Help pricing work.
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Lard
Established Member
From a retired QS/Estimator’s perspective……
Over the years I’ve seen many, often crazy, approaches to pricing work. Without going into too much depth there is, however, the basic formula of cost determination…..
Labour + Plant (tools) + Materials + Sub-contractors (if used) = total ‘direct’ costs.
The addition of Overheads (your indirect costs) = Total COST
If you don’t know what any of these are/what they cover I would suggest you look up their definitions as a starting point……especially Overheads, which are the ancillary costs required to run your company (again look it up)
Very briefly, Overheads are normally added as a percentage (because it’s much easier to do so - look it up) which can be calculated by dividing your total annual running costs by your total annual turnover. This is not difficult to do, it just requires you to sit down and take the time to write down and cost all of the things that your business needs to operate. If you do it properly once, you can quickly ‘tinker’ with it afterwards.
So, in an impossibly ideal world, if you manage to estimate all of the times/waste/haulage/setting up/cleaning up etc etc PERFECTLY, you only get a total of your costs.
This means that if you charge your client this ‘sum’ you haven’t made any money (ie profit). So, the final addition of profit to the basic equation results in, what we term, as your VALUE…..this is your quote or tender figure.
Now, having stated the basic/obvious there are a considerable number of issues in the real world that affect each one of the above constituent parts. This is why no two companies/contractors will ever arrive at the same figure.
In an attempt to alleviate/reduce such effects (in the construction industry anyway) both client and contractor should (
) make use of such things as drawings, specifications and contracts. Such documents explicitly nail-down (or try to 
) anything that could, otherwise, cause dispute or ‘grey areas’ of misunderstanding.
As a quick example, and taking this down to a simple job (eg hanging Mrs Jones’ new door), who’s responsible for moving/replacing furniture, removing/cleaning/replacing carpets, cleaning-up, removing/disposal of any old materials/waste (van to tip or skips?)….what if the existing frame/lining is out of plumb/twisted? Etc etc…..my point is that by agreeing/writing down everything that your quote is based on will differentiate your quote from anyone else’s and potentially remove the source of any later disputes.
Anyone who ‘gripes’ about losing work must ask themselves if they did include everything in their original estimate?…..if they did then they must either accept that 1. their competitor didn’t or 2. is able to work more efficiently/access cheaper materials etc or 3. may be making less profit or 4. recognise that (and this is very important) the competitor may be losing money on that particular job!…..and that’s their own choice!……there are plenty more reasons…..
Unfortunately, clients also believe that whoever they choose will be doing the perfect job for them. Often, in reality, you do get what you pay for.
Apologies if I’ve swept over things here but estimation can be a mine-field and can result in either good profits or a path to insolvency if undertaken without full consideration of the components involved.
Over the years I’ve seen many, often crazy, approaches to pricing work. Without going into too much depth there is, however, the basic formula of cost determination…..
Labour + Plant (tools) + Materials + Sub-contractors (if used) = total ‘direct’ costs.
The addition of Overheads (your indirect costs) = Total COST
If you don’t know what any of these are/what they cover I would suggest you look up their definitions as a starting point……especially Overheads, which are the ancillary costs required to run your company (again look it up)
Very briefly, Overheads are normally added as a percentage (because it’s much easier to do so - look it up) which can be calculated by dividing your total annual running costs by your total annual turnover. This is not difficult to do, it just requires you to sit down and take the time to write down and cost all of the things that your business needs to operate. If you do it properly once, you can quickly ‘tinker’ with it afterwards.
So, in an impossibly ideal world, if you manage to estimate all of the times/waste/haulage/setting up/cleaning up etc etc PERFECTLY, you only get a total of your costs.
This means that if you charge your client this ‘sum’ you haven’t made any money (ie profit). So, the final addition of profit to the basic equation results in, what we term, as your VALUE…..this is your quote or tender figure.
Now, having stated the basic/obvious there are a considerable number of issues in the real world that affect each one of the above constituent parts. This is why no two companies/contractors will ever arrive at the same figure.
In an attempt to alleviate/reduce such effects (in the construction industry anyway) both client and contractor should (
) make use of such things as drawings, specifications and contracts. Such documents explicitly nail-down (or try to ) anything that could, otherwise, cause dispute or ‘grey areas’ of misunderstanding. As a quick example, and taking this down to a simple job (eg hanging Mrs Jones’ new door), who’s responsible for moving/replacing furniture, removing/cleaning/replacing carpets, cleaning-up, removing/disposal of any old materials/waste (van to tip or skips?)….what if the existing frame/lining is out of plumb/twisted? Etc etc…..my point is that by agreeing/writing down everything that your quote is based on will differentiate your quote from anyone else’s and potentially remove the source of any later disputes.
Anyone who ‘gripes’ about losing work must ask themselves if they did include everything in their original estimate?…..if they did then they must either accept that 1. their competitor didn’t or 2. is able to work more efficiently/access cheaper materials etc or 3. may be making less profit or 4. recognise that (and this is very important) the competitor may be losing money on that particular job!…..and that’s their own choice!……there are plenty more reasons…..
Unfortunately, clients also believe that whoever they choose will be doing the perfect job for them. Often, in reality, you do get what you pay for.
