Nine times out of ten when I go into a small business to consult I find pricing issues. Many companies don’t know what they should be charging. They don’t know if they should raise or lower prices. They don’t know how much profit they have built into the sale of their product or how much profit they have built into an estimate or a bid for a job they propose to perform. For a business, not knowing this is unacceptable.
Let me state the obvious: If you’re not turning a decent profit now, then you’re not pricing properly… or… your costs (labor, material and/or overhead) are too high; one or the other.
And I always hear the same thing initially from my clients: “I know my costs are in line and I just can’t charge anymore.” Sorry, I don’t buy it. There are too many companies making money. How do they do it? I inevitably go through a process of getting business owners to understand pricing concepts and the ingredients for proper pricing; things such as true costs of labor and material, overhead load and optimum profit level by job or product. There is a concept called margin mix. All owners should grasp it.
Many of you may know these concepts or are close to knowing them. But even if you don’t know exactly, you can still use a simple Excel program for your pricing that you could enter numbers into and probably give you a better number than what you are charging for your product or service now.
Here’s the promise:
- If you have proper financials and generally know true costs (labor burden, etc)
- know your proper overhead load (e-mail me if you don’t, I’ll help you calculate)
- provide a quality product or service
- your business does at least $300,000 a year in sales
- and you use the downloaded bidding tool to raise or lower your prices accordingly…
You will make at least an additional $10,000 profit in the next 6 months. And probably a lot more. It works every time!
Just click on the download form below. It’s a simple Excel spreadsheet. Get familiar with it. Use your own bidding system; then use this one to compare. It will tell you what you should be charging to make your desired profit level. Over time, start using this one all the time.
If the prices estimated are too high in your mind, then you must take a hard look at your costs. It’s pretty basic. Remember: No profit or low profit equals either prices too low or costs too high.
If you need help with this tool, in reducing your costs, if pricing looks skewed, or if you have any questions, contact me, (e-mail: firstname.lastname@example.org, ph. 1-800-571-7047) and I will get back to you within a day.
(Depending on your industry, you may need another type of pricing tool. Contact me.)
This spreadsheet has a job cost tool, also. After downloading and opening the spreadsheet, make sure to click the Enable Editing button at the top above the menus. DOWNLOAD PRICING SPREADSHEET
Estimating and Job Costing Worksheets
- Fill in only the colored squares.
- Fill in Hours, Per Hour Costs, Materials and Other Costs.
- Or just fill in the Total Cost of Goods in the Other Costs box.
- Calculate and enter your Overhead Factor
- Enter your Desired Profit Level.
- See the price that the model give you, then either change the Desired Profit Level or enter an Override Price.
- Your new Profit Margin is calculated.
Calculating Overhead Factor (Load)
To calculate Overhead factor, you must have an income statement (aka Profit and Loss statement for the last 6 months. It should look something like this:
- Sales (Revenue) $1,000,000
- Cost of Goods Sold $700,000
- Gross Profit $300,000
- Operating Expense $200,000
- Net Profit $100,000
Take your Operating expense (aka Overhead) and divide it by you Cost of Goods Sold.
$200,000 divided by $700,000
That gives a factor of 28.6%
- Other Costs
- Overhead Factor
- Breakeven Price
- Desired Profit Level
- Profit Margin
- Plug in your actual numbers once the job has completed including the Final Total Price you charged in
- Actual Profit Dollars and percent are below.
- Actual Labor
- Actual Material
- Other Costs
- Total Costs with Estimated Overhead
- Final Total Price
- Profit %