In the competitive world of trade and facilities management businesses, owners and managers focus relentlessly on efficiency, productivity, and service quality. They invest in better tools, faster processes, and skilled technicians. Yet despite these efforts, many find themselves working harder than ever while profit margins remain stubbornly thin.
What if the problem isn't your operational efficiency, but something far more fundamental?
After analyzing the financial data of over 200 trade businesses, we've identified a critical blindspot that's costing most companies between 15-30% of their potential profit. It's not labor productivity, material costs, or even market competition—it's your pricing model.
The Three Pricing Models That Fail Trade Businesses
Most trade businesses use one of three pricing approaches, each with fatal flaws that systematically erode profitability:
1. The "Market Rate" Model
This approach sets prices based on what competitors charge or what the market will supposedly bear. While seemingly logical, it's fundamentally flawed because:
- It assumes all businesses have identical cost structures
- It ignores the unique value your specific business provides
- It positions your services as commodities rather than solutions
- It fails to account for job-specific complexity factors
One electrical contractor who switched from market-rate pricing to a more sophisticated model discovered they had been undercharging by 22% on complex commercial jobs while overcharging by 15% on simple residential work—effectively driving away their most profitable potential clients.
2. The "Cost-Plus" Model
This common approach takes your costs and adds a standard markup percentage. While better than market-rate pricing, it still creates significant profit leakage because:
- It applies the same markup regardless of job complexity
- It doesn't account for hidden costs in difficult projects
- It ignores client-specific factors that increase service costs
- It treats all materials as having identical handling requirements
A plumbing company that analyzed their cost-plus model found they were using the same 35% markup on everything from simple fixtures to complex water treatment systems. When they implemented tiered markups based on handling complexity, their overall gross profit increased by 11% without losing sales volume.
3. The "Gut Feel" Model
Perhaps the most dangerous approach, this relies on experience and intuition to set prices. While experience is valuable, this method:
- Creates inconsistent pricing that confuses clients
- Fails to capture changes in underlying costs
- Doesn't scale with business growth
- Makes it impossible to analyze pricing effectiveness
One landscaping business owner who moved from intuitive pricing to a systematic model was shocked to discover that 40% of his jobs were barely breaking even after accounting for true overhead costs.
The Hidden Factors Your Pricing Model Ignores
Beyond the structural problems with common pricing models, most trade businesses fail to incorporate critical factors that significantly impact job profitability:
Client Acquisition Cost Variations
Not all clients cost the same to acquire, yet most pricing models treat them identically. Consider:
- Referral clients typically cost 60-80% less to acquire than marketing-generated leads
- Clients in certain geographic areas may require significantly more travel time
- Some client types require more pre-sale consultations and hand-holding
- Certain market segments have dramatically different closing rates
When these factors aren't built into your pricing strategy, you effectively subsidize your most expensive clients at the expense of your most efficient ones.
Job Complexity Multipliers
Two jobs with identical material and estimated labor costs can have dramatically different true costs to your business:
- Access difficulties (restricted spaces, security requirements, etc.)
- Coordination requirements with other trades or stakeholders
- Regulatory and compliance complexity
- Risk factors requiring additional oversight or contingency planning
Without complexity multipliers in your pricing model, your simplest jobs subsidize your most difficult ones.
True Overhead Allocation
Most trade businesses dramatically underestimate their overhead costs or allocate them incorrectly across different job types:
- Administrative burden varies significantly by job and client type
- Equipment utilization costs aren't uniform across all work
- Management attention requirements differ dramatically
- Warranty and callback risks vary by job category
A mechanical contractor who implemented proper overhead allocation discovered their actual overhead rate was 42% higher than what they had been using in their pricing calculations.
The Data-Driven Pricing Advantage
Trade businesses that implement sophisticated, data-driven pricing models consistently outperform their competitors:
- They maintain higher gross margins (typically 8-12% above industry averages)
- They experience lower client price sensitivity
- They attract and retain more profitable client types
- They make more accurate go/no-go decisions on potential work
Most importantly, they convert a higher percentage of their operational efficiency gains into actual bottom-line profit rather than giving those gains away through inadequate pricing.
The Five Steps to Pricing Transformation
Implementing a more effective pricing strategy doesn't require complex software or an economics degree. It starts with these fundamental steps:
1. Job Categorization
Begin by categorizing your jobs based on meaningful differences in complexity, risk, and resource requirements. Most trade businesses need between 3-5 categories to capture significant variations.
2. True Cost Analysis
For each category, calculate the true fully-loaded cost including:
- Direct labor (including realistic productivity factors)
- Materials (with appropriate handling costs)
- Equipment utilization
- Proportional overhead allocation
- Risk/contingency factors
3. Value Differentiation
Identify the specific value elements your business provides that differ from competitors, such as:
- Response time advantages
- Quality assurance processes
- Warranty protection
- Specialized expertise or certifications
4. Tiered Markup Structure
Develop different markup structures for:
- Different job categories
- Various material types
- Client categories
- Geographic service areas
5. Systematic Implementation
Create standardized processes that ensure your pricing strategy is consistently applied, including:
- Estimation templates
- Approval workflows
- Performance tracking
- Regular review and refinement
The Profit Recovery Opportunity
For a typical trade business generating £1 million in annual revenue, the profit impact of an improved pricing strategy is substantial:
- A 15% profit recovery on current work represents £150,000 in additional annual profit
- This typically translates to a 40-60% increase in bottom-line profitability
- The improvement requires no additional staff, equipment, or operational changes
Most importantly, this profit recovery doesn't require working harder or finding more clients—it simply ensures you capture the full value of the work you're already doing.
The Competitive Advantage of Pricing Intelligence
Beyond immediate profit improvement, sophisticated pricing creates a sustainable competitive advantage:
- It allows you to be more competitive on strategically important work
- It helps you identify and pursue your most profitable client segments
- It creates a buffer against market downturns and cost increases
- It funds investments in growth and capability development
In an industry where most competitors use simplistic pricing approaches, pricing intelligence becomes a powerful differentiator.
The Path Forward
The first step toward recapturing your lost profit is acknowledging the limitations of your current pricing approach. Ask yourself:
- Do we have clear data on which jobs and clients are most profitable?
- Can we confidently explain and defend our pricing to clients?
- Do we know our true fully-loaded costs for different types of work?
- Are we systematically capturing the value we provide through our pricing?
If you answered "no" to any of these questions, you likely have a significant profit recovery opportunity waiting to be captured.
The businesses that thrive in the trade and facilities management sectors over the next decade won't necessarily be those with the most efficient operations—they'll be the ones who combine operational excellence with pricing intelligence to ensure they capture the full value of the exceptional work they deliver.
This article was created by CQ Business Management Software, the all-in-one solution that helps trade and facilities management businesses take control of chaos and grow with confidence. Our integrated platform includes powerful tools for accurate job costing, estimation, and financial management that help you implement sophisticated pricing strategies with ease.
Want to see how it could work in your business?
Book a free, personalised demo and we’ll walk you through the exact tools we’ve built to help businesses like yours systemise and scale with confidence.
