Some people say that what you don’t know can’t hurt you. I’m gonna call BS on that one.
Often, it’s the things that you don’t know that can hurt you the most. At least I find this to be true when it comes to business.
When I first started my handyman business, I did a lot of things right. I spent gratuitous amounts of time making sure I looked professional and on marketing my services. I also made a strong effort to provide great customer service, do what I said I’d do, and always provide quality work. This focus on marketing, quality, professionalism, and service is what led to my current success as a handyman.
However, I also did a couple of things completely wrong. For example, dropping a customer’s brand new 50″ plasma on the ground and shattering the corner was a clear mistake. Answering the phone and showing up to contractor board sting operation was another experience I’d like to take back.
Yet, neither of these two mistakes ended up costing me all that much money. My biggest mistake ended up costing much, much more. Over $50K in my first year in fact.
My biggest mistake was under pricing my services.
A couple weeks ago, I released my latest product to help empower handymen with their businesses. It’s a pricing guide called “The $100K Handyman.” It was a huge success and I’m stoked at the opportunity to help others succeed.
Since I released this guide I’ve been wondering….How much money did I leave on the table in my first year in business?
If I knew then what I know now about pricing for home services, how much more money could I have made? I knew I should have made much more, but I wasn’t sure how much.
So, like any other engineer or math geek, I ran some numbers, and probably enjoyed the process more than I should have. Here’s what I found out.
Over the last 3 months, my average billable hourly rate was $95.66/hr. This is pretty typical for me now as I usually average between $90 and $100/hr. Just keep in mind this is for billable hours.
For the entire year of 2012, my first year in business, my average hourly rate was just $39.64/hr. In that first year, I worked a total of 942 billable hours (~18hrs/week) and generated ~$37,340 in revenue from labor. Not bad for my first year and having very little experience.
However, here’s where it gets interesting. If I would have charged what I do now and still worked the same amount of hours, I would have made over $90,000 from labor! ($95.66 x 942 hours = $90,111) That’s $52,771 that I left on the table in my first year! What!?
I knew I made a mistake with my pricing, but I had no idea that the impact was that high.
Here’s a quick summary:
Average rate for billable hours for the last three months: $95.66/hr
Average rate for billable hours in 2012: $39.64/hr
Billable hours worked in 2012: 942 hrs
Revenue generated from labor in 2012: ~$37,340
Revenue left on the table by underpricing my services in 2012: $52,771
That’s a lot of money. I mean, it’s over double my revenue and it would been all profit since my expenses were already covered. It’s almost painful to think about. It is just money, but still, that’s a lot.
Now, I know what you are probably thinking and I’m right there with you. Would I actually have been able to charge $95/hr in my first year and still got all of these jobs?
I’m much more skilled than I was when I first got started. I also have a stronger reputation, an existing client base, and more jobs to pick and choose from than I did in my first year. So, charging an average of $95/hr and actually landing all of those jobs isn’t realistic. I would have priced myself out of several jobs.
But, looking back, it’s very clear to me that I could have charged much more than I did. Had I been able to average just $75/hr for example (which I think is totally reasonable), I would have generated an additional $33,291 in profit! That’s still more than double my profit in my first year.
It’s hard to predict what could have happened and there are many more variables involved here than I’d like to entertain, but one thing is very clear to me, I left a LOT of money on the table no matter how you spin it. And that was just my first year in business. I underpriced my services in my second year as well.
How did this happen?
Just like any other inexperienced handyman who lacked confidence in my services, I way under-valued my time. I set an hourly rate that was ridiculously low, underbid jobs when I quoted, and gave unnecessary discounts to my customers. I also over-estimated the competition.
I didn’t have a guide or mentor to show me the ropes and guide me through the process of pricing my services. I had to rely on advice and insight from people who had no business giving me advice. I had to learn the lesson the hard way, and lose tens of thousands in the process.
The sad thing is that I’m not the first to make this mistake. In fact, it’s very common. Whether you are a handyman, web designer, photographer, contractor, or even a masseuse, it’s likely that you will fall into the same trap.
How Can You Avoid This Mistake?
The best way avoid this mistake is to be very careful who’s advice you pay attention to. Everyone is going to have an opinion on how much you can or should charge, but most of them don’t know a thing about this business.
Instead of listening to your cousins friend who used to work construction, find a handyman you admire who is successful in this business and learn as much as you can from them. Even better, find several successful home service providers and learn from all of them.
If you’d like to learn everything I know about pricing which I learned from experience, research, and interviewing several of the most successful home service providers, be sure to check out “The $100K Handyman” (my complete pricing guide).
Who knows, maybe I can help save you fifty grand.