Brian

One of the most challenging aspects of running a contracting business is estimating jobs. For someone with little experience, estimating can be a rather scary endeavor (it can also be scary for someone with tons of experience). After all, the accuracy of the estimate will have a huge impact on the contractor’s success.

This, I believe, is the primary reason we see so many questions asking what to charge for a job. But such questions are misdirected, because what I (or anyone else) would charge is completely irrelevant and doesn’t address the real issues.

The price of a job is comprised of 4 basic components: labor costs, material costs, overhead, and profit. Estimating is the process of identifying the labor and material costs. We add our overhead and profit to those costs to obtain our price.

Overhead—advertising, rent, insurance, utilities, phone, owner’s salary, etc.— is completely unique to each company. Without knowing these numbers, it is impossible to properly price a job.

Profit goals are also unique to each company. Again, without knowing the specific profit goals for a company, it is impossible to properly price a job.

Consequently, any attempt to answer a pricing question in the absence of these two key numbers is essentially meaningless. More to the point, pricing questions ignore the fact that a large percentage (often more than 50%) of the job’s price should be comprised of overhead and profit. (My suspicion is that those who pose such questions don’t know their overhead, and mistake gross profit for net profit. But that’s a different issue.)

As I said, estimating is the process of identifying the labor and material costs for the job. Labor costs are determined by the type of work being performed, the production rates of the company’s workers (the time required to perform each task), and pay rates. As with overhead and profit, these numbers will be unique to each company. Material costs are determined by the type of materials required, the quantity required, and their purchase price.

For example, let us say that a painting contractor knows that his painters can prepare and paint a certain style of door in 30 minutes. He looks at a job that has 10 of these doors. He knows that his painters can prep and paint these doors in 5 hours. He can also calculate the materials required by the spread rate of the product he will use. The contractor can now determine what his costs will be for the job. By adding his overhead and profit to these costs he will have his price for this job.

While the above example is simple and uses a painting project, the same principle applies to every contracting job—large or small, simple or complex—regardless of trade.

What should I charge for X? really means: what is the total of my labor costs, material costs, overhead, and profit? And the answer to that question requires a substantial amount of additional information. Providing an answer without that information is simply a guess.

Accurately pricing a job is not rocket science, but it shouldn’t be based on conjecture, blind guesses, or another company’s numbers either. Certainly accurate estimating takes effort, but owning a successful business isn’t easy. Asking what to charge for a job is asking for a short cut, but there are no short cuts to success.

Such questions about prices for a job are inappropriate, because they ignore the many factors that determine the price. Providing a price in response to such questions is also inappropriate, for the same reasons.

It is a documented fact that 90% of small businesses fail within 5 years. Of those that make it 5 years, another 90% will fail within the next five years. Which means, 99% of small businesses fail within 10 years. One of the primary reasons for failure is not charging enough. Contractors are as guilty of this as anyone.

There seems to be no shortage of hacks willing to work for dirt cheap prices. Nor does there seem to be a shortage of replacements when they inevitably fail. One of the most effective means for avoiding failure is to know your numbers. Asking what to charge for a job is simply an admission that you don’t know your numbers.

I hasten to add that there is nothing wrong or inappropriate with asking how to price a job. But how to price is different from what price to give. Learning the process is a good thing. Looking for an easy way out isn’t.

Putting paint on the wall is a trade skill. Pricing a job is a business skill. A skilled craftsman does not necessarily make a good businessman, because different skills are required. The owner of a contracting company does not necessarily need to have trade skills, but it is imperative that he have business skills if he is to succeed. The longer you wait to obtain those skills, the closer you move to joining those 99%.

Brian Phillips

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Houston Interior and Exterior Painting
Houston Painting Contractor
OutoftheBucket.com

NEPS.US

Good post Brian but ........ What about the market value of a job. The market should have a direct influence on what a companies overhead should be. If you are simply over pricing jobs based on a high profit margin or because your overhead numbers are too high then you have to adjust to stay in business. I think that most that ask for "the going rate" are usually trying to find the market price for the type of work they are looking to price.

Brian

NEPS,

This was orginally written for another forum and I was asked to post it here.

I am not sure what you mean by market value. Nor am I sure that I understand how the market has a "direct influence on what a companies overhead should be."

I can understand how certain aspects of a market will have an influence on overhead. For example, if certain costs of doing business are abnormally high in one market, that would certainly drive up overhead. But even those costs will vary from company to company.

But the real issue is: in general there is no "market price" for the work we do. There may be something approaching that in certain segments, but certainly not in the residential repaint segment. New construction seems to have a narrow range-- which one might call a market price-- but even this isn't a rigid number. I may be wrong, but I think Scott to attest to this.

