- January 26, 2021
- Posted by: Dan Gordon
- Category: Accounting Advice, Uncategorized
It’s no secret that getting a price increase is one of the quickest ways to improve the profitability of a pest control company.
I recommend increasing prices so your gross margin is 50-55 percent. That said, increasing pest control prices is easier said than done. Ask yourself these questions before rolling out a price hike at your pest control firm.
1.What prices need to be increased?
The answer is, “Anything less than your standard hourly rate.”
You should identify, analyze and adjust your standard hourly billing rate to ensure you’re meeting your hourly cost and profit objectives. Most good pest control companies have hourly billing rates north of $110 per hour.
View your standard pricing for new work and your customer service records to determine the amount of time your company spends servicing each customer and the amount of money you billed each customer for the year. Divide the total amount of money billed by the amount of hours of worked to determine the dollars per hour on each account.
Review your estimated time to complete a job, including time to re-treat, to determine if your estimated time to complete a particular job is accurate.
2. When to increase prices?
Typically, pest control companies consider an increase at the anniversary date of the contract. After that, analyze pricing at least annually.
3. How much should you increase prices?
You should increase prices by the difference between the standard hourly rate and what you are currently charging.
In other words, if your targeted hourly rate is $110 and you’re only charging $100 per hour, then you want to raise the price by $10 or 10 percent. Many companies do an across-the-board price increase, say $3 per customer or 3-5 percent, every year. I don’t recommend this approach. You may be already making good money on some contracts while missing your proper gross margin on others. You’d rather look at the accounts one by one and raise them up to an acceptable dollar per hour rate than raises prices on everyone.
Are you interested in more advice like this? These tips were part of a CFO workshop presentation I did in December at the 2020 CO2@Home conference, hosted by Coalmarch. Read the related article I wrote about four key performance indicators that are most important for determining profitability and wealth creation in a pest control company.