Using value-based pricing as an electrical contractor

“What’s your hourly rate?” It’s a question we’ve all been asked – and it’s an understandable question too. After all, many people are paid by the hour, so asking an hourly rate provides an answer in a language they understand.

But hourly rates are problematic for a business, because they limit what you can earn.

Hourly rates are problematic for customers, too. On face value, if a customer has a choice between a $200 per hour electrician and a $60 per hour electrician, you know which direction they’ll go in. But if the former takes one hour and the latter takes four, what’s the better deal?

The old cost-plus pricing model – materials plus hours plus profit – is a route to long hours. It rewards you for being slow, and punishes you for being efficient, and bloody good at what you do.

It will also ultimately attract the wrong type of customer – the one who’s always trying to cut corners, knock you down on price, and will have you back again to rectify something that’s ‘not quite right’.

This is where value-based pricing comes into play – helping you position yourself as an expert, being a customer’s trusted adviser, and enabling you to earn more money in less time.

Sounds like a winner, so let’s get started.

What is value-based pricing?

Value-based pricing focuses on the value and benefits your work is going to bring to your client. It doesn’t focus so much on time and material cost as outcomes.

Think about it. Installing new signage for a commercial customer. You’re not just selling some labour and some cabling. You’re selling expertise (would the signage be more visible if it’s placed there?), you’re selling peace of mind that the job has been done properly. You’re selling reassurance that you’ll be there quickly should anything happen. You’re selling minimal downtime as you’re doing the work first thing in the morning.

Then consider a residential job – installing some smart home equipment, for example. There’s efficiencies in power saving to be realised by using certain heating methods – share those stories. There’s increased property value to consider. It all adds up.

Of course, you can’t suddenly charge four times what others are charging, so you’ve got to deliver value too – expert advice, knowledge and expertise are key here, and we’ll come onto those factors in a moment.

But when you move the conversation away from cost, and move it towards value, you position yourself differently; you can stop apologising for the price and begin demonstrating the value you offer.

Understanding value-based pricing – the four key pillars

Expertise and experience

Your qualifications – think mandatory and other training you’ve done – combine to give you the expertise you bring into a job. The conversations you can have with clients are different to the conversations others may have; the context and perspective you bring can evolve the job from what the client thinks they want to the best solution.

Then factor in your experience. If you’ve got a decade or two of similar jobs under your toolbelt, you’ve no doubt been there, seen it, done it and have a pretty good T-shirt collection. So don’t be afraid to value that hard-earned experience. After all, if you don’t, you can’t expect your client to.

As well as adding knowledge to the job, you’re charging for it being done right first time – what value does a client put on their time and stress?

Reliability and quality

You know that when you buy products from your Gemcell wholesaler, you’re buying quality products. You know the short-term and long-term benefits. But does your client?

Make sure you talk to them about the quality products you use, suitable for Australian conditions. Talk to them about the fact you’re not getting them from a multinational company but a local, independent wholesaler that will always be there for you if you need them.

Talk too about your reliability – you’ll turn up when you say you will – and your post-job service. Guarantee your work, promise two years of complementary call-backs if something does go wrong. What aren’t others offering that you could at little-to-no cost?

Efficiency and speed

A key negative to the old pricing model is that you punish yourself for being quick at the job. Why are you quick? Because you’re excellent at what you do, you’ve got a highly-skilled team and you’ve got systems and processes that are streamlined to perfection. Why should that penalise you?

Instead, offer it as a benefit – we’ll be in and out in four hours; we’ll have power back up in 30 minutes.

Focus on the solution provided, not how quickly you can deliver it.

Risk reduction

A key part of your value? Reducing risk. You do that through experience, through product selection, through compliance, and up-to-date knowledge that protects your client from issues – especially critical when dealing with complex topics like non-compliant cables or residential security camera laws. Here, you’re not just selling an outcome, you’re selling certainty and protection against future problems.

Implementing value-based pricing: A three-step plan

Ready to introduce a better pricing model? Here is a practical, three-step approach to implementing value-based pricing in your electrical contracting business.

Step 1: Know your customer and their needs

Value-based pricing relies entirely on understanding the customer’s perception of value. Ask open-ended questions to discover their real problem:

• “What is the biggest hassle this current system is causing you?” (Downtime, high bills, safety concerns?)
• “What is the financial or emotional cost of not solving this problem?” (Lost rent, lost sleep, insurance risk?)

Segment your clients, too. A developer building multi-residential properties will likely value speed and scalability, while a homeowner may value aesthetic finish and long-term warranties.

Step 2: Justify the price, not the time

Your value-based quote should never list “X hours at $Y/hr.” It should list the value package and justify the total based on the outcome and the reduced risk. Use strong verbs and clear, concise explanations.

Instead of: Install 4 downlights: $80 materials + 2 hours labour ($180) = $260.

Try: Premium Lighting Upgrade Package: $450. This includes a 5-year warranty on all fixtures, installation by a fully licensed and insured team, and peace of mind knowing the products are sourced through a trusted local wholesaler.

Step 3: Practice your ‘why’

This isn’t so much a Simon Sinek why, as a value-based pricing why. Why don’t you do hourly rates? Answer? We’ve found hourly rates simply don’t work – they don’t give customers the certainty of what they’ll actually pay – hourly rate quotes are often estimates, and completely reliant on how fast an individual works on that day. Our fixed prices are what you’ll pay for the job, so there’s no surprises at the end, and you get the added benefit of the peace of mind our work and products bring.

In summary

Value-based pricing frees you from the confines and limitations of hourly rates, instead creating an environment in which you can establish yourself as a genuinely trusted adviser – and charge accordingly, too.