Pricing Work

[engineer one]

some personal thoughts about pricing work.

1/ there will always be someone who can do it quicker and cheaper.
what can you offer to the customer as your special capability that makes
them want to use you?
2/ never ignore the tax man and the nic, they will bite you in the
ar** when you least expect it, so save the money to pay them,
stick at least 20% of your turnover in an interest bearing account,
every week, and DON'T spend it.!
3/ if turnover gets big enough, the vat man is even worse, so don't
ignore him either.
4/ don't set up a company to start with cause they cost about a grand
with all the accountants charges, and may not be right for you,
plus the paperwork is a pita.
5/ get some advice from an accountant about bookkeeping and
what you can and can't charge for both to clients, and to the
tax man.
6/ KEEP proper records, in the long run they will save money and
time.
7/ remember it is easier for your accountant when you start to use
one for year end work to manipulate the figures, than for you and
he to explain to the tax man the cash you have floating around.
too many people drop themselves in the sh*t by hiding things
than by using the rules. remember the tax man ALWAYS has more
money than you , and if he thinks you are "at it", he will chase you
even for a fiver. :roll:

now the pricing.

figure you are only going to actually work about 30 hours a week during
the so called working week. you will work harder and longer, but you
have to go to the woodyard, the suppliers, even B&Q during the so called
working week, that will ALWAYS take longer than you thought.

also remember you have to go and see the clients, often at night,
and you can't really charge for the first couple of visits, but it is
something you should think about.

now the first thing. do a very tight budget, and see how much you need
to live on at the basic level every week. do not assume that your
other half will contribute at all, allow yourself at least 10% extra for
emergencies. your initial costs will include, rent(mortgage) utilities,
telephone (which will cost you a bundle)(internet connections)
food, clothing(even workclothes from tesco or matalan)
you should also allow for some fun, if you can remember what that is.

got a figure, then add 40 % to this and that gives you your
oh S**t figure, that you really cannot afford to go below for the
first year, remember some weeks you will earn more, some less,
but you must have given yourself some room to manouvre.

now divide this by 30, and this will give you the MINIMUM hourly rate
you need to earn just to get by.

now things become more interesting. cause you need to think about
the workshop, equipment, utilities there, and transport.

again divide by 30hours per week to get your additional hourly needs.

add those two figures together. this is your very basic labour cost,
then you have to allow another 10-20% to this to allow for consuming
tools.

so now you have to see a client, and quote. you do a couple of
drawings, maybe on the computer, have you costed that in?
have you any idea of how long it will take you to make the thing
you are selling, have you made one before, or something similar,?
if so, you have an idea of the number of hours. again add 10%-20%
that is your labour cost.
now you have to figure the wood and bits and pieces cost.
how much wastage do you have to allow, if its oak, will it
be 100%, or can you economise by using veneered boards for the
carcase, this will save time, and also wastage. how many
tools will you wear out in making it? for instance will your router cutters
need replacing at the end of the job, or re-sharpening professionally.
cost that in too.

as you can see it gets scary, but if you are not clearing before your
expenses, and you live outside london, about 45 quid an hour, for your
30 hours you will almost never make enough money to meet your basics.

but remember that in london, some garages charge up to 175 quid an hour,
whilst in the country they are charging 30-45 for the same things.

what we all need to do is make the professional work worth the money
and the effort.

it saddens me that so many good makers have financial problems because
they are scared to charge the proper rate for their time. i must confess though it is difficult to feel you can charge 45 quid an hour for your time
plus materials when you only want to pay 10 quid an hour to other
professionals.

what is strange is that on many site around london, at this time,
the painters get up to 200 quid a day, without providing anything
except a couple of paintbrushes, whilst chippies often only earn
a little more but have to provide a full workshop of tools, a real bummer. :twisted:


not sure if that helps as much as you want, but it is the way to start out
since you need to cover your costs other wise you won't eat enough
to do the work. :lol:

paul :wink:

 

[Anonymous]

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[engineer one]

thanks for the compliment, jacob, nice to get one from somewhere.

further thoughts. too many builders/craftsmen are scared of not having
work, so they have too much and let clients down by taking too long,
or they end up on "rogue traders". the hardest word for anyone is NO,
put it in your vocabulary, and remember to use it when you are being
asked to put someone at the top of the list, or do something in a time
table you know is impossible.

as a sole trader/ new worker, your reputation is built on a number of
things, including when you deliver, how good your work is, and whether you meet the client's needs at a mutually fair price.

remember in most cases, the customer has worked hard for their money
too. for something good, they will pay, but expect the same value as you would. :-k

as for the time spent jacob, i accept the remark, but if you are making
cabinets, you need to look at wood etc, and so all i was saying is that
it is important to allow for s**t happening in your day. it is too easy
to assume you are going to fill all 40 hours every week for the year.
so better to start at 30, and make money there then move up.

