Pricing, Estimating, And Success

 
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Old 02-02-2008, 04:05 AM   #81
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Re: Pricing, Estimating, And Success


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Originally Posted by ultimatetouch View Post
All of us should desire more money and greater profit margins. There should be a price point to where we all would not go beneath clearly its better for everyone in our business. Those guys saying 10% and even 15% should set that to 30 or 40% at minimum.
But you have some guys who dont need as much money and profit to survive and thats all there looking for. They keep there living expenses down and try to do as much as they can themselves. It all depends on what you are happy with taking home at the end of the year. The guys that are never satisfied most likely make the most money and have the best profits. Always wanting more and figuring out ways to support it when it comes.
So what is wrong with my logic;

We are the lowest price contractor in our area. The sales guys (can’t hire fast enough) bring deals by dozens. Number of employees grows almost monthly. The business model is simple:
Sales targeted to sell over 10M per year. Accounting / Operations run net margin of 10% (which keeps us the lowest in the area). If my math was correct 10% of 10M is 1Million - On a scale of single man or a few employees the 10% margin would shut the business down. But on larger scale its a million bucks.

Comments ?
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Old 02-02-2008, 02:42 PM   #82
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Re: Pricing, Estimating, And Success


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Originally Posted by HomeMedia Pros View Post
So what is wrong with my logic;

We are the lowest price contractor in our area. The sales guys (can’t hire fast enough) bring deals by dozens. Number of employees grows almost monthly. The business model is simple:
Sales targeted to sell over 10M per year. Accounting / Operations run net margin of 10% (which keeps us the lowest in the area). If my math was correct 10% of 10M is 1Million - On a scale of single man or a few employees the 10% margin would shut the business down. But on larger scale its a million bucks.

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Sounds good to me.

John
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Old 02-02-2008, 05:21 PM   #83
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Re: Pricing, Estimating, And Success


Business 101, as your company grows, your overhead grows with it, but as a percentage of gross sales, your overhead decreases with growth.
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Old 02-05-2008, 10:49 PM   #84
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Re: Pricing, Estimating, And Success


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Originally Posted by HomeMedia Pros View Post
So what is wrong with my logic;

We are the lowest price contractor in our area. The sales guys (can’t hire fast enough) bring deals by dozens. Number of employees grows almost monthly. The business model is simple:
Sales targeted to sell over 10M per year. Accounting / Operations run net margin of 10% (which keeps us the lowest in the area). If my math was correct 10% of 10M is 1Million - On a scale of single man or a few employees the 10% margin would shut the business down. But on larger scale its a million bucks.

Comments ?
is 10% gross company profit?
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Old 02-05-2008, 10:56 PM   #85
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Re: Pricing, Estimating, And Success


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Originally Posted by Double-A View Post
Business 101, as your company grows, your overhead grows with it, but as a percentage of gross sales, your overhead decreases with growth.
Can you please explain: if it takes 2 man crew to install a home theater and you have 1 installation per day for that crew, which yields 10% net profit before tax. Then you hire a second 2 man crew to do one more install that also yields 10% net profit before tax. How is the formula you offered as business 101 applies ? As far as I see it: the main obstacle in rapid growth is ensuring that your utilization is high, and overhead growth matches your sales growth. the Margin of 10% stays fixed. Yes you are only as good as your sales and would have to cut costs when they go down. But we all know that 10% margin is very conservation hence the excess of 10% allows for some slack in utilization.

I come to read this post daily, and get all excited about people who complain about lower cost contractors, or constantly getting their bids from under them.

If you are in our area, expect us to give a bid with 10% margin in it. And expect us to deliver the best service with legal employees, and well tested processes and procedures. We call it economies of scale. Example we by Romex by truckloads and hold it in stock. Average savings are 20-30$ per roll. But all these savings go to health, dental, and vision insurance of our employees. Almost anything up and until it cuts into 10%.

We are only as good as the people who work for us. I gladly share anything over 10% with them. Bonuses, SPIFS, Child Care and so forth. But by god I need 10M in sales and 10% margin. No alternatives.
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Old 03-12-2008, 02:05 PM   #86
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Re: Pricing, Estimating, And Success


Yep, this is what I was looking for, of course asking someone....duhh whddya ya think I should charge for this job is idiotic....I def. needed some advice on HOW to estimate, other then trial and error
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Old 03-12-2008, 03:32 PM   #87
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Re: Pricing, Estimating, And Success


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Originally Posted by HomeMedia Pros View Post
Can you please explain: if it takes 2 man crew to install a home theater and you have 1 installation per day for that crew, which yields 10% net profit before tax. Then you hire a second 2 man crew to do one more install that also yields 10% net profit before tax. How is the formula you offered as business 101 applies ?

