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Successfully pricing work can be a difficult balancing act. Giving a reasonable price is key to winning work, but you still need to make a decent profit. Mark Krull, Director at Logic4Training, explains how tradespeople can avoid selling themselves short.
Pricing work involves working out the cost of the materials and the time required to complete a project. Sounds simple, but in reality getting a handle on these components is the source of many a headache for many small businesses. Giving a standard price for goods and services can be impossible as no two jobs are the same, and each job must be assessed carefully on a case-by-case basis.
Being organised with your pricing will also help you prepare for upcoming expenditure by recording ongoing weekly, monthly and annual costs, allowing you to keep money aside to pay tax and ensure a healthy cash flow.
Visiting the site is a crucial first step in successfully pricing (and winning) a job, allowing you to take a really close look at what needs to be done. Site visits and estimates are often provided free of charge, but they do present an opportunity to make a good impression, communicating your professionalism and expertise. Simple drawings and a survey form that outlines the basic requirements of the job will help you put a quote together and provide a record that can be referred back to.
The price of a job consists of three key elements: labour, materials and profit, with a little left over for unknowns, or ‘contingency’.
Work out your hourly rate and then apply that to the amount of time you think a job is going to take. This can be hard at the start of your career but should come easier following experience of similar jobs.
Make sure you consider all elements of the job – remedial tasks, such as removing rusty screws, could rack up the hours, for example. Also, include time spent travelling to and from the job, site accessibility and the time it will take you to tidy up afterwards. Don’t forget the other people/services you may have to call on to complete the work – asbestos removal, scaffolding, electrical and building works, for example.
Check what other tradespeople working in your area are charging, just to make sure you’re not wildly off the mark.
You need to show your customer what materials you are using to complete their work and how much they cost. Keep an accurate record on a spread sheet, including delivery costs. Comparing your estimated materials to what you actually used will help you improve your quotes in the future.
Many tradespeople mark-up the cost of materials to cover the time spent sourcing, buying and transporting materials; this is worth considering, particularly for larger scale projects. Of course, if you are VAT registered you need to add it to the cost of goods and services you provide. Look out for VAT saving schemes that allow you to charge a reduced rate for energy saving products.
The final figure in the pricing equation is profit. There are many costs involved in running a thriving building services business that need to be factored in to keep your business ticking over. For example:
o Running a van
o Accountancy fees
o Time spent on administrative tasks
o Advertising and marketing
o Training fees
o Tools and clothing
These costs need to be added into your overall profit, so keep a record throughout the year and subtract accordingly. Do so on a monthly basis so these costs don’t run away with you. For marketing specifically, try to keep a track of where the cost has been rewarded with a new customer, thus justifying the expense.
Writing up a quote
Ideally, we’d all like to estimate the work, leaving the final figure open depending on how long it takes. Unfortunately this is not how most customers want to do business, requiring a definitive quote so they know how much they will be paying at the end. For very large jobs, with unforeseen circumstances, it may be possible to provide an estimate or quote for some of the work, leaving areas that haven’t yet been set in stone open to estimation and agreement as you go along.
Quotes should be provided in writing. How much detail you include is up to you, but bear in mind that it needs to be meaningful to your customer – too much information and it might be confusing; too little and they might think you’ve plucked the figures out of thin air. Focus on describing the tasks and make sure you include extras, such as preparing an area for work, making good, clearing rubbish, commissioning, flushing and handover. This will help the customer understand what’s entailed and give them reassurance that you are providing a complete service.
A thorough quotation containing a detailed breakdown of costs serves several purposes. Apart from allowing your customer to make an informed decision, having the details written down will also help you remember everything about the job and, in the event of any dispute, can be used to ‘cover your back’.
To assist with the dreaded admin, there is a range of software available designed to help small businesses and sole traders with quoting and invoicing. These programs will allow you to create formatted documents, helping you to look professional and save you some time. Examples designed specifically for the trades include the Smarttrade app, and there are also some free apps available.
The subject of costing work culminates in actually getting paid, so make sure you state your terms of payment (usually 30 days) clearly on your invoice together with your bank details. There are also apps available to turn your smartphone into a card payment machine so you can get paid straight away (the Smarttrade app does this). For new clients, always ask for a deposit upfront.
Know your worth
When costing jobs, one of the biggest mistakes you can make is to get into a price war with a competitor. Believe it or not, a cheap price is not the biggest selling point for most customers; they would prefer to employ a trustworthy tradesperson who will do a good job, on time, within the agreed price.
Take the time in the initial meeting to sell yourself – when they get the quote back they should be sure they want to use you, regardless (almost!) of the price. Attitude, professionalism, expertise, reliability and quality of work are very valuable traits, so be proud of the service you provide and don’t undersell it.
Free business guide
Logic4Training has launched a series of business guides for tradespeople, covering everything from setting up a business to job pricing and marketing. To get your free copy, please visit: www.logic4training.co.uk/blog/business/logic4training-business-guides