Pricing, Estimating, And Success

damb5525

Hello all, I am new to this sort of site. I am a bookkeeper for a manufacturer in a small town in Illinois. I have Quickbooks Pro but it does not allow me to Job Cost. Does anyone have - or know or where I can get - an excel Job Costing Spreadsheet? I really want to help him with his business and we are steps away from joining the 99% and I know if I can show him numbers I can help him turn things around. I am open to suggestions. I gained a wealth of info from Brian's writing and I even took notes. I just need to create a fill in the blank cost sheet to help me arrive at a profit or loss number for each job so we can see where we are losing money. On product or labor or overhead.

De

gorenx

Well, I can tell ya from past experience, a customer like that is one I DON'T want to work for. Take a job like that and there is no way to charge them a PITA tax.

I learned that lesson a LONG TIME AGO and will never forget Mr. and Mrs. PITA.

FlipFlap

Don't see why you can not do it in QUICKBOOKS? When you set up your item lists you have to put your cost and selling price. When using estimate - you will have your cost right there. Even when your item list is not setup properly you can adjust your cost in estimate.
In addition you have several types of reports. Job Cost Detail, Job Cost vs Actual Cost.
There are several different estimating programs but I use quickbooks for years.

d-rock

Gentlemen,
After I figure out my overhead costs, what is the best way to average that out into a percentage to add to hourly rate. Also, if I add that amount to every job, wouldn't i be overcharging ?

DavidC

One method is to figure your overhead costs on an annual basis and divide that by the number of hours you expect to produce in a year. Be sure to allow yourself some time off, holidays, vacation etc. Reduce the number by any down time you can expect or at least multiply your result by.8 to give a little wriggle room.

Markup & Profit, A Contractors Guide by Michael Stone covers the topic very well and could be the best $35 you invest.

If you don't add that amount to every job you will wonder where the money went. Your clients will be the judge of weather or not you're overcharging. Charge what ever meets your goals and make sure the client feels it is money well spent. Since reading Stone's book we are able to charge more than double what we were trying to get by on and the customers still love us.

Most pricing problems are rooted in the sellers beliefs.

Good Luck
Dave

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www.CookContractingLLC.com

Duck042

I think this oversimplifies the issue a bit. You can't just price your jobs in a vacuum based on what you think you "should" be getting, at least not in this market. If most of your competition is charging half what you are for substantially the same outcome, the customer is going to put your quote on the bottom of the stack every time.

Consumers are increasingly savvy when it comes to the big projects in particular. You have to be cognizant of what the market is paying others for the same service and adjust your prices accordingly. If you're TRULY providing a higher-quality service, you need to be able to convey that and show examples (pictures, referrals, etc.) I've already seen a number of businesses here in AZ go under because they wouldn't (or couldn't) reduce their prices to stay competitive. Longer term, this helps shake out the weaker hands, but in the short term there's a glut of people looking for work right now.

DavidC

/\ Good point Duck042. However if you reread the post you may agree that I was advising setting your pricing based on certain criteria, not a vacuum. Specially in today's tight market we must be selling our services at what we think we "need" to be getting. Client wants a kitchen remodel and company A works alone with out comp, company B has 1-2 employees. How could B meet his labor burden obligations if he matched A's overhead target?

It is never a good time, in my mind, to set your prices according to what others are getting without regard to what your business actually needs. I believe d-rock was asking how to apply his pricing to cover the needs of his business. The only room I see for reducing prices is by lowering your profit. To go beyond that is to start eating away your structure.

Our job as salesmen is to sell the value of our services over the low priced competition. Our job as tradesman is to deliver the quality of workmanship and service to justify our pricing. It was a simplified answer but I recommended further reading to cover it in more depth.

The line you refer to, I was recalling my own experience in the dark ages when I would figure an estimate, look at the bottom line and say to myself, "that's too high, they'll never pay that." It trips alot of guys.

Going out of business may be the better route compared to working at a loss.

Good Luck
Dave

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www.CookContractingLLC.com

Duck042

Agreed.

I'd never advocate cutting into the bone and taking a loss, you'd be better of sitting home slowly going broke instead of accelerating the process through hard work!

That said, when times are good there's a pretty healthy difference between what is charged and what is "actually needed" to keep an outfit going. But when things slow down, you'd better be flexible with what you're willing to work for or you're going to go under. In a lot of cases, if a job pays just enough to cover expenses and keeps you and your crew employed, it's worthwhile to take it since it helps you live to fight another day. I'd rather take a job that nets me (personally) $20/hour than to sit home wondering if I'll have to dip into savings this month to cover the mortgage.

Also, salesmanship is certainly important, but where the market price for a service has dropped, nobody is going to pay extra for the same outcome unless you can reasonably show they're somehow getting MORE for that higher price.

This is especially true in today's environment, where its the licensed contractors that are competing more agressively on price. It's not just a choice between the skilled tradesman and the unskilled hack.

DavidC

I know that in our case we have held firm on our pricing. Our closing ratio remains fairly constant but the incoming calls are seriously down. Net result is laid off employees and less cash flow. But our business remains solvent and the future starts looking better for us by spring. The time between then and now is a question mark.

