mac6986

How To: Comprehensive Pricing Guide

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There are a lot of people here asking for insight on how to price particular jobs, so here is a fool-proof way to gauge what you should be charging for a job.

 

This is going to be long-winded, but there is a lot of information to consider.

 

You could ask 20 different members what they would charge for the same sign, and you will most likely get 20 different answers. The reason: OVERHEAD. Everyone has different needs, and they charge accordingly.  You need to calculate what it really costs you to make the sign other than materials & time.

 

I was very guilty of this in the beginning. I knew what it cost to make the sign, so I would find out what comparable shops in the area would charge. I would drop my price to get the job, but I also did it because I felt guilty for charging so much, knowing what the materials cost. What I didn't know, is that I was leaving a lot of things out of consideration.

 

EVERY SHOP IS DIFFERENT. You need to figure out what you need to make, to cover expenses and make a profit on each job. Its nice to do things for free or at cost, but you are in business to make money, right?

 

So here we are. You have a customer that wants a nice, big 4' x 4' window graphic. Single color vinyl, and the old graphics need to be removed. Cake job right? These are my bread and butter jobs.

 

Customer says that he wants a proof and an estimate prior to signing off on the job. The proof, a no brainer. But how much am I going to charge?

 

You need to know your shop rate first. How much is my time worth? What bills do I need to cover? Am I paying myself? Am I paying employees? These are all important things to know before you ever give a number to a customer.

 

First off, find out all of your monthly expenses pertaining to your business, MINUS MATERIAL, this is charged seperate. (spreadsheet attached at the bottom)

 

**Home Businesses** - the best way to figure out how much of your home expenses to include in your business expenses, divide the square footage of area in your home devoted to your business, and divide that by the square footage of your home. that will give you a percentage, i.e: 250 sq ft / 1000 sq ft = .25 or 25%. This is not exact when it comes to things like electric and water, but it will get you in the right ballpark.

 

Monthly Overhead:

These items should include Rent, utilities, equipment loans, services (accountant, courier, cleaning etc.) Subcontractors, licenses, association dues, equipment servicing, software purchases/subscriptions, vehicle expenses/gas, taxes, insurance, & payroll. Now this is just a short list of major expenses incurred, that most might forget about that aren’t doing this every day to make a living.

 

As an example, mine comes out to $2,415.00

 

Monthly Gross Wages:

If you’re paying yourself too, (which you should) decide an amount you'd like to make per week, add 30% to cover taxes, and multiply that by 4.34 (the average number of weeks per month: 52 divided by 12) and you have your average monthly salary plus taxes.

 

So, I pay myself (relatively cheaply) $500 per week + 30% = $650 x 4.34 = $2821.00

 

Add that all up, and that is your monthly "nut" that needs to be covered before you ever make a profitable cent. I know I haven’t covered material, but that comes into play later.

 

So I need to cover $2,415 + $2,821 = $5,236 every month before I am profitable. 

 

Calculating Your Shop Rate:

So now we have a good idea of what I actually have in the way of expenses, and I really need to make more signs to cover all that!

 

Speaking of making signs, how many hours a week would you say you actually devote to actual sign production? These are your actual Billable Hours. this is a vital piece of information in calculating what your shop rate is. With a little bit of time, you can figure out how much time you are actually spending making signs. This isn’t difficult, it just takes a little discipline to jot down the actual time you start and stop while working on signs for a typical week. its not uncommon for a smaller shop (like myself) to have one person doing everything and only spend 15-20 hours a week actually producing signage. Most of us are not as productive as we would like to think we are, especially if you have a home business, all sorts of distractions get in the way. That’s part of life. But be diligent with your time tracking to find out how much time you actually spend producing products.

 

On any given week, I spend 18-22 hours making signage. So we'll use 20 hours as the benchmark.

 

Now, I don’t know about you, but I like my time off with family and friends. That needs to be accounted for. I take about 3 weeks off combined thorough the year for holidays, birthdays, and vacations. That Gives me 49 production weeks per year.

 

20 x 49 = 980 Annual Billable Hours.

 

We're almost there! Its all a "simple" math equation now!

 

Monthly overhead: $5,236.00 x 12 months = Annual Overhead $62,832.00

 

Divide your Annual Overhead: $62,832.00 / by your Annual Billable hours: 980 =  Hourly Rate Before Profit $64.11

 

Add your profit percentage: 25% (you decide what you should add on) to your hourly rate: $64.11 = $80.14 - Hourly Shop Rate

 

 

Now you know what each hour you are making signs should cost. Don’t sell yourself short, this is a service you are providing, and most of your price is going to be time, not materials.

 

Back to the Customer Sign:

 

Time:

So, 4' x 4' single color vinyl sign with removal of existing and new installation.

 

Simple logo and text design, time - 30 min

No revisions, customer gives ok

Set up cutter & time to complete cut - 20 min

Weed & Mask - 20 min

Travel to & from worksite - 15 minutes to, 15 minutes from

Time to remove existing graphics & clean window - 60 min

Set up and install new graphic - 30 min

 

So The total time on this sign is 3 hours and 10 minutes x Shop Rate of $80.14 = $253.78 in labor

 

Materials:

ORACAL 951 - $1.27 Per Sq Ft x 16 Sq Ft = $20.32 in vinyl

RTape ApliTape 4075 - $0.12 per Sq Ft x 16 = $1.92 in transfer tape

 

Total material cost - $22.24

 

Just about done! Now you don’t want to just move material through your shop, and break even. You have to account for waste, so you mark up the material. I normally markup higher on small jobs and less on larger jobs. This one I'll do 3x material cost

 

$22.24 x 3 = $66.72 Material cost to customer

 

Add your time and materials

 

$66.72 + $253.78 = $320.50

 

You now have an accurate price that takes into account all of your expenses, the time it took to make it, and the time it took to install it.

