Raising prices as you grow

It is August, you are booked into November, and almost every estimate you sent this summer came back approved without a question about the number. Revenue is up about a third on last year. Then the books close, and what is left for you looks about the same as it did the year before.

Full calendar, high win rate, flat take-home. That is not a marketing problem or a scheduling problem. It is a pricing problem. What follows is about the price list as a whole. Telling one long-standing customer is a separate job, covered in raising prices without losing good 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 is running ahead of your price. 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 row above the last one moved more than the last one. That gap is margin you lost without deciding to.

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.

Growing into a wall: more revenue, less money

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 year-3 jobs were not badly run. They were sold at year-1 prices with year-3 overhead behind them.

A price increase drops close to the bottom line, because the job costs the same to produce either way. 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. Two smaller leaks: card processing is charged as a percentage, so it scales with the invoice, and in the states that tax business gross receipts rather than only retail sales — Washington's B&O, South Dakota's contractor's excise, Hawaii and New Mexico — a bigger invoice means a bigger tax bill of your own. Ordinary sales tax on a taxable charge is the customer's money passing through you; whether your labor is taxable at all is a state question, covered in is labor taxable.

The annual adjustment and the step increase are two different moves

One price change a year cannot do both jobs.

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. The backlog and the win rate trigger it, not your costs. It is bigger, and you make it when the market has told you over a full quarter that it will pay more. 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, the step was probably too small and you have room to go again next quarter. If it drops but the remaining jobs cover the same dollars in fewer weeks, that is the point of the exercise. If it collapses, you have found roughly where your ceiling sits for the cost of ten estimates, and you can settle a few points below it. 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. Update it once in your DoneQuote service catalog and the number you decided on is the one that drafts into the next estimate, with any rate you held for one account visible as a note on that customer.

Then take the annual adjustment on schedule anyway, and stop letting the gap in that cost table reopen.