How to Price Your Services Without Undercutting Yourself

There’s a plumber in Alaska named Jared Williams who used to charge $95 an hour. He was busy all the time, working long days, and still barely scraping by. Then he switched to flat-rate pricing. Within months, he was effectively earning over $500 an hour on some jobs. His customers were happier, too, because they knew the price before he started.

Jared’s story isn’t unusual. Most contractors start out pricing based on what feels right, what the last guy charged, or what they think customers will accept. And most contractors stay stuck at that price far longer than they should.

The uncomfortable truth is that pricing is the single biggest lever in your business. You can market better, work faster, or cut costs — but none of those move the needle as much as charging the right amount for your work.

Why Most Contractors Are Underpriced

Frank Blau, a plumbing business coach who changed the industry, put it bluntly: “Busy is easy. Profitability is difficult.”

If you’re booked out weeks in advance, never lose a bid, and customers never push back on your price, those are signs you’re too cheap. Being busy doesn’t mean you’re making money. It often means you’re giving your time away at a discount.

Here’s what typically happens. A contractor looks at what competitors charge, picks a number in the same range, and calls it a day. The problem is that you have no idea what your competitors’ actual costs are. They might be uninsured. They might be paying workers under the table. They might be six months from closing. Matching their price means inheriting their financial problems.

As one contractor coach put it: “Few construction companies fail because of poor building practice; they fail because of poor pricing practice.”

Know Your Real Numbers

Before you set a price, you need to know what it actually costs you to show up and do the work. Most contractors only count “wrench time” — the hours physically on the job. Everything else gets ignored, which means part of every job is done for free.

Your real costs include:

Direct costs — what you’d expect. Labor (yours and your crew’s), materials, equipment for that specific job.

Labor burden — the part most people miss. That $25/hour tech doesn’t cost you $25 an hour. Add FICA taxes (7.65%), workers comp (3-15% depending on your trade), unemployment insurance, health insurance, PTO, and vehicle costs. The real number is more like $35-$50 an hour. A $50,000 salary actually costs $66,000-$78,000 when you add everything up.

Overhead — the part almost everyone underestimates. Insurance, truck payments, fuel, tools, office expenses, software, marketing, accounting, licensing, continuing education. The old rule of thumb was “10% overhead, 10% profit.” That rule has put contractors out of business for decades. Real overhead for most service businesses runs 25-50% of revenue. Insurance alone can eat more than 10%.

Add all of that up, add the profit margin you want (not need — want), and that’s your price. If the number feels too high, that’s a sign you’ve been undercharging, not a sign the math is wrong.

Hourly vs. Flat Rate vs. Tiered

Once you know your costs, you need to pick how you present the price.

Hourly pricing works for unpredictable jobs where the scope might change — leak detection behind walls, old-house rewiring, anything where you won’t know the full picture until you’re in the middle of it. The downside is that customers hate open-ended pricing. They feel like the meter is running, and that anxiety works against you.

Flat-rate pricing works for standardized jobs — drain clearing, toilet installs, AC tune-ups, interior painting. You quote a set price before starting. Customers prefer this because they know what they’re paying. And it rewards you for being efficient. If you quote $350 for a faucet replacement and finish in 45 minutes, that’s a great hourly rate. If it takes three hours because of complications, you absorb it. Over time, the fast jobs more than make up for the slow ones.

Tiered pricing (good/better/best) is where things get interesting. Instead of giving a customer one number, you give them three options:

• Good: Standard service, basic parts, standard warranty. Gets the job done.
• Better: Upgraded parts, extended warranty, maybe a maintenance plan. The one you actually want them to pick.
• Best: Premium everything. Top-of-the-line equipment, longest warranty, priority service going forward.

HVAC companies that switch to tiered pricing see their average ticket jump 18-32% within the first two months. One company went from a $180 average ticket to $400. The reason is simple: when there’s only one option, the customer’s only decision is yes or no. When there are three options, the decision becomes which one — and most people pick the middle.

You’re not tricking anyone. You’re giving customers the choice they already wanted. Some people want the cheapest option. Some want the best. Most want something in between. Let them choose.

The Psychology Working For (and Against) You

A few pricing tactics that are backed by research, not just gut feeling:

Anchoring. The first price a customer sees shapes what they think is reasonable. When your “Best” tier is $8,000 and your “Better” tier is $5,500, that $5,500 feels like a deal. Without the $8,000 anchor, $5,500 might feel steep.

Charm pricing. $97 outperforms $100 more than you’d expect. Our brains read left to right, so $97 registers as “ninety-something” even though the difference is $3. This works better for smaller amounts. For big projects, round numbers ($5,000 vs. $4,997) actually signal more confidence.

The race to the bottom is real. When you compete on price, you attract customers who only care about price. Those same customers complain the most, pay the slowest, and refer other price shoppers. One contractor summed it up: “Budget pricing builds burnout, not wealth.” The customers willing to pay more are usually the best to work with. They value your expertise, they’re respectful of your time, and they pay on time.

When to Raise Your Prices

If you haven’t raised your prices in the last year, you’ve effectively taken a pay cut. Materials, insurance, fuel, and labor costs all went up. Your prices should too.

72% of residential remodeling contractors raised their rates in 2026. It’s not unusual — it’s standard.

Here’s how to do it without drama:

For new customers: Just charge the new rate. They have no idea what you charged last month. This is not a conversation you need to have.

For existing customers: Give them 30-60 days notice. Be straightforward about it. “Our rates are going up on [date] to reflect increased costs for materials and insurance.” Don’t call it a “price adjustment” or an “update.” Call it what it is.

If you’re nervous: Try this math. If you raise your prices 15% and lose 10% of your customers, you’re still making more money than before. And you’re doing it with fewer jobs, less wear on your truck, and more time in your schedule. The customers who leave over a 15% increase were probably your least profitable ones anyway.

Frank Blau’s advice to struggling contractors: “Raise your prices by 10% today. Most contractors who are struggling are at least that much too low.”

Stop Quoting Off the Top of Your Head

The fastest way to leave money on the table is to make up prices on the spot. You forget to charge for something, you lowball because you’re standing in front of the customer and it feels awkward, or you quote differently for similar jobs and erode trust.

Build a price book. Write down your 20-30 most common services with set prices. When you create a quote, pull from the list instead of inventing a number each time. Every customer gets the same price for the same job, your quotes are consistent, and you stop accidentally underbidding yourself.

Update the price book every quarter as your costs change. When materials go up, your prices go up with them.

Tools like Kairvio’s quotes and invoicing feature let you build a price book and pull from it when creating quotes. You can also set up tiered Good/Better/Best options so every quote presents three choices. The customer picks what works for them, and your average ticket goes up without you having to “sell” anything.

The Two Changes That Matter Most

If you take nothing else from this:

1. Run the math on your actual costs. Add up your labor burden, overhead, and desired profit. If the number you get is higher than what you’re charging now, you have your answer.

2. Start offering three options instead of one. Good, Better, Best. Let the customer pick. You’ll be surprised how many pick the middle — or even the top.

Pricing correctly changes how the entire business operates. Your margins improve, your stress drops, you attract better customers, and you stop working 60-hour weeks just to break even.

Good clients aren’t scared of higher prices. They’re scared of bad results. Charge what the work is worth.