With the cost of materials, fuel, and many other day-to-day necessities for tradies on the rise, it’s no surprise that many tradespeople throughout New Zealand have started adjusting their own prices to compensate for the rising costs of running their trade small business.
If you haven’t updated your charge-out rate in recent years, now may be the right time for your business to do just that. With inflation on the rise, as a small business owner it’s important that you can adapt in order to maintain a healthy cash flow and maintain acceptable profit margins for your trade small business.
However, when considering how to increase your profit as a tradie, where is the best place to start? How much should you increase your rate? How can you make sure that your rate hike won’t cost you customers? Naturally, these are very real concerns for small business owners, because any increase in pricing may convince customers to take their business elsewhere – certainly not the preferred outcome for your business. So, let’s look at some handy strategies for increasing profits as a tradie
Step 1: Recalculate your charge-out rate
The first step for increasing your profit as a tradie is to recalculate your charge-out rate. Where your charge-out rate may once have been fair considering previous price points in the industry, critical things such as market conditions, the cost of materials, and the cost of labour may have increased.
Remember that all factors that impact on your own costs should be factored into the mix when recalculating the new charge-out rate for your trade business.
Step 2: Give your clients a heads-up
For your loyal paying customers as well as newer customers, price rises are never fun. So it can be critically important to carefully consider how existing and potential future customers will react when you increase your charge-out rate. The last thing you want to do is damage the good reputation that your trade business has built up with its customers or lose potential new clients.
However, as a small business owner it’s important that you also make sure that you are doing what is best for your small business – and for your wallet. Let’s look at three types of jobs your trade business may accept and how you can handle the upcoming discussion about your pricing with clients.
Short-term tradie jobs
If you are scoping a short-term tradie job where the price has already been agreed upon, it may not be worth your time and effort to change your rate. This is because a rate change on a job like this will most likely negatively impact your relationship with your client – and worse, it could even lead to a dispute. Instead,
focus on getting the job done so that you can start charging your new rate to other clients.
Long-term tradie jobs
On longer-term contracts, it may be worth your while to first have a discussion with your customer. Explain to them the financial burden that inflation is placing on your small business and how rising material costs have reduced the cash flow and profit coming into your tradie business. If you can appeal to them and give them valid reasons why an existing agreed-upon rate may need to be increased, you may be able to reach an agreement that keeps you in a good financial position while maintaining the goodwill you have developed with the client.
If you’re doing a new job for an old client
If you’ve been re-hired by an existing customer, you can start right off the bat with your new charge-out rate. However, in this case it can be important to ensure that the client is aware of your new rate and be sure to get their acknowledgement in writing in the form of an accepted quote. This will help avoid any potential problems or misunderstandings when it comes time to send your first invoice.
Step 3: Update any mention of your charge-out rate online
To avoid any confusion and eliminate fruitless enquiries, it’s vital that you update any mention of your charge-out rate online. Start by doing an audit of your company website and social media accounts. Once you’ve done that, if you have listed your trade business on any online small business directories, make sure that your pricing in those listings is also up-to-date.
Give the rest of your business an upgrade
While reviewing the pricing for your trade business, you may also consider other strategies for future-proofing your small business. One way to do just that is by investing in business insurance for New Zealand tradies.
Risk is simply part of the job for many trade professionals, and how you manage your risk can make all the difference. While you may not be able to control everything, you can control how you reduce the risks to your business via business insurance. Some common types of small business insurance that tradie small business owners may consider include:
- Public Liability insurance: A pivotal form of cover to protect you and your business against claims arising from third party property damage and accidental injury.
- Tool and Portable Equipment Insurance: Covers you for loss and damage to items of portable equipment associated with your business. These can include tools of trade and items of stock.
BizCover helps tradie small business owners throughout New Zealand to reduce the risks to their business via business insurance*, including Public Liability insurance, and small business insurance. Visit bizcover.co.nz and get business insurance for your trade business without drama and get on with your day.
*This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording. © 2022 BizCover Pty Limited. BizCover Limited is owned by BizCover Pty Ltd (ABN 68 127 707 975).