Home, I'm sorry I didn't see your question earlier. I missed it completely until today. After reading and rereading your post, I'm afraid I might have misunderstood your question/point. I agree that 10% net before taxes for a 10M/year company is a much stronger financial position than 10% net before taxes for a 1M/year company. My 'book' below explains how.


Your fixed overhead items are things such as office supplies, rent, office salaries, etc.

Variable overhead are items such as cell phones, uniforms, health and vehicle insurance.

Up to a certain point, adding more workers in the field will not change your fixed overhead, only your variable overhead. Your overhead overall goes up, but as a smaller percentage per worker as you add more workers.

Take cell phones for example. If you supply one phone per crew, the first crew would require a contract with a carrier and an equipment purchase. Say that is $700.00 for the first year ($50.00/month for plan, $100.00 once for the phone).

The second crew would require an equipment purchase, ($100.00) but not a new plan, only a change to the existing plan (@$20.00 month).

So, cell phone costs per crew/year with one crew = $700.00

Cell phone costs per crew/year with two crews = $520.00

Now lets say each crew can do 200 installs a year at $100.00 per install. That is $20,000.00 per year in Gross sales with one crew, $40,000.00 with two.

700/20000 = 3.5% of Gross sales in cell phone costs with one crew and;
1040/40000 = 2.6% of Gross sales in cell phone costs with two crews.

Now your overall costs went up by $340.00 per year for cell phones, but in terms of a percentage of Gross Sales, they actually went down 0.9%.

Adding a third crew doesn't really make that great a difference; about another 0.6%.

1380/60000 = 2.3% of Gross Sales in cell phone costs with three crews.

Now, what is all this doing to your profit? Well assuming you have enough work for these crews, these savings in percentages should show up in your bottom line. Its not going to be 1:1 ratio on the percents, but it will be on the dollars. Every dollar you save in variable costs is a dollar that can go into benefits or profit.

BTW, your 10% net profit does not remain fixed. Unless you allocate those extra dollars away from profit, they will be counted as profit. Your 10% profit is a manipulated target, not a result of serendipity. You're manipulating your monies to keep your profit at 10%, but I think you know that. I think the sharing the extra profit with the employees is a great thing.

Hope this helps
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Last edited by Double-A; 03-12-2008 at 03:41 PM. Reason: I reread what was posted. Doh!
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Old 03-12-2008, 05:28 PM   #88
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Re: Pricing, Estimating, And Success


Are you guys really just trying to trick me into pricing things high so you can get all my jobs?
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Old 03-13-2008, 04:03 AM   #89
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Re: Pricing, Estimating, And Success


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Are you guys really just trying to trick me into pricing things high so you can get all my jobs?

Many a true word is spoken in jest

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Old 03-13-2008, 07:28 PM   #90
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Re: Pricing, Estimating, And Success


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really good Brian I have seen a lot of contractors do really well with thier business and not have a clue how to build a house. I can build the house, sure wish I could make the money work in business
Reminds me of a successful owner of a window and siding business around here. He ranked in the top 100 or 500 for sales/profits. He decided to install a window with one of his crews one day. After he left, they promptly reinstalled it "right side up"
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Old 03-16-2008, 12:06 PM   #91
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Re: Pricing, Estimating, And Success


I was told by a wise old man one time, "Busy Busy Busy, Bankrupt"

You can be the lowest price guy in town but if all it does is keep you busy then whats the point?

Margin is where its at. I put job cost into my program and it puts the burden and profit in for me, that way I don't feel pressured to change the price cuz of a customers sob story.
We have a reputation and a price, you either want us to do the work or you don't.
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Old 03-26-2008, 12:48 AM   #92
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Re: Pricing, Estimating, And Success


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You think they will read this and not still ask? I hope so. From now on I will just post a link to this sticky whenever someone asks a pricing question.

