Most Contractors Charge Too Little (Here's How to Fix It)
The emotional and financial cost of underpricing your services is enormous. A simple framework to price with confidence and profit on purpose.
A landscaper I know spent three years charging $45 per hour. He was busy. Always busy. Weekends, evenings, holidays. He took pride in being the affordable option.
Then his truck broke down. The repair was $4,200. He did not have it. He had been "busy" for three years and had nothing to show for it.
This is the hidden cost of underpricing. You feel successful because you are working. But working and profiting are not the same thing. And most contractors — most service professionals of any kind — are charging too little.
Not a little too little. A lot too little.
Why Underpricing Happens
It is rarely about math. It is about fear.
Fear that the customer will say no. Fear that a competitor will undercut you. Fear that you are not "worth" a higher rate. Fear that raising prices means losing the clients you have.
These fears feel rational. They are not. Here is what actually happens when you raise prices:
Some clients leave. They are usually the worst clients — the ones who haggle, complain, and leave mediocre reviews. The clients who stay are the ones who value quality. They are easier to work with, more likely to approve add-ons, and far more likely to refer you.
Your schedule loosens up. Fewer jobs at higher margins means you can deliver better work, respond faster to new inquiries, and actually take a day off.
Your profit goes up even if your revenue stays flat. A 15% price increase on the same volume is a 15% increase in gross profit. But if volume drops 10%, you are still ahead — and working less.
The landscaper eventually raised his rates to $65/hour. He lost about 20% of his clients. His revenue dipped for two months, then recovered. Within six months he was making 30% more profit on fewer jobs. He bought a new truck with cash.
Know Your Real Numbers
Most contractors price by gut feel. They look at what competitors charge, pick a number in the middle, and hope it works out.
This is how you end up busy and broke.
Before you can price correctly, you need to know three numbers:
Your true hourly cost. Not just your time. Everything. Truck payment, insurance, gas, tools, supplies, phone, software, marketing, taxes, health insurance, retirement savings. Add it all up. Divide by the number of billable hours you work per year (not total hours — billable hours).
Most solo contractors are shocked by this number. When you account for everything, your true cost to operate is often $35-50/hour before you have paid yourself a dime.
Your target income. What do you actually need to earn? Not survive. Earn. Factor in savings, vacations, sick days, and the slow weeks that happen to everyone. If you want to take home $80,000/year and you can bill 1,500 hours, you need $53/hour in profit after costs.
Your minimum rate. True cost plus target income divided by billable hours. For most contractors this number is significantly higher than what they are currently charging.
Run these numbers. Write them down. This is your pricing floor. You should never charge less than this, no matter how slow things get.
The Simple Pricing Formula
Here is a straightforward framework that works for most service businesses:
Cost-plus pricing: Calculate your total cost per job (labor + materials + overhead allocation), then add your target profit margin.
For most home service businesses, a healthy net profit margin is 20-35%. If a job costs you $1,000 to deliver (all in), you should charge $1,250-1,500.
If that sounds high, you are probably underestimating your costs. Go back and recalculate. Include everything.
Value-based pricing: For larger projects, price based on the value to the customer, not just your cost. A kitchen remodel that adds $30,000 to a home's value is worth more than your hours suggest. A burst pipe fixed at 10 PM on a Sunday is worth more than a Tuesday afternoon service call.
The best approach is a floor of cost-plus with a ceiling set by value. Never go below cost-plus. Go above it when the value justifies it.
How to Raise Your Prices
If you have been undercharging, raising prices feels terrifying. Here is how to do it without blowing up your business.
Start with new clients. Quote your new rate to every new inquiry starting today. Existing clients keep their current rate for now. This lets you test the market with zero risk to current revenue.
Raise existing clients gradually. After 3-6 months at the new rate, send existing clients a simple note: "Effective [date], our rates will increase to [new rate]. This reflects our continued investment in quality service and materials. Thank you for your trust in us." Give 30 days notice. Be matter-of-fact, not apologetic.
Do not justify or apologize. The worst thing you can do is write a paragraph explaining why you are raising prices. It signals insecurity. A simple, professional announcement is all you need.
Expect some pushback. A few clients will leave. Let them. If nobody pushes back, you did not raise enough.
A good rule of thumb: if you are closing more than 70% of your quotes, you are underpriced. The sweet spot for most contractors is 40-60% close rate. That means your price is high enough to be profitable but competitive enough to win good work.
Handling Price Objections
When a customer says "that is more than I expected," do not immediately discount. Try this instead:
"I understand. Let me walk you through what is included." Then explain your process, materials, warranty, and what makes your approach different. Most price objections are really uncertainty objections — the customer is not sure what they are getting for the money.
If they still push back, offer options rather than discounts: "I can adjust the scope to fit your budget. Here is what the basic version looks like at [lower price], and here is the full version at [original price]." This preserves your rate while giving them a choice.
Never compete by cutting corners. A discount that leads to a mediocre job leads to a mediocre review leads to lower-quality future leads. It is a downward spiral.
Price as a Signal
Here is something most contractors never consider: your price communicates your quality.
When a homeowner gets three quotes — $2,800, $4,500, and $4,200 — they do not automatically pick the cheapest. They wonder what is wrong with the $2,800 quote. What are they cutting? What will go wrong?
The middle and higher quotes feel safer. They signal competence, quality materials, and a business that will still be around if something needs fixing.
Being the cheapest does not make you the obvious choice. It makes you the risky choice. Price accordingly.
The Compound Effect of Better Pricing
Better pricing is not just about this month's profit. It cascades through your entire business.
Higher margins mean you can afford better tools, better materials, and better people. Better inputs produce better work. Better work earns better reviews. Better reviews attract better clients — clients who are willing to pay for quality.
Meanwhile, the contractor who undercuts everyone is stuck with cheap tools, thin margins, and price-sensitive clients who leave one-star reviews over a $50 disagreement.
The gap between these two trajectories widens every year. After five years, they are not even in the same business.
You did not get into this trade to work yourself into the ground for less than you are worth. Price like the professional you are. Your best clients will thank you for it.
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