CLIP's Tips

If you followed the steps in year end project #2, you have a spreadsheet containing all of the job costing data from 2009.  We are now going to analyze that data and adjust prices as necessary.

First, a couple of words about adjusting prices.  Raising prices is certainly an art and a science to.  Raise prices too quickly or too often, and you will end up losing too many customers—Don’t raise prices enough, and you will end up forfeiting profits.  When you raise prices, it should be carefully done—like surgery with a scalpel rather than hacking with an axe.  Consider these ways you can be a surgeon rather than a lumberjack when raising prices:

A.  Only raise the prices of customers who are under your target $ per hour rate (we now have this information by using our spreadsheet and our job costing report).  If you only raise prices for those who are unprofitable, you minimize your risk.  If the customer decides to go elsewhere for a lower price, the only thing you have lost is an unprofitable customer.  By not raising the prices of those who are profitable, you won’t rock the boat or risk them going somewhere else for service.

B.  Consider special cases.  For example, at CLIP Lawn Care, we have one customer whose lawn we mow for much lower than our hourly rate.  Why?  He has enabled us to gain the profitable HOA contract for his community.  Another example would be a long time customer whose property was recently damaged by accident.  In this case, he is already perturbed, and if I think he has a chance of sticking with us long-term, raising his price would not be a wise decision.

Steps for Adjusting Prices

1. Open the job costing spreadsheet we created.

2. If it has not already been done, sort the spreadsheet by $ per hour including travel time.  Do this by clicking at the top of column H to select the entire column.  Then choose “Sort & Filter” > Sort Smallest to Largest.  If Excel asks you to “expand the selection”, go ahead and do it.

3.  Scroll down the list to find the point at which the customers are meeting your $ per hour goal.  For the customers below this point, we do not want to raise their prices, so we will leave them alone.

4.  Next, we will create a formula to determine what percentage we need to raise the prices for these customers.  We need to incorporate the following factors into the formula:

• • The maximum percentage that we will raise prices.  In our example, we are not going to raise anyone’s prices more than 20%.  You pick your number.
  • The $ per hour goal we have set.  In our example, $45.

Enter the following formula into cell K1, replacing the red numbers with your $ per hour goal and the green with the max percentage you will raise a price (in decimal format i.e. .2 =20%):

=IF(45/H2>(1+.2), (1+.2), 45/H2)

The result will be the percentage that you should raise this customer’s price.

Now, copy the formula to the cells below, stopping where the $ per hour goal is being met.  Check out the following short video on how to do that.

Finally, change the whole column to display in percentage format by clicking the % button on the top of the screen.

5.  Now, have those who are most familiar with these clients go through the list to look for any special exceptions as in point B above.  Make any changes necessary.

6.  Open CLIP and change prices as necessary.  In order to calculate the new price, simply take their current prices and multiply by the percentage.  i.e.  $30 x 1.2 = $36 as the new price.

If you got lost along the way, feel free to ask a question in the comments so that I can clarify.

We are now halfway done with our end of year projects.  See below for the next steps.

Application Action: Post a comment or send me an email describing the way you go about raising prices.

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End of Year Projects Overview:

1.  Revise our dollar-per-hour goal to account for any changes in the upcoming year.

Part 1 & Part 2

2.  Use CLIP to create a job costing report for this year.

3.  Analyze profitability of customers.  Adjust prices as necessary.

4.  Create and send renewal contracts.

5.  Survey customers for feedback from this year.

6.  Follow up in order to maximize contract renewals.