I don't think I'm alone in this, but even after years in business I often find myself tinkering with pricing methodology. Long ago I settled on a "labor factor" model that is basically a multiplier applied to materials costs for a given job, adjusted up or down depending on the relative difficulty of the project. This approach has worked well, but may not be yielding competitive quotes in some cases. For example, if a job is loaded with high end slides/hinges, pricey pre-manufactured pantry pull outs, etc., why subject these to the multiplier (as opposed to a simple percentage markup) when they are no harder to install than cheaper alternatives? I'm starting to think that the labor factor should apply to raw materials only, with hardware and similar purchased items figured in with a straightforward (linear) markup. Anyone else thought this through?
Thanks for the insight, chipbored. Looks like we have similar methods (with my multiplier representing labor costs), although I probably don't pay enough attention to the front end (design) labor component.
Since posting the original question, I've gotten feedback from a customer who was comparing my bid to 2 others from direct competitors. She said that my quote was solidly in the midrange of the 3. I still need more evidence than just the one bid, but it looks like my decision to NOT subject pricey pullouts, etc. (there were several in the specs for this project) to the raw materials labor factor is being validated.
I'm finding that I'm allowing more and more time towards the front end design/labor component. It seems to take a lot of time to get a job off the ground these days. People are very particular about what they want yet very uneducated in the details of joinery. Gone are the days of "You did my friends kitchen, I liked that and want you to do it for me". Now it's "here are 11 photos from pinterest/facebook/instagram, I like this bit from that one, that bit from this one and I want you to make up the rest of it and then I will look at you like you are crazy because of the way you designed the ambiguous part using your professional experience as a guide.
I find myself using the term "open for interpretation" more and more when dealing with design vs implementation issues.
anyway that veered right off topic. sorry!
In the past I have looked at plans with expensive unnecessary design features and gone back and forth with client or builder to offer alternatives in the attempt at coming in at a cheaper price. It takes time and can be a thankless job.
I am now positioning us in the market as a premium supplier, high attention to detail and customer service over price.
In effect I work in reverse to the old adage of price low and pump it up with options and extras.
I price it as I see it, leave plenty of fat in the price and state "priced as per plans" letting them know there are small design changes that can make big cost savings.
It leaves the communication lines open for them to contact you rather than having to chase them up and essentially being on the back foot.
I spend tons of time thinking about this topic. Our pricing is essentially done like this.
1. Determine overhead costs- This MUST include everything you pay to run your company, insurances, building lease, equipment lease, accounting, marketing budget, annual fuel budget, utilities, plates, ect. I also add my employees labour, insurance, benefits, taxes ect into this number.
This should give you the total operating cost for your business. (I review this annually or anytime a large recurring payment is added to it.)
2.Now calculate the number of annual man hours (1hour for every guy that works in the shop) worked in a year. Divide your OH by the hours and it will give you what I will refer to as shop rate.
This is the base line for quoting.
3. Now that you have determined the cost to do business. You need to determine what the cost of materials are on the project you are pricing, then you must guess at the number of hours to produce it. Adding all of these costs togeather will give you what I call NET 0. Aka breakeven!
4. This is the point at which you need to determine what the profit margin will be on the project. 30%-70% is my suggestion. We change our margin based on demands/ expectations, supply only, cost of raw materials, risk ect.
Adding this on will give you deliverable cost. SIMPLE. LOL
What I’m currently doing is using online time tracking for each individual employee to see how close our estimated hours on a project are to the actuals. This will provide key data to help us quote better in the future, the program also shows our guys how they are doing vs. the estimated time on a job.
Hope this helps. If so leave a comment below! Thanks.
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