I know guys in Houston who swear that nobody will pay more than $25 an hour for a painter. To them, $25 an hour is the going rate or market price. At the same time, I can cite many contractors in Houston getting $40 to $55 an hour in Houston. How can this be, if the going rate is $25? Clearly, the going rate is not $25. More to the point, there is no going rate.

Each company's pricing is unique to that company. My overhead is unique to my company. My profit and income goals are unique to my company. My production rates are unique to my company. The same is true of everyone's company. If our price is labor + materials + overhead + profit, and 3 of these items are completely unique to each company (and unknown to me), how could I or anyone else who doesn't know these numbers possibly give an answer? The truth is, they can't. All you can say is what you would charge. That might make for interesting regional comparisons, but it is useless as far as pricing a particular job.

What one's competitors charge is irrelevant to what one needs to charge to make a decent living. If someone can't sell at the price they need to sell at, they have a sales issue (assuming they know what that price is). But they won't improve their income or profit by basing their price on what others charge while remaining oblivious to their own costs and income goals.

Brian Phillips

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Houston Interior and Exterior Painting
Houston Painting Contractor
OutoftheBucket.com

vermontpainter

Alot of our experience as a company is in ultra custom new construction. I dont know that I would describe it as a narrow range, but it definitely is a niche market and every one of them is unique. Sometimes in my job costing after a project, just for poops and giggles I will figure out the s.f. cost (which is irrelevant to any estimating). It is astonishing and varies greatly from one to the next. Far beyond what most would think could be sold. When guys post about s.f. rates of $1-2 it makes me sick to my stomach to think of trying to run a business that way.

As to market value and pricing, I have only seen cases where it would apply in large cookie cutter developments where every house is exactly the same. In those cases, there is a range usually dictated by the developer and they are presented to painters as volume opportunities. Inexperienced guys will look at it and say: "there's 300 houses and I can make $600k in the next 18 months..." Never figuring out that it will cost them $800k and put them out of business. Developers are smart that way. A good paint company has to be smarter.

If NEPS is suggesting that in a tight market we should be re-evaluating our overhead costs and profit goals, then I would agree with that. If we are running 40% profit in a "fat" market, it may be tough in some areas to fly that right now. It does seem to be important to anticipate and adapt to whats going on. That doesnt always mean lowering our goals, it could also mean expanding our services and markets.

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Scott

"I feel stupid, and contagious..."

NEPS.US

There is a difference when competing for commercial or new construction work. There are so many variables that can have a direct effect on winning or losing a bid. The market (what the average price of competing bids are coming in at) is crucial to have a pulse on. It also works to increase your margins.

If there is less work available and more companies competing for the desired job the price will be driven down. The money needs to be absorbed somewhere and that would mean shinking the overhead. It is simple supply and demand.

ProWallGuy

Thanks Brian!
I made it a sticky.

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vermontpainter

Crap...now the pressures on us.

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Scott

"I feel stupid, and contagious..."

NEPS.US

That all.

vermontpainter

It can be very simple. A basic example is, in my case, I learned alot about pressure washing here on painttalk over the winter and came out in the spring and really ramped up our offerings in that department. That brought revenues that I wasnt going after previously. I want to build on that. In the past I would have declined calls for deck washing and refinishing, now I see the potential of that service. String together a few little things like that and you can compensate for a sluggish commercial or new construction market right now. Do a bang up job on the deck and next month you may be back doing the whole interior. Etc. etc...This may be old hat to alot of guys here, but it was news to me and this sort of thinking has impacted my business this year.

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Scott

"I feel stupid, and contagious..."

Brian

That may be more true in new construction and commercial (versus residential repaints), but more true is not always true. Scott has verified that.

I wouldn't say that it is simple. What is being supplied and what is being demanded? If you are supplying a commodity, then yes the price would be driven down. However, if you supply something that is not a commodity (such as Scott) then you can command a higher price. But that's really a different issue.

If you are saying that we should monitor our overhead and cut the fat, then I agree. But we shouldn't need our customers or competitors to be telling us that.

Brian Phillips

__________________
Houston Interior and Exterior Painting
Houston Painting Contractor
OutoftheBucket.com

vermontpainter

[quote=Brian;35327] However, if you supply something that is not a commodity (such as Scott) then you can command a higher price. But that's really a different issue.

Thats what has been interesting as we have dabbled more in scrape and prime exteriors or pressure washing - markets we had mostly ingnored in the past. Finding price points and figuring out how to deliver superior service and value in new to us areas is really interesting. I do find that its possible to win jobs with high prices in other areas. The more I explore, I realize that presentation and how we sell is key.