Apologies if I’ve swept over things here but estimation can be a mine-field and can result in either good profits or a path to insolvency if undertaken without full consideration of the components involved.
johna.clements
Established Member
I used to work for a Marine Civil Engineering contractor back in the 80's and we were trying to win the contract to build a port in Saudi. The client said we will give you the port job if you build this school. Whilst we did do onshore work it was mainly roads and industrial buildings (I was working on a power station) not things like schools. We priced at cost so we would win the port job and make a big profit.
We found we underestimated, there were problems and the costs increased which the client would not pay for. Then we did not get the port job and we were insolvent.
Do not buy work.
Again - some good stuff above - but I think there always has to be a balance between working it out at a theoretical level and working out the reality - and for that you have to also understand the market, know who is prepared to pay your price (and what their expectations might be), and what market size / competition there is in your area.
The client may be someone who values the relationship and all the care above everything else, so any price will work - others might be very price sensitive. In running a business you need to understand and deliberately choose the client base and route you are going to take.
For example - Lard mentions working out costs including labour - then overheads, then adding profit margin - however, for most small traders their labour charge is their wage - there is no additional profit on top - if they have factored in the overhead costs of providing workshop / kit / etc. then their labour cost pays their living - they are not a national company with shareholders to whom they have to distribute profit margins - and yes, it is lovely to add profit on top, but that changes then the client base / market into which you can sell...
Kayen mentions a breakdown of why a week is need to build two simple shelves, but if I were the client
- I would not be wanting to pay a tradesman 4.5 hours for a 1 hour visit - I would be happy to arrange a visit when he was in the area anyway, I am not paying for his travel time...
- I appreciate that some jobs are large and require lots of prep time - however, a couple of hours at the simplest level and a couple of weeks at the most complex to determine a cutting list? A QS involved in a £14m build I was involved with at a school a few years back took less than two weeks to come back with the entire preparation, quantities, costs, etc.
- He has built in a number of hours to ring timber yards and select wood - it would probably cost less to go to the first yard and buy whatever they have even if more expensive than spend hours trying to save a small amount - the wood for the box shelf is probably not hard to select, the walnut may take 10 minutes to go through a stack - but if someone was doing this kind of work a lot they might even have their own stock - most joiners I know have quite a big stock of wood in their yard / workshop...
- even unloading and storing the timber is apparently another 30 minutes - it is at most 4 or 5 slabs of timber, it really doesn't take more than 5 minutes to take that off a roof rack or out of a van (and I frequently carry 5m lengths on the roof rack ratchet strapped down - it takes longer to roll up the ratchet straps then to remove and store the timber!)
- Ironmongery, I would expect a tradesman to be familiar with it and unless really bespoke, to be able to order it within 10 minutes from screwfix / Amazon / Travis Perkins / Ironmongery Direct / etc. I can't see the ironmongery for this being hugely bespoke or complex
- spraying, he talks about 8 hours, with 4 coats and an hour between each to dry - but why as the client am I paying him to spend time standing around for those drying hours? Set it up and spray it in one place, and then get on with work elsewhere while it dries
- wrapping the load - it is two shelves, bubble wrap or some removal firm type blankets - 10 minutes and it is in the van strapped and ready to go.
The bit I do like best though (genuinely) is: with an attitude that means I turn up on the day that I say I will, on time, and provide the highest quality furniture with care and passion? With that approach I would pay a premium and give someone repeat work, but not a weeks wages for 2 shelves
baldkev mentions the cost of kit - including £900 of batteries - I do get that, I have quite a lot of kit here, any new toy is great, but I am buying for myself and not having to justify the cost in bills to my clients - yes, I get that kit is not cheap, but it always intrigues me how many tradesmen are buying for example Festool when Makita / Bosch will do the job as well - one chippy turned up at mine with his entire van kitted out with Festool systainers and kit, must have cost a fortune - the next turned up with sensible but cheaper kit - interesting to see which one had the more solid and professional business
Ultimately, anyone can charge whatever they like, and if they find someone to pay it then great, but the recent years have seen a lot of increases in costs and ultimately that won't be sustainable into the future - there is likely to be a crash in this market over the next 6-24 months - the tradesman who prices sensibly so that they still make a living, but don't overcharge the customer will keep on in business... I have had tradesmen recently quoting silly costs to me - as one chippy said: Ah, costs are increasing, wood has gone up hugely and as for electricity prices, they are through the roof, so we have had to put up our prices... yes, but, I was buying the wood separately and he was using my electricity to do the work... there is a certain point at which the end consumer won't be taken for a ride, and I think that is coming - so no antagonism against those who can get away with what they are charging, but if the next few years are going to be tough, looking at where costs really need to lie will be sensible...
The client may be someone who values the relationship and all the care above everything else, so any price will work - others might be very price sensitive. In running a business you need to understand and deliberately choose the client base and route you are going to take.
For example - Lard mentions working out costs including labour - then overheads, then adding profit margin - however, for most small traders their labour charge is their wage - there is no additional profit on top - if they have factored in the overhead costs of providing workshop / kit / etc. then their labour cost pays their living - they are not a national company with shareholders to whom they have to distribute profit margins - and yes, it is lovely to add profit on top, but that changes then the client base / market into which you can sell...