 

When I first started I would look at this and say to myself "How can I justify over $300 when I know that it only cost me $20 in materials?" That was the un-educated, younger version of myself. There's more than just material in the price of the sign.

 

Find your shop rate and don't be afraid to price accordingly. Your time is valuable. If a customer can't appreciate that, move on to the next customer. DON'T SELL YOURSELF SHORT!

 

Dont forget to get the spreadsheet below

Shop Rate Calculator.zip

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Thanks for taking the time to write all this out, was very useful!

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We have been to trying to go by this exact method for some time now, however I really appreciate how you've simplified everything, especially your spreadsheet.

Very user friendly.

 

Well Done!!

&
THANKS!!!!!

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One thing I didn't read about the "customer sign". You said "Time to remove existing graphics & clean window - 60 min". Now I'm assuming the customer didn't remove the window and bring it to you.......

 

Seriously though, travel expenses shouldn't be overlooked, even if it is "just across town". 

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One thing I didn't read about the "customer sign". You said "Time to remove existing graphics & clean window - 60 min". Now I'm assuming the customer didn't remove the window and bring it to you.......

 

Seriously though, travel expenses shouldn't be overlooked, even if it is "just across town". 

 

That's a very valid point. I did leave that out in this example. I'll add it in above for the record.

 

My particular situation, I live in a very urban area, 90% of jobs I travel to are within 15 minutes. Each shop owner needs to decide what type of travel expenses they need to cover.

 

The way I do business, my travel expenses are accounted for in my shop rate. So when I have customers who come in and pick up, and when I ship items out, they are paying for my traveling to other jobs too. That way, theres no "travel charge" on the invoice, but believe me, I do get paid for my travel time and expenses.

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I think your cost is wrong on your application tape. It should be 12 cents per square foot not 1 cent.

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I think your cost is wrong on your application tape. It should be 12 cents per square foot not 1 cent.

you are right sir, I multiplied 36000 instead of 3600 linear inches

108826d1392165973t-i-beat-mr-fox-using-m

 

See guys? everything you read on the internet isn't true!

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Very good write up.

Really nice work.

But one thing to consider.

Normally on average, you would think smaller shops or even home based ones can do things s cheaper because of lower overhead costs..but in many cases the larger shops can do many things, specially in larger quantities, for alot cheaper.

Specially when they buy materials in larger bulk quantities.

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It's actually a double-edged sword,

The math and calculations in this setup is for a one man operation. The second you add employees, your billable hours multiplies by the number of employees you have. When your billable hours increase, your shop rate decreases. So some of the bigger companies can task it to one of the shop hands and can be comparable to any home based business, while completing other jobs at the same time. That is to say if the home based business isn't slashing their prices and de-valuing their work and the industry just to make barely over the cost of material.

I always tell the customer that you get what you pay for. I get this in my shop at least twice a week " I know a guy who does this on the side, and you are more expensive than him" mind you they say this while standing in front of about $20k worth of equipment asking why mine is more expensive. My reply to this is always the same: "I'm sure you do, anyone with a computer can do this now-a-days. But is he using the right materials? If something goes wrong, will his insurance pay for damages? Will he guarantee his work for any length of time? Will he even install it?" After asking these questions and the customer looks at you with a blank stare, that's when I say " Thats why mine is more expensive." I'm not knocking the home based market, I'm just saying there are A LOT of hacks out there looking to make a quick buck and don't care about quality.

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I sell alot of stuff on another forum I am on. And a new guy came on there with his cheap cutter and low quality crap trying to sell stuff. Well after a few unhappy customers..he is gone. Everyone on the forum knows me and my quality work and that I stand behind it.

My business is currently a home based business...but its growing and soon I will have my own store front and shop.

And just because someone has $$$$ invested in equipment and a fancy building doesn't mean their work is quality either.

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thank you for the time it took to do this. We truly appreciate it. What do we owe ?? hhheee

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My business is just starting to take off and this information is really helpful to ensure that I am profitable during these early stages.

 

Thank you for this concise write-up.

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Thank you for sharing something that clearly you spent a lot of time.  Very helpful to a newbie.

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Mac,

 

As a past long time business owner in another trade (HVAC Contractor) its good to see someone who has grasped these very important fundamentals. When I started in business in 1982 there was no Windows so everything I did was on spreadsheets. Knowing your costs is the only way a business can make money be profitable adjust accordingly and succeed. Its amazing how many businesses still do not know these simple concepts. Many who have continued over many years just "TRADING DOLLARS"  Kudos to you my friend!      :thumbsup:

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Mac, Thanks for putting this out on the forum. As a home based business as well I struggled with the issues you talked about, feeling guilty etc., but came face to face with "overhead " and other factors I had never thought of when recently looking at buying out a guy who was selling his sign business, now I see why a sign is much more than I would have charged and have starting adjusting sign pricing accordingly to grow my business so that when the time for a true brick and mortar the prices wont have t ogo up and give customers sticker shock. I plan t oget a copy of your price guide to look at. Thanks again, this is why this is the best forum on the net! 

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