anyway my 2p, or actually should be maybe 45 quids
worth :twisted: :twisted:

paul :wink:

 

[Anonymous]

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[engineer one]

couple more thoughts.

remember that people these days seem to want to knock you, so
debt collecting is really important, but preparing for it is really important too. try and think about how you are going to protect yourself.
will your deposit cover the basics??? :?

many customers these days want to haggle, so have you built some
sensible room within the quote to allow for some negotiation, but don't
play the "life of brian" rules of negotiating.

have you thought carefully about how you will get paid, since you may
not be able to use a credit card facility for some time. have you got
the best bank for what you need.

also try to get started without borrowing from the bank, or anyone.
but if you have to, start with the family, but make sure you have a contract. that way you stop the arguments about he said she said, they said.

finally also try to avoid mortgaging the house for your new business,
you may well fail, and being homeless is a pain. and make sure you
discuss things with swmbo and maybe even get her to do the books :twisted: she may well see things that you don't and
you will find the problems out sooner.

paul :wink:

 

[Nick W]

And don't forget to get a new hobby to replace the lost one. :shock:

 

[Pecker]

Paul you make some excellent well thought out comments and observations,. however...

Here in rural Pembrokeshire the true average wage is about 10,500. Electricians can only charge a max of about £140 - £150 a day - thats sparkies who lets face it always charge more. The average chippie is only on about £110 a day max. The problem round here is SO many people do "hobbles" - ie cash in hand. The local council workers are the worst. they work 7 days on 7 days off. They charge about £60 a day for doing "hobbles". The problem here is we just have to compete with that. It is endemic in the way of life, with unemployment still very high with Pembrokeshire being officially recognised as one of Europes poorest areas - ahead of Slovenia!

I am too cheap and I am trying to put my prices up to £120 a day, but a lot of people say "you must be joking" especially when I charge £200 a day for two of us!

My partner is a mortgage advisor. The average size of morgage she does is about £70 - 80,000 that says it all really. A 3 bed semi will still only set you back about £125,00 - £135,000

I'm from Southampton originally. I could earn 3 times a much down there as I do up here, but thats my choice.

One other point. VERY VERY few people make money in the first couple of years, don't forget that. Firstly you have to find/buy work. then theres tools, a van, setup costs etc etc. (Paul, thats not aimed at your comments, purely an observation for those thinking of setting up).

This isn't intend to put down or contest Pauls comments, in many ways he is perfectly correct, but I just wish to make the point it does vary a lot around the country. Ironically I started a thread about this very subject some months ago on Screwfix. It was interesting to see the variations especially between larger cities and the far West and North.

Mark

 

[engineer one]

mark no complaints about your comments. however i have experience in
a number of businesses including some i have had to rescue where
people have under charged from the get go because they do not understand their own needs let alone how to price things.

i accept that 45 quid an hour may seem high country wide, but it is
difficult now to see the house prices country wide being as different
as they were, so the newer house owners in the country might well
have no idea of their overheads.

my whole aim is to get people to think seriously about what they can
charge and afford to consider before they start just to try and get
them through the first couple of years.

as has been said many times, you need to establish a reputation for
something that others cannot or are not willing to do, and capatilise
on that talent.

no one said it should be easy, only you don't want in two years time to
think "if only i had thought harder at the get go".

the important thing is to think before you start, and don't get forced
into an area where you can never make money because everybody
percieves your work as cheap.
all the best
paul :wink:

 

[Pecker]

Paul, yet again well thought out points. Thank you.

It is important that people think before they jump into something. I'll tell you now, it's bl**dy hard work running your own business as you know.
We do all make mistakes, probably the biggest one being afraid to turn down work.. in case nothing comes along in two months to replace it, or keeping prices low because you think no-one will pay the price for you.

I'm sure we have all been there. It's a learning curve and it's great that people like Paul come along and give us all insights into things many of us - even us running our own businesses - dont think of.

Co-incidently, I sat down the other day. I worked out that to pay my business costs (accountant, van( just tax, insurance and MOT no diesel or running costs), Public liability and employers insurance, landline and mobile phones, cost me a total of £45 a week. To do NOTHING. Just sit there.
Then I thought about how many screws I get thru. That made me realise I was making a loss on screws. How many times do I go to a job and use those few extra screws? I only charge cost price for them. So I've now starting charging extra to cover those few screws (it's amazing I recon I was spending at least £6 a week that I wasn't charging for.)

