How do you price out a job that you are going to do? Certainly, a valid question as we don’t like to take on work and lose money!! In this episode, Dustin dives into this topic to shed some light on the subject.
Time and Material Method
This is a great one to use if you don’t know what exactly you are getting yourself into! If something starts off small but has the potential to grow into a huge project, or there is a ton of troubleshooting or remodeling are great examples. In a nutshell, you are charging for your time it took you to do the work and the materials. Maybe the time for you to go get the materials also. It keeps the person doing the work from losing money by giving a cost up front that was too little for the unseen items or too high of a price for the person having the work done by giving a price that tries to account for EVERYTHING that you COULD encounter.
Cost Plus Method
This simply is coming up with the cost you THINK it will take to do the project and then adding in what you need to make as profit. This is most often used when you know the hours and materials it will take to perform the work and then you add what you want to make on top of paying all of your bills etc.
Square Foot Pricing
While normally used for new construction, this method uses information taken over time from the AREA that the work is being done in. So, say new homes in Austin Tx, on average, are being built for X dollars per square foot, with the electrical portion of that work being Y dollars. Then you just use that number per square foot, multiplied by the square foot of the project you are going to be estimating!
A good one to use when just starting out, you simply charge per the task you are going to be doing and then can adjust a LITTLE BIT for being job-specific. So, let’s say you come up with $60 to hang a light fixture- that covers the cost of all of your expenses and the time it takes to hang the light. Then adjust a bit if you need a taller ladder or if you have to move a bunch of their items out of the way or things like that. It can be a quick way to give a price but requires history in knowing how much you have made over time doing those types of things to be the most profitable.
There are several different products that are available from a multitude of suppliers. Usually, larger companies use this method as the costs to own or lease the software can be high, as well as those companies need very specific margins to be the most efficient. Typically, these software programs allow you to input your hourly rate, up-to-date pricing for materials, and an hourly time frame to install something. So, if you were estimating a project that wants 12 receptacles- the program would assign maybe an hour and a half (or whatever you set it at) times 12, then add the materials to install them, add something for fuel, vehicle maintenance, overhead, profit, and then says it would cost $X. A great system to use if you want to be as accurate as possible!
A few things to keep in mind. First, trip charge. Your time shouldn’t be free. And if you are making multiple trips to a single place and not get the work in the long run, it could end up being a huge waste of money for you. The other thing to consider is minimum charges. What is the minimum amount of money you would be willing to make to show up and do work? If $50 was charged to just replace a switch, is it worth your time to do the running around, replace the switch, do the paperwork to get paid, etc.? More than likely a $150 minimum or $200 minimum would be better. If you only accepted the $50, all the time invested in making that $50 you would not be able to be somewhere else potentially making more money.
So, finding the costs it takes to operate and make the money you need to survive, and then using one of the methods above should help you on your way to being a successful company. Well, that and a great way of actually performing the work helps too!