Estimating and Pricing for Finishing

      a good finisher who's a poor businessman. July 3, 2008

Question
I have been in business for almost 10 years now. I have never run things like a real business and just charged what I felt was right, paid my bills when they became past due, and did whatever was necessary to keep customers happy. And I have given a lot of stuff away for free and been taken advantage of over the years.

Two things. I want to become a serious business, and I want to be taken seriously from now on. I have no problem with this part and I think I know how to handle this. The problem I am having is pricing. I have no idea how to price jobs and manage my money. I never get asked for prices up front. The cabinetmakers bring me the job, I finish it, and fax them a bill when it is done. This signals them that I am done with the job and to come and get it. They pick it up and drop off a check.

Does anyone know how to figure out what to charge? My costs have skyrocketed, chemicals are $5000 a month, rent is 1500, electric is 500, etc.

Forum Responses
(Finishing Forum)
From contributor L:
Add up everything that it costs to have the business running. Rent, electricity, phone, insurance, what it takes to get you there in the morning, your coffee, paper clips everything. That is how much it costs to run your business. Now divide that out by 12 to get your monthly figure. Now stick in a figure of what you want to get paid a month. Add at least 20% to all of your materials. Add all this up and then add another 7-12% for profit. There you have it, your formula.



From contributor D:
Great reply above. Profit margin over and above expenses and personal income is a matter of survival in the long run. At one time, my business was an illusion of success with a steady 3 month backlog. In fact I was barely scraping by to make payroll, expenses and personal bills.

I started with a formula as contributor L stated. I extended it out to an hourly production rate goal and discovered this rate needed to be doubled. I was afraid to shock the system this much, so I took an incremental approach over a period of a few years. It took awhile, but it worked out and I still work this formula today to stay on track.

Another factor I took into account in my formula was the amount of hours I wanted to work. What I mean is that to reach your gross income goal, you can always correct a shortfall by working more hours, but if you consistently have to work 65+ hour weeks to reach your baseline goal, then you're still giving yourself the shaft. Not that I don't still work long weeks here and there, but now when I do it is for real gravy, not to survive.



From the original questioner:
It doesn't work like that, though. So I figure 200 thousand a year divided by 52 weeks gives me roughly 4000 a week, divided by 40 hours gives me 100 an hour. This week alone I worked 80 hours just to meet deadlines. I finished 3 kitchens and a home theater unit with 14 interior doors and all the moldings to go with it, including chair rail, crown and base. If I charged an hourly rate, I would have made 8,000.00. The way I charge now I made roughly 14,400.00.


From contributor B:
Don't charge an hourly rate unless it is for punch outs or add-ons or a door or two, etc. Charge by the lf or sqft. Most in my area charge by lf according to type of finish put on. Figure out the lf of the kitchens you just did. Divide that by the amount you charged for the kitchen. That gives you what you charged for lf. If you need more, then add to lf price. I'd be interested in knowing what that price comes out to be. And what kind of finish you put on, stain and glaze, paint and glaze, or...?


From contributor L:
I never said charge an hourly rate. He asked for a formula to make things work. This is what I gave him. You need to know first off how much it really cost you to do business. And to start out, you need to know how many hours you will be putting into a project so you can develop a base line minimum charge for your product. You can always charge more. If you don't, you will be a business spiraling down into extinction.


From contributor A:
The real shame of your situation is that you should have 10 years worth of accurate job costing to give you excellent current prices. I was told a while back by a rather successful but evil GC that you make money not by bidding the job, but by taking the time at the end of the job to figure out where you made money and where you lost money. After awhile you will come up with good reliable numbers to really nail your future estimates. That's when you start making real money.


From contributor D:
The questioner is looking for basic guidance in how to determine what he needs to charge. I'm only suggesting to a person in his situation, where I have also been, that a simple analysis that determines a baseline goal of gross earning per labor hour is useful as a starting point to develop your own pricing system.

Whatever system of pricing gets you as much profit as the market will bear is the ultimate goal, but all systems begin with some level of analysis of cost per hour. I did not mean to recommend using a static hourly rate to bid all work so much as using this number as a tool to help evaluate how well you're doing on your bids.

Anthony Noel writes a terrific monthly business column for CWB Magazine and has been all over this topic from a shop owner's perspective. The questioner would do well to read through some of his archived articles.



From contributor P:
You can also find quite a bit of information in the Knowledge Base. In the top right of this page, do a search for "pricing," "bidding," "estimating," "charge," etc.


From contributor M:
I agree with contributor A. I have seen many finishing shops in LA that work like you. They do great work but they are more artist than businessman and they struggle to survive. Since this work is very individual, you have to spend time for estimating before and do calculation when you are finished. I've worked 30 years in restoring and refinishing and it took me some time to find my golden rule. But you will be able to figure out your own pricing.

To me it is a combination of 75% sqft and 25% hourly rate.

I charge $120/sqft French polish
$100/sqft high gloss filled grain
$45/sqft stripping and refinishing open grain semi-gloss
$35/sqft shellac and wax

This does not apply always for every job, but you will be surprised how much more you end up with when you take your time to calculate a job rather than guessing. The other thing is you appear much more professional to quote a number in front of a client by doing the math than dancing in front of the client and throwing out a number which nobody can understand how you came up with.

Another thing I learned the hard way, especially by restoring furniture - you are suddenly confronted with problems you didn't see at the time you quoted the job. I put on my quote a disclaimer that reads like this. "This is an estimate and not a fixed quote. I will confirm changes with the client ASAP when labor or material for any unexpected reason increase more than 10% from this estimate." At least you have a backup for unexpected situations.



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