Kayen mentions a breakdown of why a week is need to build two simple shelves, but if I were the client
- I would not be wanting to pay a tradesman 4.5 hours for a 1 hour visit - I would be happy to arrange a visit when he was in the area anyway, I am not paying for his travel time...
- I appreciate that some jobs are large and require lots of prep time - however, a couple of hours at the simplest level and a couple of weeks at the most complex to determine a cutting list? A QS involved in a £14m build I was involved with at a school a few years back took less than two weeks to come back with the entire preparation, quantities, costs, etc.
- He has built in a number of hours to ring timber yards and select wood - it would probably cost less to go to the first yard and buy whatever they have even if more expensive than spend hours trying to save a small amount - the wood for the box shelf is probably not hard to select, the walnut may take 10 minutes to go through a stack - but if someone was doing this kind of work a lot they might even have their own stock - most joiners I know have quite a big stock of wood in their yard / workshop...
- even unloading and storing the timber is apparently another 30 minutes - it is at most 4 or 5 slabs of timber, it really doesn't take more than 5 minutes to take that off a roof rack or out of a van (and I frequently carry 5m lengths on the roof rack ratchet strapped down - it takes longer to roll up the ratchet straps then to remove and store the timber!)
- Ironmongery, I would expect a tradesman to be familiar with it and unless really bespoke, to be able to order it within 10 minutes from screwfix / Amazon / Travis Perkins / Ironmongery Direct / etc. I can't see the ironmongery for this being hugely bespoke or complex
- spraying, he talks about 8 hours, with 4 coats and an hour between each to dry - but why as the client am I paying him to spend time standing around for those drying hours? Set it up and spray it in one place, and then get on with work elsewhere while it dries
- wrapping the load - it is two shelves, bubble wrap or some removal firm type blankets - 10 minutes and it is in the van strapped and ready to go.
The bit I do like best though (genuinely) is: with an attitude that means I turn up on the day that I say I will, on time, and provide the highest quality furniture with care and passion? With that approach I would pay a premium and give someone repeat work, but not a weeks wages for 2 shelves
baldkev mentions the cost of kit - including £900 of batteries - I do get that, I have quite a lot of kit here, any new toy is great, but I am buying for myself and not having to justify the cost in bills to my clients - yes, I get that kit is not cheap, but it always intrigues me how many tradesmen are buying for example Festool when Makita / Bosch will do the job as well - one chippy turned up at mine with his entire van kitted out with Festool systainers and kit, must have cost a fortune - the next turned up with sensible but cheaper kit - interesting to see which one had the more solid and professional business
Ultimately, anyone can charge whatever they like, and if they find someone to pay it then great, but the recent years have seen a lot of increases in costs and ultimately that won't be sustainable into the future - there is likely to be a crash in this market over the next 6-24 months - the tradesman who prices sensibly so that they still make a living, but don't overcharge the customer will keep on in business... I have had tradesmen recently quoting silly costs to me - as one chippy said: Ah, costs are increasing, wood has gone up hugely and as for electricity prices, they are through the roof, so we have had to put up our prices... yes, but, I was buying the wood separately and he was using my electricity to do the work... there is a certain point at which the end consumer won't be taken for a ride, and I think that is coming - so no antagonism against those who can get away with what they are charging, but if the next few years are going to be tough, looking at where costs really need to lie will be sensible...
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@Lard covers most of the valid points about pricing. Very much the pointers I was given when I started out in business. Profit does have to be added over and above labour ,overheads and materials costs - otherwise you are just ' treading water' It's the bit that allows the business to grow.
I have to admit that I became very adept at 'treading water' and not so good at 'adding profit' I suppose it's the difference between surviving and flourishing.
There are some points to bear in mind, if you are a one-man-band. which is that, at any given time you can be wearing completely different hats. For instance, what you pay yourself for your skills, is not the price you will be paying yourself for simple labouring.
As an example - at the end of a large kitchen job, I would get a skip in and clear the decks in my workshop, ready for the next job This would average out at about two working days, . This is where larger businesses can score, in that they employ others at a lower wage to carry out these tasks. That way their skilled workers can maintain their level of pay
I have to admit that I became very adept at 'treading water' and not so good at 'adding profit' I suppose it's the difference between surviving and flourishing.
There are some points to bear in mind, if you are a one-man-band. which is that, at any given time you can be wearing completely different hats. For instance, what you pay yourself for your skills, is not the price you will be paying yourself for simple labouring.
As an example - at the end of a large kitchen job, I would get a skip in and clear the decks in my workshop, ready for the next job This would average out at about two working days, . This is where larger businesses can score, in that they employ others at a lower wage to carry out these tasks. That way their skilled workers can maintain their level of pay
johna.clements
Established Member
It is doubtful if a QS could complete the pricing of a £14m school building in two weeks (and get the correct price). Under pricing is a big problem because you then have to fight for every penny as they try to recover their costs, they go bust then you have to re-let the contract, or with smaller contractors they just stop turning up. Over pricing is also a problem as the client will not get the best price; If you only have two weeks do you add 10% to everything in case you miss something.
£14m of works in a school will involve many different trades and suppliers. If the QS works 12 hours a day for two weeks as you suggest that is only 120 hours work.
