Price the Job, Not the Hour
I've owned small businesses for over 15 years, and the mistake I see most often from new owners isn't bad work. It's bad pricing. It's pricing like an employee instead of an owner.
Here's the pattern. A guy leaves his job, starts his own outfit, and sets his rate by looking at what he used to make per hour and adding a little on top. Made $35 an hour as a tech? He charges $60 and feels like a bandit. Then eight months later he's working twice as hard as he ever did, the truck needs brakes, and there's nothing in the account.
The math didn't fail him. The frame did.
The customer isn't buying your hours
When a homeowner calls you, they are not shopping for hours. They are shopping for a fixed water heater, a chimney that doesn't leak, a lawn that looks good when their in-laws pull up. They buy the outcome. The hours are your problem, not theirs.
That's why pricing by the hour punishes you for getting better. The faster and cleaner you get, the less you make on the same result. Fifteen years in, you can do in two hours what took you six as a rookie. If you bill hourly, your skill just gave the customer a discount. Price the job, and your experience finally pays you instead of them.
There's a second problem with hourly thinking, and it's the one that kills companies. Your price doesn't just have to pay you for the hours on site. It has to carry the whole business.
What actually belongs in a price
Every job you sell has to help pay for all of it:
- Labor. Yours and anyone you bring, including the payroll taxes and workers' comp on top of the wage.
- Materials. Plus the trip to get them and the ones you scrap.
- Drive time. The hour in the truck getting there is a real cost. Nobody mails you a check for windshield time.
- Insurance. Liability, auto, comp. It's due whether the phone rings or not.
- Tools and the truck wearing out. Every job puts miles on the truck and wear on the equipment. If you're not pricing in their replacement, you're slowly selling your tools to your customers.
- The office work nobody bills for. Quotes that don't close. Callbacks. Bookkeeping. Phone calls at 8pm. That's real labor, and only your prices can pay for it.
- Profit, on purpose. This is the one owners skip. Profit is not "whatever's left over." It's a line item you decide on before you quote, same as materials. Profit is what buys the next truck, survives a slow February, and makes the business worth owning instead of just owning you a job.
If your price only covers wages and materials, you don't have a business. You have a job with extra paperwork.
A simple break-even walkthrough
Round, made-up numbers, just to show the shape.
Say your fixed costs run $6,000 a month: insurance, truck payment, fuel, phone, software, tool replacement, a little for the bookkeeper. That's $72,000 a year before you earn a dime.
Say you want to pay yourself $70,000. Fair wage for a working owner. Now you need $142,000 just to break even on the year.
Now, how many billable hours do you really have? Not 40 a week. Between driving, quoting, chasing parts, and running the business, most solo operators are lucky to bill 25 hours a week. Call it 1,200 billable hours a year once you subtract holidays, slow weeks, and the flu.
$142,000 divided by 1,200 hours is about $118 an hour, and that's break-even with zero profit. Add profit on purpose, say 15%, and you're around $136 an hour before materials. So when a job takes three hours on site plus an hour of driving and quoting, that job needs to carry roughly $545 plus materials just to do what it's supposed to do.
Now compare that to the guy charging $60 an hour because it felt like a raise. He's not undercutting the competition. He's undercutting himself, and he won't find out until the money's already gone.
Your numbers will be different. That's the point. Run yours.
The cheapest guy in town
The cheapest guy in town is usually the first one out of business. Not because his work is bad, but because every job he wins loses him a little money, and winning more jobs just loses it faster. When he folds, his customers call someone charging a real price anyway.
And here's the honest part: raising prices scares owners far more than it scares customers. Most customers don't know what a fair price is. They know whether you showed up when you said you would, explained things straight, and left the place clean. Lose the bottom slice of price shoppers and you'll mostly lose the customers who were costing you money.
When to bring in a CPA
Everything above is an example, not advice for your situation. Before you set real prices, sit down with a CPA and get your actual numbers: what your overhead really is, what your true cost of an hour is, what your taxes will look like. A couple hundred bucks for that conversation is the cheapest insurance you'll ever buy. Don't guess at your own break-even. Know it.
Your homework this week
One assignment. Pull the last three months of bank statements and add up everything the business spent that wasn't materials for a specific job. Divide by three. That's your real monthly overhead, and I'd bet it's higher than you think. Then divide it by the hours you actually billed last month. That number, before you've paid yourself a dollar or earned a dollar of profit, is what every billable hour already costs you.
Do that this week. Most owners never do, and it shows up in their prices. Yours should show up in the bank account instead. And once your pricing holds water, plug the leaks around it: start with the first five things to automate.