make sense for your business to do the same?
And while it’s great to learn from others, keep in mind that you should determine your pricing based on what will work best for your business. Maybe they’re waiving their diagnostic fees, but that isn’t the right move for your company. That’s perfectly okay! It’s all about finding the right balance.
5. Put it in writing. A pricing document will ensure your prices are clear to customers.
Your Terms and Conditions should be an area of your business where it’s worth either spending more time or hiring a contract expert. Everything from deposits and deferred payments to invoices and charges should be in here. This way, you know that even if there’s an issue with a customer, you’re covered by your Ts & Cs.
Once you have an hourly rate that reflects the value you offer, write a pricing document with your Terms and Conditions. Then send this to your customers when they book work, so you’re clear and up front about your prices. Yes, this should also be part of the answer to the eternal what should I charge question.
When you have a professional-looking pricing document, there’s no opportunity for customers to misunderstand and, equally important, no confusion on your side. You’ll never again have to ask yourself, ‘Is $50 too much for that quick 20-minute check-up?’
6. If you offer a premium customer experience, then you can and should charge a premium price.
Finally, we’ve discussed how field service customer experience has overtaken price as a key decision factor since 2020. So, it’s high time that you make sure you’re focusing more on offering an experience than a cheap service. More and more people will look for a positive impression than saving a couple of bucks, especially if it’s the kind of service that makes you stand out from the competition.
How to chase payment in an email
Now that you know what to charge, there will always be customers who try to wiggle out of a bill, but that doesn’t mean you should make it easy for them. So how do you politely chase payment in an email without alienating customers? Well, there’s actually a lot more to it than just listing a price. Remember that:
Phrasing matters! “As per our Ts&Cs, a 5% interest rate will be charged for each exceeding day.” is a respectful way of reminding the customer they’ll be charged more if they don’t pay their bill, while “Pay now or suffer the consequences.” makes you sound like a mobster.
An invoice should make sense to the customer, not just to your office manager or a technician.
When the customer knows what they’re being chased for, they’ll be more likely to pay attention.
This being said, you’re a field service pro. You can’t be expected to have Shakespeare-level writing skills, too. So, to give you a head-start on chasing payments, we’ve put together a series of ready-made email templates, which you can copy and paste, then adapt to your situation.
For invoicing emails to review requests and everything in between, download the Communication Toolkit now!
Hi! I'm Cristina Maria
And I want to bring next-level strategies to the field service industry. When I'm not working on the best tips to grow your business, I'm on the lookout for a sci-fi novel to beat The Foundation.