As a self-employed tradesman, determining the best approach to charging for your work means striking just the right balance between delivering great value for your customers and bringing in enough to make your business profitable.
Is charging an hourly rate really the best way to do this? Or are you and your customers better off with an estimate? Here, we weigh up the pros and cons of both to help you determine which approach is best for your business.
Charging by the hour: A simple solution
For some customers, paying for your services by the hour can prove to be the simplest approach simply because it shows them exactly what they’re paying for.
Think about it – even if you gave your customers a flat-fee estimate, that estimate will still include labour costs, but how does your customer know whether they’re paying for an hour’s work, a day, or longer?
In other words, how do they know those costs represent value for money?
With an hourly rate, your customers get a much better idea of exactly what they’re paying for, and may well prefer this option.
Avoid being out of pocket when jobs overrun
It isn’t only the customers themselves that benefit from a pay-by-the-hour approach. How many times have you given an estimate for a job, only for that job to wind up taking much longer than expected?
Even if it was only the once, you’ll already be familiar with the frustration that sets in when you wind up working more hours than you quoted for and have to finish the job on your own time. An hourly rate means that when jobs do unexpectedly overrun, you still get paid for your time.
Less incentive to perform
Look, we know you’re an honest, hardworking tradesman, but even so, doesn’t it make sense that an hourly rate provides less of an incentive to be super efficient? Working at your best, you could get the job done in an hour, resulting in happy clients and a chance for you to move on to another job.
Yet if you’re being paid by the clock, wouldn’t the temptation be there to slow things down and push that job to two hours?
Again, we’re not saying you’d deliberately muck about just to make extra profit, but the truth is that an hourly rate doesn’t provide the same motivation to deliver optimum efficiency as an estimate.
Speaking of which…
Cost estimates: Greater rewards for efficient working
When you give your customers an estimate, you can work quickly without the risk of losing profit. A job may take you an hour, but the truth is you can only do so because you’ve spent a lot of time developing the right skills and experience, and let’s face it – you deserve to be paid for those skills and that experience.
With an hourly rate, you might stretch the job out to get paid what you’re worth, whereas with a fixed estimate, you’re guaranteed to get paid a fair amount whilst still having the incentive to get wrapped up quickly and move onto other jobs, making more profit in the process.
Get paid right from the start
When you charge by the hour the clock typically doesn’t start ticking until you turn up to a customer’s home and break out the tools.
Whilst that may be fair to them, the moment you rock up at their door and go through the obligatory rigmarole about whether you want sugar in your tea is far from the start of your project.
For you, getting to that stage meant visiting their home, carrying out a consultation, contacting – and then visiting – suppliers, a couple of back-and-forth phone calls with your customer and, yes, creating the estimate itself.
With an hourly rate, that’s all valuable time you don’t get paid for. With an estimate, however, you can ensure that the overall cost of the job makes all that time worth your while.
A better deal for customers
Typically, a cost estimate will provide a full, detailed breakdown of all parts of the project, including not only labour costs, but a time-frame of how long the job will take, the parts involved, and any other information that may be needed to help your customers make a decision about whether to hire you.
When a customer does give you the job based on that estimate, it again gives you plenty of incentive to get things done according to the price and timescale you originally quoted.
Primarily, you’ll do this because it’s in your own best interests to do so. After all, you don’t want to have to work for free if the project takes longer than expected, and you certainly don’t want to be out of pocket if you end up paying more for supplies.
That being said, it’s the customer who benefits in the long run.
Not only do they enjoy the peace of mind in knowing exactly how much a job is going to cost them, they also don’t have to deal with the frustrations of having a tradesman take far longer to complete a job than they initially promised.
At the risk of sounding like a complete cop-out, it’s probably fair to say that there is no clear-cut winner when it comes to comparing hourly rates against fixed estimates. As a self-employed tradesman, your decision is best made based on which approach is best for you and your customers.
That being said, it does pay to be flexible.
If you prefer to give an estimate but your customer prefers to pay you by the hour, changing your approach for that particular job is going to make for a happier, more satisfied customer.
At the end of the day, isn’t that what your work is really all about?