Now, as I write I am just thinking about my workshop. Ok so a job takes two days for Tony to make. So I charge an extra £20 per day for him to cover my employers NI cont. and make a small profit. But what about the electric he's using??? 5 double florrie lights, the extractor, radio, machines. It DOES all add to the cost.

I wish I could charge £45 per hour for me, but I cant. So, I must at least make sure I charge enough to cover ALL my costs AND make a living.

Sound silly to suddenly realise it?

You try starting up on your own. You spend SO much time worrying about your work and paperwork, you forget the reason you went into business - to earn money!

Mark - now humbly off to consider his pricing strategy. Thanks Paul (he said begrudgingly :wink: )

 

[engineer one]

oh the joy of at least someone who thinks i occassionally offer sensible and measured comments.

if you are good at woodworking, doesn't mean you will automatically
be good at business, but at least considering your costs will give you
pause for thought.

i know a number of businesses that still take on work without really knowing when they are going to actually deliver, let alone make a profit.
some have been going for years on that basis, but often it is the client
too causing the problem, wanting something in a hurry which actually
they should have ordered before the job started.

if just one guy who is thinking about going it alone stays in business
through looking at what i have said, and even if they have not followed
it properly, they at least understand, and thus give themselves room
to manouvre, then i have done a decent advisors job,
now if only i could make money from it :lol: :lol: :lol: :lol:

paul :wink:

 

[woodbloke]

Paul - some good thoughts here on setting up. There was an excellent series of articles in early editions of F&C by Paul Richardson covering just this sort of topic. One thing he mentioned in his articles that you havn't is the initial deposit from the customer. Paul Richardson recommended an initial deposit of 50% to cover the expenses of materials, tool expenditure (ie special router cutters) and as an act of commitment from the maker and the client so that once paid both parties are bound.
I worked for a maker some time ago who didn't do this and he had a minor disagreement with a client who refused to pay, my then boss had to walk away minus £20,000 :evil: :evil: - Rob

 

[Anonymous]

Interesting and useful reading Paul - reminds me why building furniture is , and always will be, just a hobby to me :wink:

 

[Anonymous]

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[Pecker]

I work the same as jacob, but, on larger jobs over about £1000 for uniknown customers I insist that my material costs (or actually what I tell them are the costs), are paid the day I turn up on site. This way, if a customer does go bad, at least I've covered my actual outlay costs.

I've never asked for desposit.

Mark

 

[JFC]

I always ask for a deposit but thats to cover what i say the materials cost i also add a little labour into that . Paul has made some very good points and i wish i was harder on the business side but as a good friend said to me today , if your good with your hands then your normally rubbish at the business side of things and the more work you get the worse you get .

 

[Anonymous]

Might as well throw my hat into the ring and tell you how I work.

Deposit a third
third on delivery
and the final third on completion.

this way I have two thirds of the money, if someone knocks me at the end, however I have been lucky and never been in that situation.

Pricing is always difficult and I can honestly say the I have no real method, but I do know what my over heads are and how long I can spend on a piece of furniture and work it out from that, I also add a large contingency just incase things go wrong, it also gives me some negotiation room, I will never just take money off though, I always tell the client its a fair price but I can reduce the cost by doing slight alterations.

Also depends on the client, if they flash their money around, i'll price accordingly.

 

[engineer one]

as someone whose forebears were artisans, lovely word, i understand the
problem every body has, and i am only offering advice as a starting
point cause jacob asked a question.

having seen JFC's work, i know he has the skills, so the question is how
does he ensure that he gets to earn what he wants, and the same for the
rest of you.

i accept it ain't easy, and different parts of the country have different problems including what you can charge, but i do repeat it is important
to have a proper written quote which stipulates what you are going to
do and give a reasonable timescale on, then any additional work not
covered in the written quote you can charge for.

few people actually cost in the consumables, enough screws dustmasks,
tack rags silly things like that. even if all you do for each job is quote an
extra fiver for a box of standards screws, when you need them it is there.

i have worked as a consultant to a number of companies over the years,
and most have little or no real idea of their costs, indeed as sometimes
you read on the front pages of a newspaper, they crash because of
"black holes" this is because the financial director does not deal with
the nitty gritty til too late. as a small guy, you can get a better idea more
quickly, if you bother to take the time to cover the bases.

it's all the silly things like, now the inland revenue, and vat are all in
one big group called HM CUSTOMS and REVENUE, which basically means
they are all powerful. in many cases the powers of the customs have
also been given to the revenue, and they will always have a bigger
pocket than you and me, and of course with the revenue you are guilty
until you prove yourself innocent, at your cost, so i say again,
make sure that you keep some sensible books. if you are on this
site, then you have a computer, there are a number of reasonable
and cheap bookkeeping packages that will if done weekly, give you a
decent idea of where you are going, you don't need to be a bookkeeper,
and don't go for the most expensive one.

