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Pricing Your Jobs Right

Know your true costs and time and leave room for profits

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Key Points
  • There's a fine line between pricing low enough to get the job yet pricing high enough to earn profits.
  • Determine the true costs of completing a project.
  • You can find advice and guidance from industry professionals, software tools, peer groups and industry publications.

Confused about how to price your jobs during the recession? You're not alone. Pricing, even in high economic times, can be difficult to pinpoint: you want to be sure that you're making enough to keep your business in the black but not pricing jobs so high that you could lose a sale -- just 5% can mean the difference between landing or losing a job in a tight market.

While it may be a natural inclination to price jobs lower during a recession, this can spell disaster for your business in the long run. Low-ball estimates may land you the job but may not yield enough profit to comfortably run your business.

Pricing a job right requires understanding your actual costs and time while leaving some room for profit. To figure out at what you should be charging for your jobs, you should start by determining what your true costs will be in completing the project. First, you should take the costs of labor and materials into account. Incorporate the cost of every 2x4, bolt, and employee salary used for the job. Make sure to keep in mind that while an employee may make $20 an hour, their salary may cost you much more than that once you factor in workers' compensation, benefits, bonuses, insurances, vehicle and phone usage. That employee may actually end up costing you up to $35 per hour when you take those additional expenses into consideration.

Determining the true costs of a job also means really knowing just how many man hours you will need to complete the project. Understanding how long a job actually takes to complete means that you can better calculate a quote. To get an accurate picture of where time is being spent, ask that your employees regularly write down the hours spent on each leg of a project.

Keeping a written record of project information will help you know why some jobs run long or cost you more than you anticipated.

Many business owners also fail to incorporate their own time into their job estimates. By keeping your time and salary out of the equation, you may be under pricing your work and not achieving a comfortable profit margin for your business.

You can monitor the progress of your projects by checking in for regular project updates. This will not only help you account for your employee's time but will allow you to be abreast of common job problems. Keeping a written record of project information will help you know why some jobs run long or cost you more than you anticipated. For example, if you lost a day and $800 on a job that required removing an additional load of dirt, you will know to pad your next job to account for these regular issues. Looking to past records of projects will help you better determine present pricing and can, potentially, help you avoid estimate mistakes.

While it may not seem like a complex science, job pricing isn't necessarily easy math. Getting advice specific to your business from industry advisers or business management professionals can help you understand how to better price your jobs. If you can't afford to have a professional analyze your pricing parameters, look to books, peer review groups, conferences and industry publications for additional guidance. Software programs like XactRemodel® or Intuit® QuickBooks® track hours, materials, accounting and project data and can offer you a unique visualization of your business and let you price your jobs more accurately.