If you are saying that we should monitor our overhead and cut the fat, then I agree. But we shouldn't need our customers or competitors to be telling us that.

Knee jerk reactions and desperation moves only prolong the agony. It has to be methodical and driven by our goals. Gmack and I are in the same exact market and we were just discussing today how things are more competetive and closing is more difficult. We both vow to not be put in a position of buying jobs. Thats the choice.

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Scott

"I feel stupid, and contagious..."

NEPS.US

[quote=vermontpainter;35338]May we all stay away from buying jobs to keep our loyal employees busy this winter. I've been planning for December all year. Ive never sat my crews for more than 4 days in the winter. Hopefully I'll be as successful this year.

GMack

[quote=NEPS.US;35373]Agreed . . . I've taken steps and will continue to take steps toward having a very succesful winter in 08/09. Whether it plays out the way I want it to or not, I can say that I've been much more proactive recently than I ever have been in the past and will continue to be. A big thanks to most all of you regular posters here on Painttalk

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GMack

Daddyoh2008

Brain, I am a newbie. I just found your post today. This is the best info I've seen in this forum so far. Thanks for taking the time. I will try to learn as much as possible from your advice. Can you advise more threads for newbies?

mblosik

NEPS; i agree; in my market, there are four tiers of builders and they can be separated based on quality, which then in turn correlates directly to price.
for my market (milwaukee, wi metro area and outlying suburbs), tier 1 would be the 125,000 to 175,000 range ranch, cape, and small two story. this tier expects the drywallers to spray sand texture one coat over bare drywall and expects $.75 per sf of wall space.
then there's tier two which builds 175,000 to 275,000 type homes for a larger ranch, larger cape and 2500sft two-story. they expect one coat primer and 1 topcoat over sand or orange peel or knockdown at about $2 per sf of wall space.
then there's tier three which builds 275,000 to 400,000 type homes for a 2500-4000 sft home. they expect one coat primer and 2 topcoats over sand or orange peel or knockdown at about $3.75 per sf of wall space.
then there's tier four which builds 400,000 to 1,000,000 type homes for a larger ranch, larger cape and 5000 sft homes. they expect one coat primer and 2 topcoat over sand or orange peel or knockdown at $4-8$ per sf of wall space. adn they expect multiple custom colors throughout.

North of my area (green Bay--Go Packers!) prices are slightly less as the cost of living is less.

You must adjust your prices for your area so that you both make money to keep you happy and to make sure you still get business. it's a da*n fine line that every contractor is conflicted with at some point, but once peace is made with that line, you are better for it.

for instance, i see some of the prices that some in this forum get for their work, and the natural reaction is to get jealous. you then have to look at some of the other prices that people get, adn think "my God, how do they survive." there is a pecking order to all of this; it's the free market at work. cetain markets are more high end. one should not to expect to receive the same amount of money working in milwaukee (like me) that those recieve in Hollywood or Martha's Vineyard. they are, get ready, DIFFERENT MARKETS. don't be envious. be smart about your area, put systems into place so that you are efficient, and move on from there.

whooft!!! i need a nap after this one.

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"If a man says that he has never sh*t his pants, he is either a liar or does not wear pants." --Sports Guru Steve Czaban to Bob Madden and Brian Nelson on 102.9 The Hog in Milwaukee

Brian

These are valid points, but I think they are addressing a different issue than the OP. Questions about the "going rate" are often an attempt to find some magic number. But such a number doesn't exist. There are far too many factors involved.

Yes, the area where we live and the market we service will impact our prices. If our cost of living and cost of doing business is lower, then that will be reflected in our pricing. Our overhead is usually about 50% of our costs, and if these costs are lower because of where we live, this will ultimately impact our prices. Regardless, we must know our numbers and calculate our price based on those numbers.

But even then there is a lot that we can do to get a price higher than our competitors.

Brian Phillips

__________________
Houston Interior and Exterior Painting
Houston Painting Contractor
OutoftheBucket.com

saul

How hard is do reasonable quote, because some unlicence and insurance painter do the jobs cheap, ?how many troubles get the home owners with this can of jobs or contractor, they take just the down payment, don't appear again, still value or damage furnithure etc.
Use some software program powerestimated, to have one idea some city rates, also good look with your prices, have in mine you charge reasanoble price and do good job, remenber you need the client, the client don't need you.
Bye visit our link...
http://magictouchcontracting.com

MAK-Deco

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Chicago-land Painters FACEBOOK

NEPS.US

Or it could be just illiterate illegals like yourself under bidding. Nice spelling. Your website is even worse.

TooledUp

I looked at the web sight (I know) earlier. I fink it neads a spillchicker.