We tried bidding some of the HUD grant work in our area but got beat by substantial margins. Those guys are working pretty steady but to compete we would lose money. I figure their labor rates have got to be in the 25-35/hr. range. We lose slower by staying home and not paying labor costs. It sucks, but this too shall pass. When it does we are still poised for success. In the meantime we are working on getting the incoming calls to increase.

Good Luck
Dave

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www.CookContractingLLC.com

timmyjohn03

Really Networking, and business skills is a must. Kinda comical so many of us get upset because everyone is a painter, but many painters including myself think we are instant business gurus. Probably not a bad idea to do a study on basics of business, and success.
I think this thread is a great help, and laid it out pretty clear.

DenverPainting

Perfect Article with very good info & insight from everybody

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jmacd

This is my 2 cents worth:

No one here has talked about the difference between commercial and residential. Big difference!

My residential customers are easier to sell the higher price to, if like many have said, the quality of work, reputation etc. can and does demand a higher price if you are compared to contractors that don't bring that to the table. The residential customer is an easier customer. I wish all I did was residential work but that is not the case. When I bought larger equipment I basically made it impossible to cover my overhead from residential work alone.

So, that brings us to the commercial customer. These jobs are unfortunately based on price. Black and white specs, drawings that need to be followed and price is king. When I quote this work (bid) I am competing against other contractors that bring the same qualifications to the table as I have. Reputation is good but price is king. Because commercial work is protected by bonds and the work isn't paid for until it is completed the owner or GC have nothing to loose to go with the lowest price. Most other variables are equal. In this scenario you better have a real good handle on your costs to perform the work.

Many posts advising to " charge what your think your worth and don't worry about your competition" this thinking is wrong when dealing with commercial work. You better know the going rate. You will be surprised that the going rate is less than you thought and the only way is to either lower your overhead or your profit, either one or the other will do but you will pick one. This year many jobs that I would of loved to do where completed for a price that I thought was below my cost but some one still did it for that price.

So, you guys asking for pricing should research your area and find out what your competition is getting. I am talking about contractors that you would consider to be as good as you or better. The contractor you would like be some day and consider that price, know your cost and hopefully you can do it for less and still make some profit.

My hats off to the guys that say they never lower the price and have work lined up for ever. They say they can sell the higher price. I agree that this can be done. I would also say this practice is not the norm and most of the time you have competition that is as competent as you are and you better know what your best number is, for the unforeseen future you will need it.

DavidC

Good post jmacd with a good point. Anything I might post will be in relation to residential work. To a slightly lessor extent the same might be applied to residential new construction subcontracts. I left that market due to the dog eat dog mentality.

Good Luck
Dave

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www.CookContractingLLC.com

texastutt

Whew this is quite the long read. I would like to say that with this year, I was hit broadside as out of the wood-works came the Hacks, and I was not willing to do jobs at $15.00 gross. Now seeing some of the work and people trying to get their house back to an assembled state I can quote out anywhere $25 to $35 less than what I had, but some money is better than no money.

The overhead and profit are very time consuming to calculate and figure in, and I know some quite large companies rely on the "next" job, one I believe their profit margin too low, considering the whole extended family of the owner had a leased car from the business (BMW's, Audi's, VW's).

On my own I still think my number's being pull out of the air, I know how to quote commercial, Residential is SALES... and that is my biggest shortcoming.

All said and done, I think I'm going to have to read this through again a few time as there's several good bits in here.

gtmechanic

there is always someone , who wants to go out of business faster than you. not knowing costs and charging going rate is sure way to get out of business.
I did a lot of public works, schools, hospitals, housing authority etc. prices ranging from $100.000 to 1,000.000 dollars. now i don't, i was pushed out of this market, and had a dilemma: lower prices or find opportunities worth pursuing. I chose second. and because of that i m still in business and will be. when recession hit, i saw jobs going for 50, 70 % of real price. now i see those companies who undercut prices going out of business, getting prosecuted for labor law violations, for non performance etc. I changed the market, customers, and now doing energy conservation work, saving customers tons of dollars.

texastutt

Do you go through and do the assessments? Or are you ding the actual upgrades or Both? I have a green bent and this is a field I've been looking at, not sure how to get into it... I know millwork, and engineering principals in building.

gtmechanic

we doing ultra high efficiency boilers and water heaters installations, steam boilers upgrades,control upgrades,and so on, in order to decrease gas consumption and pollution. by the way, half of our work comes after somebody's screwups.
Also. i heard report on the radio, that this is the one field to currently hiring.

wheeler

"Putting paint on the wall is a trade skill. Pricing a job is a business skill. A skilled craftsman does not necessarily make a good businessman, because different skills are required. The owner of a contracting company does not necessarily need to have trade skills, but it is imperative that he have business skills if he is to succeed. The longer you wait to obtain those skills, the closer you move to joining those 99%."

excellent post. offer a humble perspective - our reward or profit is a balance between deal-specific risks that define the buys, our ability to manage those risks, market conditions such as the price the oil in six-months or availability of subs in a certain area, and our own accounting. the latter is a reality check and we would never see another new project if we left pricing decisions to our estimators and accountants.

Dolly07

You should price it accordingly. If you don't know what you should be charging to do something and can't figure out on your own how to price it based on your labor, materials, profit, and overhead... you probably shouldn't be doing it.

john elliott

Wouldn't it be marvellous if life (for contractors) really was that simple?

Still, the basic idea that if you don't know how to price a job you shouldn't be pricing jobs is sound.

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