You have to look at the drawings and specification and figure out the scope of the works. Will you need specialist contractors for piling or suppliers for the nice glulam beams over the hall.
You will have to contact all the trade contractors, suppliers and specialists and ask them if they are interested in the job.
Copy the relevant drawings and of the other docs and get them to all the different subsidies and suppliers so that they can price their part.
It is a good idea to phone up all the people to see if they got the works package and that they are going to price it. Many times they decide they do not want it once they have looked at the drawings so you may have to find more people to price that part.
You will know that some of the bricklayers will just lay bricks and will require the main contractor to supply forklifts, etc. The QS has to price all these things for all the subcontractor. The QS will have to plan the time each element of the works so that they know how many weeks they will need the fork lift for so they can get a price for it. Also things like offices, toilets, cleaning the road outside and staff etc.
Then you get all, hopefully, packages back from the subcontractors and have to see what they have priced. The carpentry contractor has not allowed for cranage, Better get some prices for cranes of the correct size. Then you have to compare the prices which cover different things to see who you will go with.
A lot of work for a QS to do in 120 hours.
Probably helps if the QS and the construction company are basically rolling out similar buildings across a sector... but a) doable and b) came in under the budget.... A chippy would be in the same place of knowing their sector and knowing basic outline prices already
@niall Y - sure, if you are looking to grow a business (e.g. Pimlico Plumbers) then adding a profit margin above the wage makes sense - and companies such as Pimlico Plumbers demonstrate that there are people who will pay way over the norm. to have good and reliable service... but my point remains, it is about knowing your market - the vast majority of tradesmen are not setting out to build a bigger company, they are aiming to make a living - and while I thoroughly support making as much money as you can, it is also concerning if people price themselves out of a market and go bust, or build so much expense into their overheads that they are no longer competitive (do they really need the latest VW transporter kitted out with Festool? The chippy who turns up in the brand new leased VW transporter - lowered, larger wheels, etc. and kitted out in Festool, is not making themselves any more money, nor offering the customer better value - they are simply supporting VW and Festool
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I recently did a wardrobe job - it was roughly 15 linear metres in total. The job involved compound angles which provides the maker very little wiggle room, so everything has to be perfectly sized. Quite a few mirrors and some glass, which again can be very difficult as you're relying on someone else's sizing - this has become a lot easier over the last few years as (good) glazing companies now use CNC machines rather than a tape measure from B&M and a dodgy T square to cut their glass!
It was extra deep (1000mm) and included 32 drawers - all on under mount, soft close drawer runners.
Spray finished in PU paint, colour matched to clients' sample.
When I said it can take a couple of weeks to create drawings and cutting lists I was erring on the side of caution. People change their mind, their requirements and often want two or three options, so the process has to continue until the job is finalised. Going by a couple of comments some of you wouldn't pay for this - so I wonder when you last worked for two weeks without pay?
The job was in Walsall, so about over 120 miles (2.5 hours) away from our base - so no option to just nip back to the workshop.
Two of us were working on it and we made wages - no profit as such - and I don't think I've ever made a profit in the 40-odd years I've been designing and making furniture, it's not why I do it, but I make damn sure we make wages as it's extremely hard work. The only people that make any significant profit in this industry are those that work for architects and have large workshops that employ perhaps 10 or 20 guys.
There is a simple formula for pricing such a job, anyone want to have a guess at it?
It was extra deep (1000mm) and included 32 drawers - all on under mount, soft close drawer runners.
Spray finished in PU paint, colour matched to clients' sample.
When I said it can take a couple of weeks to create drawings and cutting lists I was erring on the side of caution. People change their mind, their requirements and often want two or three options, so the process has to continue until the job is finalised. Going by a couple of comments some of you wouldn't pay for this - so I wonder when you last worked for two weeks without pay?
The job was in Walsall, so about over 120 miles (2.5 hours) away from our base - so no option to just nip back to the workshop.
Two of us were working on it and we made wages - no profit as such - and I don't think I've ever made a profit in the 40-odd years I've been designing and making furniture, it's not why I do it, but I make damn sure we make wages as it's extremely hard work. The only people that make any significant profit in this industry are those that work for architects and have large workshops that employ perhaps 10 or 20 guys.
There is a simple formula for pricing such a job, anyone want to have a guess at it?
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Sgian Dubh
Established Member
A rough estimate of materials costs plus a percentage mark up, e.g., material costs + 500%?
I've used that method for quick and dirty estimates when I didn't really want a job, but I always ensured the materials estimate and percentage mark up were generous enough that if my attempt to deter the 'client' were unsuccessful I could still, at least, make a decent profit, ha, ha. Slainte.
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rogxwhit
Established Member
Quite early on, I devised formulae for calculating making time in hours for various classes of production work from the nominal net quantities of wood in the project. Categories were along the lines of square joinery, angled joinery, curved joinery, box sash, etc, plus various types of one-off furniture and batch work (eg chairs). Thus I could quantify the wood, cost it, then forecast time taken by using a multiplier for each category. It was quick, and accurate since it was based on my own experience. Bespoke furniture had its own range of categories. Repetition work like chairs to existing designs for which I had production patterns had their own pricings. I was able to price solid wood kitchens per metre run which included installation.