So in other words,you have nothing of substance to add.You either do not know,or are not willing to impart the benefit of your experience to someone who came to this forum for its intended purpose.I have so far made only one post,and that was for help in determining a price.As Brian said,pricing is arguably one of the most important aspects of running a business.So rather than directing someone to Brians very astute post,why not just,say nothing at all.
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Old 03-26-2008, 01:22 AM   #93
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So in other words,you have nothing of substance to add.You either do not know,or are not willing to impart the benefit of your experience to someone who came to this forum for its intended purpose.I have so far made only one post,and that was for help in determining a price.As Brian said,pricing is arguably one of the most important aspects of running a business.So rather than directing someone to Brians very astute post,why not just,say nothing at all.
And have them miss this post of Brian's? How would that be helpful? Some folks don't know they can search the forums. Having the link posted in answer to their question might just be the answer they were looking for. Nothing at all certainly wouldn't be the answer they were looking for.
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Old 03-29-2008, 01:11 AM   #94
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Re: Pricing, Estimating, And Success


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And have them miss this post of Brian's? How would that be helpful? Some folks don't know they can search the forums. Having the link posted in answer to their question might just be the answer they were looking for. Nothing at all certainly wouldn't be the answer they were looking for.

Point taken.My apologies for jumping to conclusions.It is a very insightful read.
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Old 04-08-2008, 11:52 PM   #95
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Re: Pricing, Estimating, And Success


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One of the most challenging aspects of running a contracting business is estimating jobs. For someone with little experience, estimating can be a rather scary endeavor (it can also be scary for someone with tons of experience). After all, the accuracy of the estimate will have a huge impact on the contractor’s success.

This, I believe, is the primary reason we see so many questions asking what to charge for a job. But such questions are misdirected, because what I (or anyone else) would charge is completely irrelevant and doesn’t address the real issues.

The price of a job is comprised of 4 basic components: labor costs, material costs, overhead, and profit. Estimating is the process of identifying the labor and material costs. We add our overhead and profit to those costs to obtain our price.

Overhead—advertising, rent, insurance, utilities, phone, owner’s salary, etc.— is completely unique to each company. Without knowing these numbers, it is impossible to properly price a job.

Profit goals are also unique to each company. Again, without knowing the specific profit goals for a company, it is impossible to properly price a job.

Consequently, any attempt to answer a pricing question in the absence of these two key numbers is essentially meaningless. More to the point, pricing questions ignore the fact that a large percentage (often more than 50%) of the job’s price should be comprised of overhead and profit. (My suspicion is that those who pose such questions don’t know their overhead, and mistake gross profit for net profit. But that’s a different issue.)

As I said, estimating is the process of identifying the labor and material costs for the job. Labor costs are determined by the type of work being performed, the production rates of the company’s workers (the time required to perform each task), and pay rates. As with overhead and profit, these numbers will be unique to each company. Material costs are determined by the type of materials required, the quantity required, and their purchase price.

For example, let us say that a painting contractor knows that his painters can prepare and paint a certain style of door in 30 minutes. He looks at a job that has 10 of these doors. He knows that his painters can prep and paint these doors in 5 hours. He can also calculate the materials required by the spread rate of the product he will use. The contractor can now determine what his costs will be for the job. By adding his overhead and profit to these costs he will have his price for this job.

While the above example is simple and uses a painting project, the same principle applies to every contracting job—large or small, simple or complex—regardless of trade.

What should I charge for X? really means: what is the total of my labor costs, material costs, overhead, and profit? And the answer to that question requires a substantial amount of additional information. Providing an answer without that information is simply a guess.

Accurately pricing a job is not rocket science, but it shouldn’t be based on conjecture, blind guesses, or another company’s numbers either. Certainly accurate estimating takes effort, but owning a successful business isn’t easy. Asking what to charge for a job is asking for a short cut, but there are no short cuts to success.

Such questions about prices for a job are inappropriate, because they ignore the many factors that determine the price. Providing a price in response to such questions is also inappropriate, for the same reasons.

It is a documented fact that 90% of small businesses fail within 5 years. Of those that make it 5 years, another 90% will fail within the next five years. Which means, 99% of small businesses fail within 10 years. One of the primary reasons for failure is not charging enough. Contractors are as guilty of this as anyone.

There seems to be no shortage of hacks willing to work for dirt cheap prices. Nor does there seem to be a shortage of replacements when they inevitably fail. One of the most effective means for avoiding failure is to know your numbers. Asking what to charge for a job is simply an admission that you don’t know your numbers.

I hasten to add that there is nothing wrong or inappropriate with asking how to price a job. But how to price is different from what price to give. Learning the process is a good thing. Looking for an easy way out isn’t.

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%.

