Pricing is the most important make-or-break decision for a plumbing business owner. Setting a price that is too high and you risk putting off potential clients. Setting it too low and you might as well be operating a non-profit organisation.
A common mistake is to simply look at the market leader in the plumbing industry in your area and simply take a few Pounds off their rate. Not only does this not take into effect the cost of doing business but it does not accurately reflect the value that your service offers to the client.
In order to start determining the price you should charge, you need to determine how much it costs you to provide the service. You will need to do the following calculation:
How much does it cost you in petrol and, importantly, vehicle maintenance costs to drive to the client's premises. Bear in mind that over a maximum distance it makes little to no sense to do the work for any callout fee due to the time wastage in travel. A simple calculation for callout would be (remember that you will need to estimate some of these figures):
Petrol cost per mile (a simple calculator for your vehicle can be found courtesy of the AA at https://www.theaa.com/driving/mileage-calculator.jsp) or use the simple calculation: price per mile = Litres to fill your vehicle from empty x Fuel price per litre / Average number of miles your vehicle can do on a full tank.
+ Tyre costs: Price for a new set of tyres / the average number of miles you get out of a set of tyres
+ Services and MOTs: Cost per mile = (service bill / number of miles between services) + (Annual MOT cost / average miles done per year)
+ Taxes: Annual car tax / average miles per year
+ Insurance: Annual insurance fee / average miles per year
+ Interest on Vehicle Loan: Total interest paid per year / average miles per year
+ Depreciation: Depreciation is the total value lost of your vehicle over the period of a year /average miles per year (for an average depreciation per vehicle type go to https://www.themoneycalculator.com/vehicle-finance/calculators/car-depreciation-by-make-and-model/)
+Time Cost: Time taken (On average this will be approximately 2 minutes per mile (assuming an average of 30 mph)) x hourly rate (more on this shortly) / 60
Once you have worked out your total costs you simply multiply it by the distance to the client. I suggest working out the price in 10 mile increments and then quote accordingly to standardise pricing.
Average Hourly Rate
Your hourly rate cost should be: Monthly fixed business costs, insurance, taxes, gas, electricity, advertising and any other fixed monthly expense / total billable hours per day (usually 4 - 6 per employee due to travel, admin, lunch, etc.) x 24 (24 working days average per month). Add to this the rate per employee to cover their salary: Monthly salary / total billable hours per day (usually 4 - 6 per employee due to travel, admin, lunch, etc.) x 24 (24 working days average per month).
Cost of materials required to do the job, including consumables.
Now that you know how much you have to charge as a minimum to keep the lights on, the next step is to determine how much you should actually be charging in terms of the value you bring to the client. In order to do this, you need to put yourself in the shoes of your client. For example, you might work out that your hourly rate is £40 p/hr with a callout of £25 but when your client calls with water rapidly filling up their kitchen, the value of a fast, efficient response may be as much a £100 or more to a desperate client. In this case, you know you can easily ramp up the price of your emergency callout rate while not ripping off your client
Another aspect is your skill and rarity of service. If you are the only plumber in a 100-mile radius that can fix a specific boiler, you then know you can charge about average prices for your expertise as it is a rare commodity
Another point to consider is the cost of not using your service. If you have sophisticated leak detection equipment that can pinpoint a leak the nearest centimetre and all the other providers in your area use antiquated techniques that entail breaking through several square metres of bathroom tiles, even if your solution costs twice the price of theirs, the client will likely still use your service as it means they will not be forced to retile their entire bathroom.
It is vital that plumbers know what their costs are and how to work out their minimum fees but beyond that, plumbers should understand how their services add value to the client and how to price accordingly in order to be fairly remunerated for work done. Taking £5 off your competitor's price is a race to the bottom and will always end in tears. Remember, that you are not charging a client for an hour of your time but for the hours and hours you have spent over a lifetime perfecting your craft