Pricing for Profit

Episode 1: Pricing for Profit

In the premiere episode of The Thornton Edge, Tony Thornton tackles one of the biggest challenges facing fence contractors: pricing for profit instead of racing to the bottom.

Tony breaks down why being busy doesn’t always mean being profitable and challenges contractors to understand the true costs behind every job—including labor, overhead, equipment, marketing, insurance, and the expenses that are easy to overlook. He also discusses why constantly lowering your price to compete can hurt your company and why knowing your numbers allows you to make confident, strategic pricing decisions.

The Thornton Edge is about real-world fence industry experience, practical business advice, and helping contractors build stronger, more profitable companies.

If you’re ready to stop competing on price and start building a business based on value, Pricing for Profit is an episode you won’t want to miss.

Transcript

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Season one, episode one, Pricing for Profit. Let's stop racing to the bottom. Hello, everyone, and welcome to The Thornton Edge. I'm Tony Thornton, and for the next few minutes or so, we're going to talk about one idea that can help you build a stronger, more profitable fence business. With more than 50 years in the fencing industry, I've seen markets change, market materials evolve, and technology transform how we do business. Unfortunately, there's been one challenge that has remained the same: fence contractors who don't know their numbers and how to be profitable. Today's topic is called Pricing for Profit, Overcoming the Race to the Bottom. If you've ever heard a customer say your competition is cheaper, or if you've ever lowered your price just to get the job, this episode is especially for you. As I often say, hope is not a strategy, and neither is guessing at your price. So let's get started. Here's the challenge. One of the biggest continued mistakes I see in our industry is pricing work based on what someone else is charging. A contractor gets a bid request and starts asking the customer questions like, What are the other guys charging? I think I need to come down. I need to be right below their estimate number. Or I hear this all the time. If I don't get this job, my crews won't have work. I can't keep them busy. Guys, these are all emotional decisions. This is not business decisions, and these type of decisions are not going to help your company grow. The truth is, your competitors' price has absolutely nothing to do with your cost and your estimating process. Again, your competition may own their equipment outright, they may have lower overhead, they may have no office staff, or they may simply be losing money on every job and not even realize it, and that brings you down with them. I've seen contractors who were busy every day of the year and still couldn't figure out why there was no money left at the end of the month. I get the calls all the time. Tony, I'm doing $2.5 million a year, and I never have enough money in the bank. The answer is very simple, folks. They weren't making profit. They were just simply generating revenue, and there is a huge difference. The real cost of doing business is what I want us to discuss. Let's think about it. When you sell a fence, you're not just selling posts, rails, pickets, chain link components, and other such as your labor. You're also paying for office expense, insurance, vehicles, fuel, equipment, marketing and advertising, software and technology, rent or mortgage, your phones, your employee benefits, training, safety programs, taxes, uncle Sam gonna get his, maintenance, accounting, your management salaries, and there's plenty more that I have not even mentioned. And hopefully there's enough profit to reinvest in your operation. Many contractors know their material costs. That's pretty easy. Most know their labor costs or get really close. Very few know their overhead costs per day or per hour. And folks, this is very dangerous. If your overhead cost for your business is $2,500 per day to operate and your jobs aren't covering that amount, you're actually paying the customers to build their fence. This is not a business model. This is a hobby. And more specifically, a hobby that will drive you out of business very quickly. So what's our solution? How do we fix it? I encourage every contractor to understand the following four numbers. First, you got to know your overhead percentage. Second, understand what cost of goods are, cogs as we call it, and what is all included in that. Third, know your gross profit target margin and don't go below it. And fourth, you must know your break-even point. So when we understand these four numbers, pricing becomes a mathematical exercise instead of an emotional reaction. I'm going to repeat that. It becomes a mathematical exercise instead of an emotional reaction. You stop asking, what can I charge, and you start thinking, what must I charge to stay profitable? The best companies I've worked with do not try to be the cheapest. They focus on delivering value, quality installations, reliable scheduling, professional communication, warranty support, clean job sites that the customers like, well-trained team members because most customers don't always buy the lowest price. They buy confidence. So we must ask ourselves, are you giving them the confidence they need to do business with you? It's got to be a mindset change. And here's what I've learned over the years. There will always be somebody willing to do it cheaper. There's always somebody selling work for a truck payment and a beer money. And we're not going to be that guy. We cannot win that game. It is a race to the bottom and a very quick race to the bottom. If someone cuts their price by $500 and you cut yours by six hundred dollars, there's always going to be somebody to cut it by seven. And eventually everybody loses. The market gets driven to the bottom and no one can make money, period. Instead of competing on price, let's begin competing on value, compete on quality, compete on customer experience. These are my top three and you can deliver every one of these. You can also compete on your reputation, your knowledge, and of course your professionalism, but do not compete on price. Build a company that people want to hire, not simply one that has given the cheapest price or will always lower their price. You will lose. The most successful contractors I've met are not the cheapest. They're often among the highest priced, usually in the top three prices. But they've earned that position because they consistently deliver value, quality, and exceed customer expectations. So I'm going to challenge you this week. I'd like to leave you with this assignment. Take one hour and answer these questions, even if you got to get up an hour early. Do I know my overhead percentage? If not, figure it out. Do I know my break-even sales volume? If not, figure it out. Do I know my gross profit margin? If not, figure it out. And do I know my net profit goal? If not, we got to figure it out. And perhaps the most important question, do I have a pricing strategy or am I simply reacting to my competition? If you can't answer these four questions, that's where you got to start. I'd like to leave you with this final thought. Revenue is exciting. Being busy really feels good. Winning jobs can be addictive, but revenue doesn't pay the bills. Profitability does. A full schedule doesn't guarantee success. A profitable schedule does. Don't build fences just to stay busy. Build a business that creates opportunity for your employees, security for your family, and long-term value for your future. I want to say thank you for spending these few minutes with me. And if you have an interest in what TFC Group has to offer, please visit our website, Fence Consulting Group.com. Also check out the Fence Masters Peer-to-Peer Group and become a member. We'd love to have you. Hey, I'm Tony Thornton, and this has been the Thornton Edge. Remember, hope is not a strategy. Know your numbers, price for profit, build a better fence business, and you're going to have success. Until next time, keep on fencing.