Brian Phillips
im from iowa and i been framin for 7 yrs now i just started my own bussiness i know ho to do framing,siding,tile roof, most of the houses the i work on were 3000 to 6ooo sqft but i don't know how much to charge or what r the prices outhere on framing per sqft if any one outhere could help me i would preciate
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Old 04-09-2008, 03:17 AM   #96
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Re: Pricing, Estimating, And Success


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im from iowa and i been framin for 7 yrs now i just started my own bussiness i know ho to do framing,siding,tile roof, most of the houses the i work on were 3000 to 6ooo sqft but i don't know how much to charge or what r the prices outhere on framing per sqft if any one outhere could help me i would preciate

Are you sure that starting a business is the right thing for you? Does it suit your talents? What you are saying here, in effect, is that you know how to do the job but that you don't know how to run the business. Would you be better off as an employee?

If you are sure that starting a business is the right thing to do then you need to start reading. There are masses of threads here, especially in the business section.

There is NO going rate. If whatever you read doesn't convince you of this then you are reading the wrong stuff, or you aren't taking it in. I would suggest you read through this particular thread again, and this time concentrate

John
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Old 04-09-2008, 07:27 AM   #97
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Re: Pricing, Estimating, And Success


Wrong thread
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Old 04-13-2008, 03:43 AM   #98
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Re: Pricing, Estimating, And Success


Just briefly;

I just recently priced a job for two homes on one block of land. I said I'll price it cheaper because of two house (same size and design) and nice bloke (HO) etc. I priced them at $465,000. I rang the bloke up to tell the price and he said he had prices ranging from $520,000 as the highest and the lowest which he'll go for, was $368,000. Some cowboy priced that and how he will manage with making money on that figure, only God knows.

A few months back there was this "price v's quality" article. Where is it now? Does anyone know? Please let me know cause I'd like a copy of it. Thanks!
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Old 04-18-2008, 06:55 PM   #99
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Re: Pricing, Estimating, And Success


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I am new to this forum and have been reading many threads in order to acquaint myself with the information that I could obtain here. At first, I was impressed with the idea of having on-line mentors. But, I am becoming more and more disappointed as I continue to read these threads. ...

I belive that everything should start from your own goals. How much money you wanna make a day/week/month/year/...life time?
For an example, you are estimating a mid size master bath remodeling project (complete gut out), and you are going to do it on your own, without any helpers. Lets say you will spend 2 weeks on the job site, 10 hours a day, 6 days a week.
All of that brings us to approx. 120 hrs (give or take) to get the job done, aight? Now, the question is HOW MUCH you think your hour of labor is worth to YOU? $8? $12?.......$40?.....$120?......
-Lets tackle the ball here for a sec.
What kind of a lifestyle you like? Do you go to McDonalds/BurgerKing for a dinner or you would like to go to a nice restaurant where you actually will ENJOY your meal? Do you plan to help your kids to graduate from the college or a HS only? You wanna live in a 1100 sf. condo, or you would preffer living in a nice 4500 sf. single family home? Whatever the answers to these questions are, they represent your goals in life, they basically represent HOW MUCH you value your self^^. With that said, lets get back grinding the numbers again (;
Lets assume you wanna get paid $20/hr. That will bring you to the labor estimate of $2400.00 before taxes. Lets assume your overhead is roughly @ $2500.00/mo. (Since you will spend 2 weeks on this jobsite, lets assume you will have another job simillar to this one to fill out the 2nd half of the month, and keep you busy). Split your overhead by half(making another half with your 2nd. job) and add your labor cost to it. That brings us to $3650.00, add your taxes to it and that could be your rough labor estimate.

Personally, This is what I`d do. I`d estimate it for $12k for the labor. Two of my guys would get it done in a 5-7 days. (They make $45/hr each round year.) As you start growing, find more excellent workers, and pay them properly, spread out the business and in 1 year after you start, you could have 5 teams with 2 guys in it.

Of coarse you will get underbid by other "contractors" every here and there, but if you do a great job and stand before it, you`ll do just fine (;
As someone said in earlier post somewhere on the other thread, its a game of numbers, just play it with different ones and I`m sure you`ll find those that suit you best.
I hope this helps,
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Old 04-23-2008, 11:50 AM   #100
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Re: Pricing, Estimating, And Success


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So Ed, if some slick talking @sshole sold your 85 year mother something for double what it's worth, that would be okay by you?

You guys... *shakes head*

At 85 the old bag should know better.

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