Hi Mark,
First Rule. Your prices must generate sufficient revenue to cover all your costs including your living and make a prifit besides.
Toward that end you need to pick a time period (usually a year) and determine what your fixed overhead (insurance, tools, your wage and benefits, office, phonme eytc). Add them up to get a total.
Now look at your inspections. What do they cost you to perform. Look at those things (called variable costs) that only happen when you inspect. Do you print agreements? That’s a cost. Do you give your client a printed report? Again it’s a cost for that inspection.
Now consider how long it takes you to typically do inspectio. DOn’t forget your report writing and travel time. (Somebody has to pay for it)
Now determine how many billable hours you will have available for the year (or whatever period you picked). After deducting training time, marketing time, general business operations time as well as things like days-off and vacations the usuall answer is about 1500 hours per year for a one-person operation.
Business experts suggest making allowance for the unexpected so 1200 hours per year is a better number to use for estimating.
Divide your Fixed Overhead Total by your available hours estimate. That will give you a cost per hour figure.
Now do this.
Multiply the hours per inspection times the cost per hour to get a fixed overhead cost for your inspection.
Add in the costs specific for the inspection
Add in whatever percentage you like for profit. (I’m a fan of 15% myself).
The total of all these is what that inspection needs to sell for to generate your livng, make a profit and cover all your costs of doing business. (if you aren’t covering costs and making a profit then why are you in business?)
Of course you should be doing this as an ongoing exercise to be sure that your prices stay proifitable. As you can see it’s a bit of work.
Once you know what the economically viable price is then you can relate it to some metric in the house. Like you I used to use price of the house (and still do to some extent) but more and more I use the specific details of the house that I have been able to relate to the time they take to perform.
The easy way to deal with this is to download a copy of the Profit Pricing Modeler which will do all the heavy lifting. As well as generate 3 different models of your pricing and handle up to 20 different services simutaneously (instead of calculating an average for all your services)
With this worksheet (it does need MS Excel) you can recalculate your pricing every time your costs change and do it in seconds.
There’s a special deal for InterNACHI membersbut even at the full price of 34.99 it’s a good deal for anyone who is running a service business liike Home Inspecting.
The download is a fully functional 14 day trial so you can put in your costs and the info about your services and see exactly where your current pricing stands in terms of profitability and also where you need to be to meet the goals that you set.