The ‘Competitive Pricing’ Trap: Why Matching Market Rates Is Costing You Thousands
Last month, I spoke to an electrician who was really pleased with himself. He’d finally raised his rates to £60 an hour and clients were paying it without pushback. He was fully booked, working about 40 hours a week, and he thought he was doing alright.
Then I asked him what he was actually taking home after everything was paid.
The pause told me he’d never really worked it out properly.
When we sat down and went through his numbers, it turned out he was netting about £32,000 a year. Not terrible, but not the £60,000 he thought he was making when he multiplied his hourly rate by his working weeks. He’d been so focused on keeping his rates “competitive” with other local sparkies charging £50-55 an hour that he’d never stopped to work out if those rates actually made sense for his business.
The problem wasn’t that he was bad at his job. The problem was he’d priced himself based on what everyone else was charging without questioning whether everyone else knew what they were doing either.
The Market Rate Trap
When you’re trying to figure out what to charge, the first thing most people do is look at what their competitors are charging. Makes sense, right? You don’t want to price yourself out of the market.
So you look around. One electrician’s charging £45 an hour. Another’s at £55. Someone else is advertising £40 for the first hour then £50 after that. You think “right, I’ll go somewhere in the middle, £50-60 seems about right.”
Except you’ve just made a massive assumption. You’ve assumed that all these people have worked out their costs properly and are charging sustainable rates. What if they haven’t? What if they’re all just copying each other, all racing to the bottom, all struggling to make a decent living but too scared to be the one who charges more?
The electrician I spoke to had done exactly this. He’d matched his rates to the going rate in his area. Except the “going rate” was being set by people who either had lower overheads than him, were running their businesses into the ground, or were supplementing their income with employed work on the side.
He had a newer van with higher finance payments. He’d invested in better testing equipment. He carried proper insurance and paid his tax on time. His costs were higher than the bloke working out of a 15-year-old Transit with dubious insurance who was doing half his work cash in hand.
But he was trying to compete on price with that bloke. Which meant he was subsidising his customers’ expectations of cheap work with his own lower income.
What Competitive Actually Means
Here’s the thing about being “competitively priced” – competitive with who, exactly?
If you’re a qualified, insured, reliable electrician who turns up on time, does the job properly, and guarantees your work, you shouldn’t be competing with the cowboy who’s cheaper because he’s cutting corners.
But when you price based purely on market rate, that’s what you end up doing. You’re competing with everyone, including the people you shouldn’t be competing with at all.
The electrician was getting calls from people who’d say “I’ve had three quotes and yours is the most expensive.” Well, yes. Because the other two quotes were from people who probably weren’t going to show up on time, might not finish the job properly, and definitely wouldn’t be answering the phone in six months when something went wrong.
But he kept dropping his prices to win the work because he thought that’s what you had to do to stay competitive. All he was actually doing was attracting the clients who only cared about price, not quality.
The Hidden Costs That Kill You
The real issue wasn’t his hourly rate. It was that his hourly rate didn’t account for the actual cost of running his business properly.
He was charging £60 an hour. Seemed reasonable. But when we actually broke down what that hour cost him, it told a different story.
He was spending about two hours a week on admin and paperwork that he wasn’t billing for. That’s 100 hours a year, call it £6,000 of unbilled time. He was driving between jobs, sometimes an hour each way, and only charging a £30 call-out fee that barely covered his fuel. He was spending time quoting for jobs he didn’t get – about five hours a week on average. Another £15,000 of time he wasn’t earning from.
His van cost him about £8,000 a year between finance, insurance, tax, MOT, and maintenance. Tools and equipment, another £2,000. Insurance, £1,500. Accountant, £1,200. His phone constantly ringing with people asking daft questions they could Google, but he felt like he had to answer or he’d lose business.
When you added it all up, his actual costs per billable hour were way higher than he’d ever worked out. He thought he was making £60 an hour. In reality, after costs, he was making closer to £35-40. And that’s before tax.
The Jobs That Look Good But Aren’t
Then there were the jobs he was taking on that looked profitable but weren’t when you actually broke them down.
He’d quote a fixed price for a job. Let’s say £800 for a full rewire of a small flat. Sounds decent. Should take him two days, that’s £400 a day, works out at £50 an hour.
Except the job actually took him three days because the previous work was a mess and nothing was where it should be. The materials cost more than he’d estimated because he had to make extra trips to the suppliers. The customer wanted to pay in installments, so he ended up waiting six weeks for the final payment.
By the time he’d actually worked out what that job cost him in time, materials, fuel, and the hassle of chasing payment, he’d made about £150 profit. For three days work. That’s £50 a day. About £6 an hour.
But he kept taking jobs like that because he thought that’s what you had to do. The customer had got other quotes, his was in the middle, seemed competitive. He won the work. Except winning work that doesn’t make you money isn’t actually winning.
The Race to the Bottom
The problem with competing on price is that there’s always someone willing to go cheaper. Always. And if your strategy is to be cheaper than the next person, you end up in a race to the bottom where nobody’s making any money.
The electrician told me about another local sparky who was advertising £35 an hour. How was he supposed to compete with that?
I asked him if the £35-an-hour guy was busy. He said no, actually, he’d heard the bloke was struggling for work and might be packing it in.
Right. So the person charging £35 an hour wasn’t successful. He was desperate. And yet my electrician was using him as a benchmark for what “the market” would pay.
This is what happens when you base your pricing on what everyone else is doing without questioning whether everyone else is actually making money.
What Actually Makes You Competitive
Being competitive doesn’t mean being the cheapest. It means being the best value for the type of client you want to work with.
If you’re targeting customers who want reliable, quality work from someone who’s going to answer the phone in six months when they need something else done, you can’t compete on price with the cowboys. And you shouldn’t try.
Your competition isn’t every electrician in your area. It’s the other electricians who are targeting the same type of customer, delivering the same level of service, and operating the same way you do.
And when you look at it that way, the “market rate” is completely different. The good electricians, the ones who are busy with the right kind of customers, aren’t charging £50 an hour. They’re charging £75-90. Because they’ve worked out what their business actually costs to run properly and they’ve priced accordingly.
The electrician I spoke to had been so focused on not being “too expensive” that he’d never actually looked at what the successful people in his trade were charging. He’d been comparing himself to the wrong people.
The Cost of Getting It Wrong
Running your business at too-low rates doesn’t just mean you make less money. It means you can’t invest in the things that would make you more efficient, more professional, or more capable of delivering better work.
You can’t afford better equipment. You can’t afford to spend time training. You can’t afford to turn down difficult customers because you need every job. You can’t afford to take time off. You end up trapped in a cycle of being busy but broke, working harder and harder just to stand still.
And the worst part? You start resenting your customers. Not because they’re bad customers, but because you’re working for rates that don’t make sense and then blaming them for not valuing you enough.
Except they didn’t set your rates. You did.
What You Actually Need to Charge
I can’t tell you what your hourly rate should be. It depends on your costs, your overheads, your area, your target market, and what you’re actually good at.
But I can tell you that if you’ve set your prices based on “market rate” without working out what your business actually costs to run, you’re probably undercharging.
And if you’re trying to compete with the cheapest person in your area, you’ve already lost. Because there will always be someone willing to go cheaper, and competing on price is a race nobody wins.
The question isn’t “what’s the market rate?” The question is “what do I need to charge to run a profitable business and work with customers who actually value what I do?”
And that number is probably higher than you think.