Once you have premises the overheads are a significant component of hourly rate if there's just you using them - sharing space can reduce the overhead per head.
My pricing was the same for everyone, and yet I've had one person say 'You're very reasonable' and another say I was expensive. Perceptions can be subjective!
I've noticed that some people work from home and discount much of the overhead that relates to premises, which means that their price for a similar class of object can be quite a bit less than yours, which can seem a bit unfair ...
Some clients will return for further work without shopping around because they appreciate what you do and trust you.
Once you have premises the overheads are a significant component of hourly rate if there's just you using them - sharing space can reduce the overhead per head.
My pricing was the same for everyone, and yet I've had one person say 'You're very reasonable' and another say I was expensive. Perceptions can be subjective!
I've noticed that some people work from home and discount much of the overhead that relates to premises, which means that their price for a similar class of object can be quite a bit less than yours, which can seem a bit unfair ...
Some clients will return for further work without shopping around because they appreciate what you do and trust you.
I think a materials multiplier is a good method, and I usually reckon on materials x 300%, leaving 0.25 for overheads and 0.45 for profit or wages.
But, I much prefer to price per linear metre, TBH it's never let me down.
A basic wardrobe = £1000 per metre (I know materials will be about £300).
With sprayed shaker doors or similar = £1500 per metre (I know materials will be about £350).
Complex wardrobes (mirrored and/or detailed) = £2000 per linear metre (around £500 per metre)
The job I posted above was £30,000 - I was spot on with the price.
Materials came to around £10,000, fixed overheads (workshop, business rates, electricity, van, PL insurance, various licences, rubbish disposal etc.) around £4500, profit/wages for two = £15,500 - it took us 11 weeks from start to finish.
But, I much prefer to price per linear metre, TBH it's never let me down.
A basic wardrobe = £1000 per metre (I know materials will be about £300).
With sprayed shaker doors or similar = £1500 per metre (I know materials will be about £350).
Complex wardrobes (mirrored and/or detailed) = £2000 per linear metre (around £500 per metre)
The job I posted above was £30,000 - I was spot on with the price.
Materials came to around £10,000, fixed overheads (workshop, business rates, electricity, van, PL insurance, various licences, rubbish disposal etc.) around £4500, profit/wages for two = £15,500 - it took us 11 weeks from start to finish.
peter-harrison
Established Member
My accountant once said to me, "If you double your prices and lose half your jobs, what happens? You're getting the same money for half the work!"
While this is very simplistic, it's worth bearing in mind when you get that cringe on seeing the bottom line of a quote you've just finished adding up. If you get every job you quote for, you are either the Picasso of the furniture world, or you are charging too little. It's good to lose the odd job because you're too pricey. It shows you are in the right area.
This is not a huge job and I hope it won't kill you to lose it. Try asking what you really think the job is worth, and see what happens!
Good luck!
While this is very simplistic, it's worth bearing in mind when you get that cringe on seeing the bottom line of a quote you've just finished adding up. If you get every job you quote for, you are either the Picasso of the furniture world, or you are charging too little. It's good to lose the odd job because you're too pricey. It shows you are in the right area.
This is not a huge job and I hope it won't kill you to lose it. Try asking what you really think the job is worth, and see what happens!
Good luck!
peter-harrison
Established Member
And by the way, that's a posh room you are fitting the shelves in. They must have paid well for what's there already.
There has to be a modicum of profit to be made from a job, otherwise as I have said you are just 'treading water'. Just adding a percentage for wear and tear, is not enough. you have to invest in new kit to keep profitable. Otherwise, where does the money for this investment come from? Your wages? Keeping things exactly as they are isn't a realistic option. Things do have to evolve.@niall Y - sure, if you are looking to grow a business (e.g. Pimlico Plumbers) then adding a profit margin above the wage makes sense - and companies such as Pimlico Plumbers demonstrate that there are people who will pay way over the norm. to have good and reliable service... but my point remains, it is about knowing your market - the vast majority of tradesmen are not setting out to build a bigger company, they are aiming to make a living - and while I thoroughly support making as much money as you can, it is also concerning if people price themselves out of a market and go bust, or build so much expense into their overheads that they are no longer competitive (do they really need the latest VW transporter kitted out with Festool? The chippy who turns up in the brand new leased VW transporter - lowered, larger wheels, etc. and kitted out in Festool, is not making themselves any more money, nor offering the customer better value - they are simply supporting VW and Festool
Something that those who don't work with their hands, often overlook is the physicality of the job - after all, you don't see many older people on the building site. You basically have a set number of years to earn money, and set your business up in such a way that you can start employing others, to mitigate against the inevitable slow -down
There are lots of additional charges, that in a sense have nothing to do with pricing a job, which have also to be taken into account. Having lived and worked in London, one of them is the Congestion charge. Parking charges,( where there is parking ) is another - along with the inevitable fines. This is a form of tax that is inevitably borne by the customer.
I have worked on jobs where one of us would do the work, and the other would be feeding the meter, or moving the vehicle from one meter to the next. At a certain point, I and many colleagues gave up, and stopped working in London, proper
Not that I've ever been in the position of owning a new works vehicle, but there is a lot to be said for buying or leasing from new. The main thing is that you don't have to put up with the down- time and unpredictable expense when the MOT is due.
