A Couple Of $ Questions

dkillianjr

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Danahy

Hello, I don't have the answers for you, but am sure someone is going to post some really useful threads for you to read from the vault.

you're in good hands.

fci

When I saw this thread I knew I had to jump in. I use a couple price manuals put out by companies that are updated quarterly in your region (state, etc.) They tend to keep fairly accurate M&L pricing lists. I would recomend you using that as a guide over what individual contractors on the site might say. They have different overhead needs and price according to their region. Maybe you can find someone in your area if they are willing to share, they might be reluctant due to competitive market share. I agree that you should be aware what the market will draw, nothing worse that when you find you were 9K less than the next guy on an addition. Ouch Good luck and HAVE FUN.

mdshunk

I'm not too sure how any price guide, even a geographically specific one, could be considered accurate. Even if two contractors operated next door to each other, they can still have remarkably different overhead expenses. I use price books just to see if I'm in the ballpark, so that I don't forget stuff. They are very valuable for that.

Danahy

Alternatively, you could talk to HO's / friends, and ask what they paid to have thier basement done... (by someone else)

Visit, measure, and take notes on thier basement to reverse engineer a ballpark idea... Check out a bunch, then try to find your starting point for your pricing, tweeking as you go.

fci

Price manuals should only be used as a starting point and as you said a good reminder of what you might have forgotten. The maual I use checks pricing from local suppliers down the street from me and an average of 80 remodeling contractors in my area. That information has helped our company show a 34% markup on sales.

George Z

You need to add

1)your overhead expenses(your salary included)
2)the cost of doing the job(any wages, yours included, materials & equipment)
3)What net profit you want

Sorry for the simple answer but that is it!
Then you have to justify that correct number.
What someone else charges, is their business, their problem.

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boman47k

That being said, what have you been doing? I guess you are just wanting to see if you are leaving money on the table?

I have checked one or two online calculators that are supposed to allow for you location. To tell you the truth i find them unbelievable even with considerable overhead. Especially or small operators without an armada of brand new trucks, new shiney equipment, etc,.

dkillianjr

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Double-A

Start by raising your prices by 10%. See if anyone notices. No one really notices a price increase unless its for bread or gasoline, it seems.

To be sure, if you're surprised by your estimates, then you might need to pay closer attention to why. You should never be surprised by what your estimates are.

As for pricing yourself out of work, its not going to happen easily. If you have a good reputation and are keeping the word out, then folks are going to call you. If your price is too high, there is still a segment of the population that is going to pay it. Just not a very big one. Your clients will tell you if your price is too high.

Just remember, Wal-Mart is not the cheapest price on most things. They have loss leaders to attract the folks through the doors, but they also have stuff you can get cheaper someplace else.

Quit buying on price and you'll stop selling on price. You should sell service and value. Your clients can get low prices from anyone.

__________________
"My clients’ wishes are the center of my attention." -- David Guido, a contractor in Woodstock, N.Y.
New York Times, July 20, 2006

POOLMANinCT

T & M X 3

Jerrald Hayes

If your looking to set an hourly rate for your services the consultants, pundits, and talking heads in the trade magazine all consider it a bad idea to base your rate on what you "hear" other people are charging.

I also wouldn't put much faith in what you read in the pricing manuals that are out there too. The problem with them is the numbers in them are composite averages and may not have any real relationship to what your real costs of doing business are or reflect your company's rate of productivity.

So if none of those methods are any good what are you going to do? Well you need to to figure and build up your own rate based on your own real numbers (or budgets you set) for your costs of doing business.

I would strongly recommend picking up a copy of Ellen Rohr's book How Much Should I Charge?: Pricing Basics for Making Money Doing What You Love (and her companion book Where Did The Money Go?- Easy Accounting Basics for the Business Owner Who Hates Numbers would probably be a good idea too) and in reading it you'll learn the logic, thinking, and basic mechanics behind setting a labor rate and understanding just what "Net Profit" means. Unfortunately since this is my first post here the forum rules tell me I can't link directly to other sites but if you cut and paste this URL into your browser you can find links to those books here: paradigm-360.com/Bookstore/index.html.

Additionally I've got a freeware Excel spreadsheet that I've developed that you can download and use to help you set your own rate. You plug in your employee costs, variable and fixed overhead etc. and set some targets for what you want to earn as the owner of your own business and it will generate a billing rate you should use. You can cut and paste this URL into your browser to find what has come to be known in the JLC and Breaktime forums as the PILAO Capacity Based Markup Workbook: 360difference.com/Freeware/PILAOExcel.cfm. If you have any questions regarding how to use it or regarding anything from the books I mentioned above please feel free to post your questions here and I try and answer them in public where the discussion can help other readers.

