Your Oldest Customers Are Paying Your Lowest Prices

The Rate Freeze

In 2006, I was charging $65 an hour for a service call out of Smith Mechanical. Two trucks, working out of my garage in Worcester, insurance I probably should have had more of. That rate made sense. Barely, but it made sense.

By 2013, I had customers still paying something close to that number. Not because I'd agreed to it. Not because I'd offered a deal. Just because I'd never changed the invoice and neither of them had asked.

That's how the rate freeze works. Nobody signs a document saying you'll eat the difference between 2006 material costs and 2024 material costs. Nobody shakes hands on a deal where you absorb rounds of insurance increases, fuel spikes, a labor market that went sideways. It just happens. The first invoice becomes the ceiling, and every year you don't raise it, the ceiling gets lower relative to what it actually costs you to walk through someone's door.

Here's the question I'd put to any shop owner reading this: take your five oldest accounts. What are they actually generating in margin? Not revenue — margin. After truck time, after the priority scheduling you hand out because they're "good customers," after the rate increases you never sent. Most shops don't know. They know the revenue. They don't know the margin. Not knowing is how you stay broke while staying busy.

When You Started Charging Them That, You Were a Different Business

I came up under Donny Ferraro at Beacon Heating in Framingham. Donny could thread a pipe blindfolded and had exactly zero interest in talking about money. You priced by gut, by what the guy down the street was charging, by how the handshake felt. If someone had been doing business with you for three years and they called you first, that loyalty counted for something. You took care of them. In practice that meant you didn't raise your rate.

That mindset follows guys out of the trade and into ownership. I carried it with me. It isn't cynicism. It's just how the trade works — nobody trains you to talk about money. They train you to talk about work.

The problem is that once you're running a shop, somebody has to talk about money. If it isn't you, the market does it for you. Slowly. In the wrong direction.

This connects to how I feel about flat-rate pricing books. The shops running a rate sheet they bought in 2011 and never rebuilt don't own their pricing. The pricing owns them. Legacy customer, legacy rate — same problem, different context. In both cases you stopped thinking about what the work actually costs and started defending a number that made sense in a world that no longer exists.

The first invoice you ever sent someone wasn't a contract. It was a snapshot of what your business cost to run on that day. Your business costs more to run now. That ain't betrayal. That's time passing.

The Accounts I Held Onto Too Long

After 2008, I held onto everything I had. When you lay off four guys in three months and watch your receivables stretch from 45 days to 110, you don't cut accounts — you hold them. I understand the psychology. I lived it.

But some of those accounts I'd clung to through 2009 and 2010 were still on 2007 rates five years later. At the time that felt like stability. Familiar customers, familiar work, invoices that got paid. What I didn't do was run what those accounts cost me in truck time against what they were generating in margin.

By 2012, new customers were paying rates that reflected what the business actually cost to run. But a couple of property managers I'd had since 2006, a small builder I did punch work for — still on the old number. Nobody had asked. I hadn't pushed. The work came in, the invoices went out, the checks came back. Felt like business.

What it actually was: subsidized labor for people who'd never asked for a discount and never needed one.

A loyal customer paying 2014 rates in 2024 isn't one problem — it's two. Slow payments on top of stale rates is the quiet killer. You're carrying their labor on your credit line, at a price that doesn't reflect your current cost structure, and telling yourself it's okay because they've been with you since the beginning.

They have been with you since the beginning. That's the point. They found a deal in 2007 and they've been keeping it ever since.

Loyalty Is Not a Pricing Strategy

Here's what most shop owners won't say at a trade association dinner: your longest customers aren't staying because they love you. They're staying because you're cheap. The relationship is real. The goodwill is real. But the reason they haven't called anyone else is that nobody else is still charging them 2016 prices.

I feel the same way about GCs who pay in 90-plus days as I feel about legacy residential accounts. Whitman out of Marlborough wasn't a loyal partner — he was using my labor as a free credit line and counting on me not to lien. The math on a legacy residential customer is softer, but the structure is the same. They've got a deal they never negotiated, and every month you don't renegotiate it, you're choosing to extend it.

And the referral argument. I hear it constantly. Some longtime customer sends two or three jobs a year, so you can't touch the rate. Think about who they're actually sending you. People who know what they paid. People who will ask what you charged, and feel like they're being treated differently if your number is higher.

Referrals from underpriced customers build you an underpriced customer base. That pipeline feeds you more of the same problem.

How to Reprice Without Blowing the Relationship

In 2011, I stopped working for Whitman. Not because of rate issues — because of payment. But the fear was the same: I was dependent on the account, I was afraid of the conversation, and I kept telling myself the relationship was worth the compromise.

When I finally made the call, he was furious. Threatened to tell every builder in the county. I went home, ate dinner with Diane, and slept better than I had in eight months. The account I'd been scared to lose was already costing me more than it was worth. I just hadn't named the number yet.

So name the number. Here's how I'd do it.

Send a letter. Not an email — a letter. Physical mail. Short. You acknowledge the relationship, you state the new rate, you give the effective date, you give thirty days' notice. Done. No apology, no three-paragraph explanation. If you over-explain, you're signaling the rate is negotiable.

Some customers will push back. Most won't. The ones who leave were probably leaving eventually — at some point you'd have hit a number that crossed their threshold.

Which brings up the real fear: what if they leave? Run the cash question. If losing one repriced customer would put your payroll at risk, the rate conversation isn't your problem. Concentration is your problem. Too much of your book in one account. That was true before you sent the letter. The letter just showed it to you.

What You Do Monday Morning

Pull your five oldest accounts. Not biggest by revenue — oldest by first invoice date. Find that first invoice. Find the rate, or back-calculate: total dollars divided by total hours. Write it down.

Now run that same job at what it would cost you today. Loaded labor, current materials, fuel, insurance. What would you have to charge tomorrow at a real margin? Write that number down.

The gap between those two numbers is what you've been donating.

I tell the kids in my code class at the voc school the same thing every semester. A business that doesn't know what it costs to run cannot know what to charge. Not a complicated idea. The legacy pricing problem is just that lesson showing up ten years late.

Pick the account with the biggest gap. Draft the letter this week. Set the effective date thirty days out. Send it before Friday.

You don't have to reprice everyone at once. But you have to start somewhere, and the somewhere that costs you the most is the right place to start.

Two Questions I Get on This

My best customer has been with me twelve years. How do I raise the rate without it feeling like a punishment?

Short letter, firm date, new number. Acknowledge the relationship, state the change, give them thirty days. That's it. If you write three paragraphs apologizing, you're telling them the rate is negotiable. Most long-term customers who are actually solid understand that costs go up. The ones who don't weren't loyal partners — they were customers who liked your old price and called that loyalty.

I repriced an old account and they left. Was that a mistake?

Depends on why they left. If they left because your new rate was your real rate — the rate you need to run the business — then you'd been subsidizing their work, probably for years. You can't build anything stable on an account you can only keep by underpricing it. They left. Now you know what you had. Go find a customer you can actually afford to keep.

Your Oldest Customers Are Paying Your Lowest Prices

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