I have makita and dewalt. I want a domino at some point.... but it has to wait.
Back to profit though, i totally understand your comments about the hourly rate paying their living, but, theres 2 ways of pricing. The first is a fixed hourly rate where the customer agrees to an open price ( this is most of my work ) i sometimes have to give a ballpark, but theres no risk to me on my hours. Worth saying at this point with all the hours i put in i might as well be employed, my tax return is never impressive
The second is pricing. Thats different. On pricing you must work out your hourly plus materials, plus % on materials, then 10 to 15% profit / loss. You face risk here. You need to get paid for it and cover yourself. If someone doesnt want to pay the quoted figure, you dont want the work anyway, because it'll be trouble.
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rogxwhit
Established Member
I would often use this for sitework, where you don't always know what you might uncover & have to deal with, including on jobs that might even take several months - and in the workshop for certain repairs for similar reasons. It needs a certain amount of trust from the client but if you explain your reasoning and what your hourly rate is, they tend to take that on board.
For in-workshop manufacturing, I would always quote a job price because (1) normally the client expects it, (2) the job might be subject to competitive tendering, and (3) given the formula method hinted at above, it's easy enough to do.
When I owned the glazing repair company, I generally calculated cost of goods sold and multiplied by five. With some bespoke work, such as intricate lead, this would have made the quote totally prohibitive. With those, the multiplier became less but the margin was still good. Some other mechanical repairs could attract a higher multiplier than five. I typically won the business on two thirds of what I quoted. A lot of people were happy that I turned up when I said I would, that I listened to what they wanted and provided them with a service that they expected.
Over the years I worked out the cost of running the business pretty carefully and targeted the work that was profitable. I turned down the stuff that appeared unprofitable or which came with excessive financial or safety risk. Somebody less aware could have that. Luckily, there was enough work to go around, and we generally targeted the people who were willing to pay a bit more in return for better products and quality of service.
If we got it right, we asked the customer to pay there and then. When we got it wrong, we didn't ask for payment until it was right. If a snag occurred after payment, we went out as quickly as possible and fixed it.
We were a limited company with my wife and I as the shareholders. We paid ourselves and our employees a reasonable, but not excessive, wage and didn't record a profit. Profit attracted Corporation Tax. What would have been profit was funnelled into pension funds and we are reaping those rewards now.
There's nothing wrong with turning down unviable work and there's nothing wrong with making more than a decent living - much of it is about creating the right perception at the point of quoting and then delivering exactly what you promise. Most reasonable people were happy with that. Those who wanted to squeeze the price, beyond a certain point, were politely declined and we went for business elsewhere.
Over the years I worked out the cost of running the business pretty carefully and targeted the work that was profitable. I turned down the stuff that appeared unprofitable or which came with excessive financial or safety risk. Somebody less aware could have that. Luckily, there was enough work to go around, and we generally targeted the people who were willing to pay a bit more in return for better products and quality of service.
If we got it right, we asked the customer to pay there and then. When we got it wrong, we didn't ask for payment until it was right. If a snag occurred after payment, we went out as quickly as possible and fixed it.
We were a limited company with my wife and I as the shareholders. We paid ourselves and our employees a reasonable, but not excessive, wage and didn't record a profit. Profit attracted Corporation Tax. What would have been profit was funnelled into pension funds and we are reaping those rewards now.
There's nothing wrong with turning down unviable work and there's nothing wrong with making more than a decent living - much of it is about creating the right perception at the point of quoting and then delivering exactly what you promise. Most reasonable people were happy with that. Those who wanted to squeeze the price, beyond a certain point, were politely declined and we went for business elsewhere.
I used to work with one of the major contractors in the UK and the first thing that was done if they won a substantial contract was to look for the mistake in the estimate that underpriced the job, but they also sometimes bought work by underpricing to keep staff and workforce, far too expensive to make people redundant then have to re-employ when the next contract was awarded, mind you a good crew can claw back any underpricing by the extras, they always had a duplicate book on them and everything asked for by the Architect, Engineer or Client was written down and signed for by them.
And the customer always says........
"How much?" "You're joking right"
Or
"How about cash"
Or
" Ive other quotes to come in yet"
Or
"Is there any wiggle room"
A lot depends on your target market and what you make and
Reputation.
If your just getting started its very difficult.
"How much?" "You're joking right"
Or
"How about cash"
Or
" Ive other quotes to come in yet"
Or
"Is there any wiggle room"
A lot depends on your target market and what you make and
Reputation.
If your just getting started its very difficult.
Lard
Established Member
I find the topic fascinating, moreso in regard to the number of varied approaches taken by firms.
The reason I posted earlier was simply to point out the fundamentals and the difference between direct/indirect costs……over the years I’ve seen so many people misunderstand the basics and then wonder why they cant control their finances.
With the greatest respect, some of the comments I’ve read here still don’t seem to make the distinction between cost, value and profit. That’s not particularly a criticism BUT if you don’t get it, you’re always in danger of coming a significant cropper.
