A Way to figure what you should charge.

That was a very good article, thanks.

-- .

Make sense to me. I used to tell people their real cost to the company was 4x their take home. Most did not believe it, but I had the cancelled check to prove it ;-)

-- Bob in WW ~ "some old things are lovely, warm still with life ... of the forgotten men who made them." - D.H. Lawrence

Started to read it and what I got seemed very interesting, then the pop up ads started covering the text which I can’t stand.

-- "Lack of effort will result in failure with amazing predictability" - Me

Topamax,

I’ve always heard (and calculated out based off of my bill rate) that what you cost the company is roughly 2x your salary. My bill rate, for instance is roughly 3x my salary. So, 1/3 of that is my pay, 1/3 is my additional overhead, and 1/3 is profit/covering non-billable overhead.

-- The quality of one's woodworking is directly related to the amount of flannel worn.

A+ Method

-- Greg - Ferdinand and Son Construction: Do it right the first time. Like us on Facebook

It’s much the same as LJ Huff’s blogs. I am not completely there, but working in that direction.

-- Nature created it, I just assemble it.

Agree that this is the same as Huff’s blog series. His goes into much more detail and explanation. It works.

-- Jim Beachler, Chief Puzzler, http://www.hollowwoodworks.com

This is good for a way to calculate your target number in order to reach the profit goal you have figured.
But, it doesn’t calculate how much you should charge and sticking to only that number may leave you undercharging at times. You need to be able to sell your item for market rate no matter what your target number is. Sometimes the market price could be way more than your target rate. I suggest using your number more for a guideline than a rule.

One thing it will do is let you know when you aren’t charging enough and this is good. At least you know what you have to charge to meet your goal and whether or not you have to sacrifice to get the job or not, or make the sale if your pricing/making products to sale.

-- Because I'm gone, that's why!

Iwud4u makes a great point. When reading the article, I was reading some of the comments also. One of the comments took this a step further and stated if the market number is less than your target number, it is time to walk away and do something else. Many times I feel in business customers want us to take a number that is far below our operating/target number because they feel that is where the market/retail number is at, usually based on misguided thinking brought on by a cheapened sense of thought. Armed with knowledge and facts as the builder or sales person of your product, a little educating about prices may go a long way towards getting customers, who are ignorant to costing, to see things in a better light.

I recently had a builder make a valiant attempt at getting us at a number that was extremely low. There was some deception involved and I will not go into details, but purely based on my knowledge regarding what things cost to manufacture I was able to avoid what would have been a disaster, or at the very least a very hungry period of time. Another cabinet maker with less knowledge would have fallen victim.

-- .

Thanks for sharing this Dallas. This was a great informative article

-- Just trying to build something beautiful

You can charge all you want. The trick is getting someone to pay it. :)

-- Alaskan's for Global warming!

Topamax,

I ve always heard (and calculated out based off of my bill rate) that what you cost the company is roughly 2x your salary. My bill rate, for instance is roughly 3x my salary. So, 1/3 of that is my pay, 1/3 is my additional overhead, and 1/3 is profit/covering non-billable overhead.

- jmartel

May be talking oranges and apples? I was referring to an employee’s “take home” not total salary vs total cost with good benefits.

-- Bob in WW ~ "some old things are lovely, warm still with life ... of the forgotten men who made them." - D.H. Lawrence

... if the market number is less than your target number, it is time to walk away and do something else. Many times I feel in business customers want us to take a number that is far below our operating/target number because they feel that is where the market/retail number is at, usually based on misguided thinking brought on by a cheapened sense of thought.
- Jerry

I won’t speculate on the motivations for trying to intimidate contractors to take a low ball price for their work. I have had regular customers ask me to take jobs for a price established by another bid. Many times they were less than 1/2 of my price. After 20 years in business, there was no one left that was doing the same work when I started business. All were used up, spit out and bankrupt.

One of my employees ask one time how long another company could continue low balling jobs? I told him it did not matter. There will be another fool doing it when they were out of business and there was.

My policy was if I could not do better financially than having a real job, I’d better close the doors and get a real job ;-) Knowing when to just say “NO” is probably the single most essential ability in business survival.

-- Bob in WW ~ "some old things are lovely, warm still with life ... of the forgotten men who made them." - D.H. Lawrence

Topamax,

I was basically the only person running the office at the small electric company I worked for. I got the job because I knew bookkeeping and was also an IT guy.
We had 5 engineers on staff at any given shift and I was the one who woke up and answered the phone at 03:00 when an engineer couldn’t figure out why his computer wouldn’t work.
I also did billing and payroll for about 50-60 people, I also ran parts if there was no other tech or apprentice in the office.
It didn’t start that way, but as the big guys started in, we lost contracts and income.
For 6 weeks I was the only Secretary, receptionist, phone person, hell desk person, IT guy, webmaster, and HR guy.
My boss took me in to his office and told me to never do anything like that again without being paid 3X as much as I was getting. He was a good and honest guy, but he is the one who originally hired me.

I immediately went back to work and did a slow down. It took about a day for him to come to me, laugh and offer me $26/hr. I countered with $50/hr and we settled on $35/hr, (This was the mid 90’s).

I have set my prices the same way using his advice ever since: Never compromise on your value, never compromise on the quality of your work. Never doubt that your work will stand up with the best. If you do, you will live in public housing and need help all your life.

-- Improvise.... Adapt...... Overcome!

That is a good story Dallas. Makes the point. I have a few 3 AM phone call stories, but they aren’t really related to WW or the business issues of this thread other than to say do not offer 24 hour emergency service to the public! Reserve that for only the best customers ;-)

-- Bob in WW ~ "some old things are lovely, warm still with life ... of the forgotten men who made them." - D.H. Lawrence