Raising prices as you grow

Review your prices when costs outpace your rates, margins fall, or demand repeatedly exceeds your capacity. Recalculate costs first, then test higher prices on new work and track both profit and acceptance.

This guide covers your price list as a whole. For communicating a change to an existing customer, see raising prices for existing customers.

Four signals, and only one of them is about your costs

The backlog keeps stretching. Divide the committed work on your board by what you actually produce in a week. If that figure has grown for two or three months straight, demand may exceed the capacity you offer. A long backlog is not free either: the customer who will not wait ten weeks calls someone else.

Your win rate stays high. Count approvals against estimates sent over the last 90 days, new customers only — repeat work distorts it. If nearly everything closes, and closes fast, that is the strongest hint you get that your price sits below what the market would pay. It is a hint, not proof. A win rate that never dips can also mean you qualify leads tightly, or that everything arrives by referral already sold. Rule those out first, then read it as a price signal.

Costs are climbing faster than your price list. This is the only signal about you rather than the market, and the easiest to check. Pull your own numbers two years apart. The lines below are made up to show the shape of the gap — not benchmarks, and no substitute for your own:

Every listed cost rose faster than the billed rate. To measure the margin effect, weight each cost by what the business actually spends and compare productive hours too.

You are handing work to other contractors. A referral is a sale you chose not to make at your current price. Once is scheduling. Every week for a quarter is a price signal you are paying someone else to collect.

Example: growth can add overhead faster than profit

Growth adds overhead before it adds profit. A second truck, a project manager, a bigger insurance schedule, a payroll service — fixed costs that arrive together and do not care how busy you are. Another invented shop, on the same terms as the table above:

Sixty-six percent more revenue, a third less money, and considerably more risk — and that owner's line is before income tax, not take-home. The table shows overhead rising faster than revenue. It does not establish why: review prices, job costs, staffing and utilization before choosing a response.

A price increase drops close to the bottom line, if job volume and production costs remain unchanged. Put twelve percent on that year-3 revenue — a made-up step, not a recommendation — and that is about $81,600, while labor and materials do not move at all. On paper the owner's line goes from $54,000 to roughly $136,000.

Read that as the ceiling, not the forecast. It assumes every one of those jobs still closes at the higher number, which is exactly what the last section tells you to go test. Also account for costs that rise with sales, such as percentage-based processing fees. Taxes on the business's gross receipts can rise too; Washington's B&O tax is one example. Sales-tax treatment of labor, materials and contract types varies by state; see is labor taxable.

The annual adjustment and the step increase are two different moves

Costs and demand are two reasons to review prices. One increase can address both if you account for each.

The annual adjustment keeps pace with your own cost drift. Fixed month every year, whether you feel squeezed or not, and small: its size comes from the cost table above. Miss two in a row and you have built a catch-up problem.

The step increase is a growth decision. A persistent backlog and high win rate may justify testing a larger increase. They do not prove that customers will accept it. The right percentage depends on your trade and your area, so test it rather than guess at it.

Price first, or hire first?

Usually price first. A price increase takes effect on the next estimate you send, costs nothing to put in place, and can be reversed on the one after — anything already signed stays at the old number. A hire is slower to undo: a new person rarely bills at full speed on day one, and the cost starts immediately either way. See hiring versus subcontracting for what that number really is per billable hour.

Raising first also tells you something a hire would hide. If demand softens at the higher price and the backlog comes back to four weeks, you did not need the headcount, you needed the margin. If the backlog holds at eight weeks, that is real demand at a real price, and the increase now helps fund the hire instead of the hire eating a thin margin.

Three cases go the other way. A seasonal window where the weeks do not come back is worth staffing for at today's price. A signed anchor contract needs the crew regardless. And a specialist who is available now and will not be in six months is a hiring decision on their timeline, not yours. Capacity planning is where you work out how much crew that takes.

Test it on the next ten estimates

You do not have to reprice the whole book to find out. Apply your step number to the next ten new-customer estimates only, and leave existing agreements and open estimates alone. Then compare how many of the ten closed against your baseline for the previous 90 days.

If the win rate barely moves, check whether the new prices meet your profit and capacity goals before testing another increase. If it drops but the remaining jobs cover the same dollars in fewer weeks, that is the point of the exercise. If it falls sharply, check the lead mix, scope and customer feedback before attributing the change to price. Ten is a small sample and one strange month can swamp it, so read the result as a direction to move in, not a measurement.

Whatever number you land on still has to reach the customer. The rate lives in a spreadsheet, a saved template and your head, and two weeks later something goes out at the old price because that is what filled in. Save your revised selling prices in the DoneQuote service catalog and record any account-specific agreement in that customer's notes. Open those notes when needed and review the rate in each draft; do not assume a note applies a special rate automatically.

Keep reviewing costs on a regular schedule. Adjust only for changes the current selling rate does not already cover.