The overriding point that must be understood is that if you take account of all of your costs (think of your bank account) - costs only go one way ie OUT) then ANYTHING you subsequently add on MUST BE PROFIT……whenever you get paid (think bank account again) profit is PART of the monies that comes INTO your account…..(it’s not part of the overhead because that’s a cost)……money-in tries to covers your costs…..anything left over is PROFIT.
Now, before you chastise me…..the above assumes that you get your initial cost assessment dead-on…..you will all know that that () is impossible……but just accept that this is the academic ‘book’ approach……if you ‘get’ this, you can diversify as much as you like as you should then be in a position of knowing the risks involved.
Many many years ago I was asked to ‘price’ a full bill of quantities (BOQ) for a local, and well-regarded builder (a mason by trade) who admitted that he didn’t even know what a BOQ was as this was his first experience of tendering for a ‘larger’ contract. Having estimated his direct costs (note just costs!) I met him to discuss the adding-on of his overheads and desired profit. He had never heard of the term ‘overheads’ and so we completed a quick/rough estimate of the same, converted to a %, and added these in.
The profit discussion took a similar, alarming-at-the-time, route in that the only guidance he could give me was with the example that he could build a 3 bed for £50k but charge £60k (shows how long ago this was
)…..”aah”, says I, “hmmm, if you want to add 20% profit to this tender you will not win it”, his response was “why should I not try to make the same money as I always have?”……he had a point!
Long story short, he didn’t win but, instead, he also didn’t go into something he obviously wasn’t prepared for either. I remember that he was really pleased when I took the time to go through the full estimate with him as he admitted, many times, that he “wouldn’t have thought of including/covering that” I was actually happy that he didn’t get the work as he was blissfully unaware of what could have gone wrong, given that he wasn’t setup well enough to deal with it.
I could go on but just wanted to illustrate that although he was a damn good bloke (and tradesman) he had no real basis for his approach to covering ALL of his costs. When I questioned him about proving that he actually did make 20% profit, his reply was along the lines of “when I go to the bank, there’s always plenty of money in there”. He was blissfully unaware that he could have, actually, only made £1 profit, or even a loss on certain jobs (because his initial costings were not correct) but, nonetheless, he still had money in the bank!
On the flip side I became increasingly disillusioned with the practices of the ‘big’ boys who base their costs on ‘superficial’ rates (cost per m2). An old mate of mine ended up as one of the ‘chief’ estimators for one of the largest construction companies but, following an in-depth discussion with him, I realised he had become completely oblivious to the fact that his costs were so far removed from reality.
Why is that you might ask?…..His company sat/sits at the top of the supply chain ladder, ‘he’ simply pressurises the poor old contractor (subcontractor) below him to furnish their own tender, also in a m2 format. His upper company then simply adds their own profit. It doesn’t stop there though because that poor old contractor has done exactly the same to the poor old contractor below them…..and so it goes on an downward until it reaches the poor sod at the bottom who actually has to do the physical work…..and because he does so, he is the one who does the proper costings because his livelihood depends on it!
If someone along the line (lower down the ladder) makes a costing mistake then the guy up the top doesn’t care, he just takes his cut and lets the minions below him fight it out (More or less
)
What does this reveal? Well, for starters you get increased layers of project management with each one adding-in a their own profit requirements which, ultimately, leads to the Client paying considerably more than they should be. “Aah” you may say, “but surely, competitive tendering stops this from occurring?”….no, not really because the other main contractors (at this level) do exactly the same.
Having left site, but before I retired, I lectured for a few years which included the subject of ‘tendering/estimation”. I used both of the examples above as book-end illustrations of different approaches undertaken by different contractors at the different levels of contracting I had experienced. It was a useful technique but only AFTER I was satisfied that the students had understood, first and foremost, the basic principles.
I haven’t even touched upon ‘risk’ as that’s another topic worthy of its own discussion. The only thing I will say, however, is that since I’ve calmed down (and built my own tinkering workshop
) I’ve completely changed my opinion on pricing work, based simply upon the requirements of some of my mates who are sold tradesman/one man-band organisations. I’ve stopped ‘lecturing’ them about “you’ve missed out this and that” and “you’ll lose money this way” etc and, instead, now advise them to push their dayrate onto their customers. In this way they either get the client to buy their own materials or they show them the invoice from the merchant in order to get the bill paid. The result is that they then cannot lose on materials and get their labour costs covered in full. In this respect the ‘dayrate’ surreptitiously includes any on-costs (overheads) and a required level of profit.
If they want to make more money (profit) just increase the dayrate…..simples.
This method only really works in a market where word-of-mouth gets them the next job (in other words they have to be good to get the recommendation). Such a situation then means that the customer is also more likely to accept a dayrate because they know that they’ve can be trusted to turn up, come to work and will not disappear after dinner etc.
The dayrate approach can still be used in those situations where a price is an absolute client requirement by multiplying it by the number of days involved - as long as the time element is a somewhat likely certainty.
Sorry for going on. Don’t start me on the corrupt-ness of academia and pass/fail rates and ‘preparing students for industry’ and NDAs…….there’s another thread all by itself!
The reason I posted earlier was simply to point out the fundamentals and the difference between direct/indirect costs……over the years I’ve seen so many people misunderstand the basics and then wonder why they cant control their finances.