And while I'm thinking of it with respect to thinking about how to "set some targets for what you want to earn as the owner of your own business" I would also recommend a book on that page I gave you above I just recently discovered called Defensive Estimating: Protecting Your Profits by William Asdal . Chapter 2 Establish the Company Profit Number Based on Your Income Needs while not about estimating per se is incredibly important and the understanding of the concepts in it are often lacking amongst many of the contractors I talk to.

Unfortunately there's no quick fix answer for you Dave. Using someone else's price list really wont work for you for the reasons I mentioned above and again there are regional differences in costs and pricing that could lead to pricing disasters if you do. I happen to know that the billing rate that finish woodworking companies in Texas charge is just about equivalent to the wage we pay workers here in New York suburbs (Westchester & Fairfield) or a place like the SF Bay area.

You need to build your own price list based on a labor rate you develop and task times for the typical task you and your company perform.

__________________
Jerrald Hayes About ParadigmProjects.com

fci

Very interesting post and it is not too long. First as the rule goes unless you have something that is a well carved niche, a year booked is a clear indication that you are seriously under charging. Statistics and studies show that 3 to 5 months max is the industry standard. At least in this industry. Artists, certain types of faux paint and wood carvers are the exceptions.
Am I allowed to say the name of the book or is a plug not allowed. The book as I've said is only a starting point and in some areas the average price for that particular trade might mean an increase of 14%, 18% in another, 41% in another, and so on. Increasing consistently accross the board 10% or 12% etc. might still be seriously underestimating certain trades. Aside from the book, asking friends is as stated earlier is good but some people are somewhat private about how they spend their $$. Also you may try this site and ask some of these professionals what their rates are. But in the end what works for me is a series of check lists and the never ending search for complete unitization of everything. The big builders and remodelers will unitize when ever possible. I know there are exceptions to this rule as well.

Jerrald Hayes

A few months ago a neighbor of mine hired a mason friend of his to do some work rebuilding the top of his chimney. I walked over one day and asked the guy who looked to be the boss if he would be interested in looking at a project I had coming up where I needed a chimney taken down and put back up again in a different location.

The guy then started moaning saying no he couldn't really do it. He and his helper were already working 60-70 hours a week and they were booked over a year in advance. I sort of squinted in amazement and we kept talking and eventually he started talking about his rates.

Low and behold there was his problem and the answer as to why he was booked so far in advance. He was charging less than half of what the masons I was already using were. Of course he booked over a year in advance. Some people are willing to wait that long so that they can get the work they need done done at half price!

I wonder at times why so many contractors think that to make money they need to work more and more hours rather than seeing that if they charge more they can work less and make more money and spend some free time getting to know their families.

__________________
Jerrald Hayes About ParadigmProjects.com

fci

So Dave,
After all the interesting responses, what do you think you will do to increase the profitability of your company? By the way one of pricing manuals I compare with is Hometech Remodeling and Renovation cost estimator. It is probably the easiest to read for remodelers.
Good luck.

dkillianjr

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fci

Price manuals convert everything to units. So if you have a painter that says he will paint a room addition for either a fixed price or says his price is $$ per square foot, you have a way of checking or at least comparing his price to other painters in the area. How he gets it done for $$$per square foot is his business. He will take into account how much paint, equipment set up and how many painters he will need to accomplish it. These manuals are not hourly based. It also keeps my subs honest. If I get him to price another job and his price per square foot is higher, I ask why?? Sometimes he has a good reason why. (time of year, height, access, etc.)
Remember, don't think hourly, think price per square foot or unit.
Car dealerships figure units when it comes to fixing parts on cars, $$ to fix brakes and that is how they will quote it. Now this does take in account 1 trained man working at a certain pace to accomplish this repair. If you still are not clear, I'll be happy to explain further.

RobertWilber

why be competitive?
do you do the same crap work as the dirt-dogs?
why charge what they do?
you don't really want to work for someone who only cares about price anyway. They are always just a pain in the butt.

fci

Business is competition. There is no way around it. It is my business to know what my competitors are charging and what the customer is getting for that price. Once I have that information, I know that once I sell quality and a number of other features, I find the customer is more than likely willing to pay more for our company.
Most people that say price is the most important thing have probably been screwed by some fly by night operation and have never been treated right. They can be converted if the experience is positive and they are informed.

dkillianjr

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