personally i use "mind your own business", but i have found many
accountants are not computer literate, so it's important to check.
you could start with sums in excel.

the other thing i wanted to offer for consideration was the whole thing
about marketing and getting customers.

when you start out, unless you have previously been doing "homers"
or outside work whilst employed, you have to get a reputation and
offers to quote on. i would not at the beginning recommend getting
involved in these so called joint marketing schemes, since often they
seem to be more for the marketeers than for the producers, and if
what happens with the car selling sites is anything to go buy a rip off.

what i would suggest is to make some sample pieces that might also
be saleable, bedside tables, coffee tables etc are transportable,
adaptable, and relatively cheap. obviously don't copy ikea,
but since someone in last weekend's independent is selling an old
looking wine crate for 95 quid in trendy , stella mccartney outlet
and the paper claims it is the essence of good design, simple is good.

you might consider shaker type things, even a sewing table with
decent drawers etc, they seem to sell well. the reason i am suggesting
samples is that you can get used to building them, and thus cut your
production costs and timescales. try to exhibit locally, not just craft fairs, could you put it in a window at the local shopping centre/cinema even a mates shop. what you need is passing trade to see your work, and get an idea of your prices. above all, don't start making things that you have no
real experience with since they will cause all kinds of problems.

the other thing is a portfolio, so out with the old digital camera, and
get some stuff printed up, even on your own computer, then
think about where you want to work, and what you want to do, then
put flyers into suitable places. i know from what happens here in
london many of our local eastern european guys do the same, but they
tend to go for cheaply produced stuff with bad spelling in all the doors.
go for better quality, and be more selective.

finally back to money. existing customers are always the best selling tool,
and the most profitable one, so cultivate and try to keep them and their
friends happy. don't let them take the mickey, but you can afford
to be slightly less tough on them than some one brand new.

however remember that all relationships break down at some time, and
at least with a contract, however simple, you have some grounds to get
paid.

hope this helps too.

paul :wink:

 

[tim]

Most of my work is built in - therefore has no value unless its for the client. I charge 40% deposit, 50% on delivery/ installation and 10% remains as a snagging fee.

It may not be well known but in law, once you install a kitchen etc, you the tradesman lose any right of lien or retention on that work since it is deemed to be fabric of the property. I got stung badly last year when having booked 3 months clear for a big kitchen job, the wife (who I had been dealing with) walked out on her husband the day before I was due to pick up the deposit cheque.

To my mind, not asking for a deposit is no different to working without a guard on your machinery. Accidents will happen.

I think Paul has made some sound points, but what has so far not been mentioned is that the single biggest killer of any business is cash flow (or lack of it). Deposits are a way of maintaining cash flow - thats not the same as spending ahead of the game but why should you use your credit facilities to fund someone else's expense?

With the big job I'm working on at the mo (hence absence ) I have agreed with the client for stage payments so that I'm not working for free for the last month or so.

Cheers

Tim

 

[engineer one]

hi tim, nice to see you back, and hope that library is working.

you are right i did not talk about cash flow, specifically, but
first you need to see what your overheads are, then you are right
about stage payments. for the small man debt collecting is a big
expense so if you can stop it at the get go that is good.

but that is why i say have a contract, then at no stage can there
be an argument about where you should be at any part of the job
in relation to the money you are asking for.

i must confess that i was unsure about things becoming part of the
fabric, but i do wonder at the contradiction where by if you buy
something from a supplier on credit, instal it, but still within the
credit period, so you have not paid, and the creditor goes bust.
their contract may well say that ownership does not pass to you
or the customer until full payment has been made. wonder if the
receiver could call for it to be removed???? :twisted:

it would be nice to trust everybody, but we can't, so cover your ar**
where possible.

final thought about cash flow, according to all the statistics
in the uk and america, almost all employees are only 1 or 2 pay cheques
away from disaster, ie. if they lose their jobs, within 60 days they are
skint.

so it is always suggested that you try to have at least 6months basic money when starting to cover yourself. almost no one ever does,
but it is a nice dream :lol:

finally remember that where payments are concerned, first the government, then your roof, then food, then utilities, finally
the credit cards and other loans. don't let the creditors try to
bully you into preferring one above the other.

anyway if this has made any of us think a bit harder before losing
everything, then it is worth while.

paul :wink:

 

[Anonymous]

Tim, I can relate to that story, I don't book anything in until I get the deposit.
Cash flow is a huge problem, I recently did 3 kitchens side by side, my outlay on appliances, building work and granite was enormous, I just couldn't do it without large deposits.