With the greatest respect, some of the comments I’ve read here still don’t seem to make the distinction between cost, value and profit. That’s not particularly a criticism BUT if you don’t get it, you’re always in danger of coming a significant cropper.
The overriding point that must be understood is that if you take account of all of your costs (think of your bank account) - costs only go one way ie OUT) then ANYTHING you subsequently add on MUST BE PROFIT……whenever you get paid (think bank account again) profit is PART of the monies that comes INTO your account…..(it’s not part of the overhead because that’s a cost)……money-in tries to covers your costs…..anything left over is PROFIT.
Now, before you chastise me…..the above assumes that you get your initial cost assessment dead-on…..you will all know that that (
) is impossible……but just accept that this is the academic ‘book’ approach……if you ‘get’ this, you can diversify as much as you like as you should then be in a position of knowing the risks involved.Many many years ago I was asked to ‘price’ a full bill of quantities (BOQ) for a local, and well-regarded builder (a mason by trade) who admitted that he didn’t even know what a BOQ was as this was his first experience of tendering for a ‘larger’ contract. Having estimated his direct costs (note just costs!) I met him to discuss the adding-on of his overheads and desired profit. He had never heard of the term ‘overheads’ and so we completed a quick/rough estimate of the same, converted to a %, and added these in.
The profit discussion took a similar, alarming-at-the-time, route in that the only guidance he could give me was with the example that he could build a 3 bed for £50k but charge £60k (shows how long ago this was
)…..”aah”, says I, “hmmm, if you want to add 20% profit to this tender you will not win it”, his response was “why should I not try to make the same money as I always have?”……he had a point!Long story short, he didn’t win but, instead, he also didn’t go into something he obviously wasn’t prepared for either. I remember that he was really pleased when I took the time to go through the full estimate with him as he admitted, many times, that he “wouldn’t have thought of including/covering that” I was actually happy that he didn’t get the work as he was blissfully unaware of what could have gone wrong, given that he wasn’t setup well enough to deal with it.
I could go on but just wanted to illustrate that although he was a damn good bloke (and tradesman) he had no real basis for his approach to covering ALL of his costs. When I questioned him about proving that he actually did make 20% profit, his reply was along the lines of “when I go to the bank, there’s always plenty of money in there”. He was blissfully unaware that he could have, actually, only made £1 profit, or even a loss on certain jobs (because his initial costings were not correct) but, nonetheless, he still had money in the bank!
On the flip side I became increasingly disillusioned with the practices of the ‘big’ boys who base their costs on ‘superficial’ rates (cost per m2). An old mate of mine ended up as one of the ‘chief’ estimators for one of the largest construction companies but, following an in-depth discussion with him, I realised he had become completely oblivious to the fact that his costs were so far removed from reality.
Why is that you might ask?…..His company sat/sits at the top of the supply chain ladder, ‘he’ simply pressurises the poor old contractor (subcontractor) below him to furnish their own tender, also in a m2 format. His upper company then simply adds their own profit. It doesn’t stop there though because that poor old contractor has done exactly the same to the poor old contractor below them…..and so it goes on an downward until it reaches the poor sod at the bottom who actually has to do the physical work…..and because he does so, he is the one who does the proper costings because his livelihood depends on it!
If someone along the line (lower down the ladder) makes a costing mistake then the guy up the top doesn’t care, he just takes his cut and lets the minions below him fight it out (More or less
)What does this reveal? Well, for starters you get increased layers of project management with each one adding-in a their own profit requirements which, ultimately, leads to the Client paying considerably more than they should be. “Aah” you may say, “but surely, competitive tendering stops this from occurring?”….no, not really because the other main contractors (at this level) do exactly the same.
Having left site, but before I retired, I lectured for a few years which included the subject of ‘tendering/estimation”. I used both of the examples above as book-end illustrations of different approaches undertaken by different contractors at the different levels of contracting I had experienced. It was a useful technique but only AFTER I was satisfied that the students had understood, first and foremost, the basic principles.
I haven’t even touched upon ‘risk’ as that’s another topic worthy of its own discussion. The only thing I will say, however, is that since I’ve calmed down (and built my own tinkering workshop
) I’ve completely changed my opinion on pricing work, based simply upon the requirements of some of my mates who are sold tradesman/one man-band organisations. I’ve stopped ‘lecturing’ them about “you’ve missed out this and that” and “you’ll lose money this way” etc and, instead, now advise them to push their dayrate onto their customers. In this way they either get the client to buy their own materials or they show them the invoice from the merchant in order to get the bill paid. The result is that they then cannot lose on materials and get their labour costs covered in full. In this respect the ‘dayrate’ surreptitiously includes any on-costs (overheads) and a required level of profit.If they want to make more money (profit) just increase the dayrate…..simples.
This method only really works in a market where word-of-mouth gets them the next job (in other words they have to be good to get the recommendation). Such a situation then means that the customer is also more likely to accept a dayrate because they know that they’ve can be trusted to turn up, come to work and will not disappear after dinner etc.
The dayrate approach can still be used in those situations where a price is an absolute client requirement by multiplying it by the number of days involved - as long as the time element is a somewhat likely certainty.
Sorry for going on. Don’t start me on the corrupt-ness of academia and pass/fail rates and ‘preparing students for industry’ and NDAs…….there’s another thread all by itself!
