# Pricing a job, this is how I like to do it



## john elliott (Oct 23, 2005)

I'll say right away that it is easier for me to price a job than most of you, because what I do doesn't vary very much from one job to another-

First I visit the customer and have a look at their kitchen, and have a listen to their requirements, and ut forward some ideas as to how those requirements can best be met. I could ask for their budget but don't normally carry with me the correct equipment to extract this information from them. I have found that asking what they have in mind for counter-tops will give me an idea as to whether they are trying to keep the cost down or not

When I have all the info, and just as importantly have shown them why they need me rather than another supplier, I go away to 'work out some figures'. Actually I already know what I am going to ask, but I prefer not to be there when they read my quote, so that they can get over the shock, have another read through, see all that I am going to do for them, think about it some more and then realise that actually maybe they should pay that much after all, and then they can call me and say yes (not all of them do this, BTW, probably around 30% at the moment)

Anyway, how I decide the price- I work out how many days the job is going to take, and multiply that by the rate I like to make. That rate coves my costs and my profit. Then I add the costs of the materials. I don't mark up the materials because I am paying for them myself. That gives me a total price which I know I need to achieve.
Then I think aout the value of the job, the value to the customers, that is. This is based on what the competition would charge, and what kind of service the competition would be providing. That service is somewhat less than I provide, and I make sure the customers realise this. From this I arrive at what I think the value of the job to them is. If the value exceeds the price I arrived at in the previous paragraph then that's great, and I quote the value price. If I believe that the value is less than the aforementioned price then I quote the price but realise that I am much less likely to get the job, unless I can boost the perceived value in some way.

I don't know if this system would work for most of you, as you are probably working on much more varied stuff, but the general idea of calculating the number of days that a job is going to take, multiplying that by your daily rate, then adding the cost of the materials would seem to apply in most cases

John


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## Gordo (Feb 21, 2006)

John,
I totally agree with your last paragraph. Good stuff. Where I disagree with you is changing the cost of the job based on "perceived value". The cost is the cost regardless of what someone thinks. No sense in losing money because your client 'thinks' the job should cost less. If that was the case......well I think real estate should cost less.....I believe that truck I want should be less.:laughing: 

We mark-up subs for admin purposes.. Also we mark-up materials for warranty reasons.


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## john elliott (Oct 23, 2005)

Gordo said:


> John,
> I totally agree with your last paragraph. Good stuff. Where I disagree with you is changing the cost of the job based on "perceived value".


I've not made myself sufficiently clear- what I meant was that if the perceived value was less than the cost then I would try to change the _perceived value_ (not the cost)



Gordo said:


> We mark-up subs for admin purposes.. Also we mark-up materials for warranty reasons.


Why would you mark up stuff that _you_ were paying for? I don't understand that. If you were working time and materials I would understand it, but I am talking about fixed price work

John


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## Chris G (May 17, 2006)

Why would you mark up stuff that [I said:


> you[/I] were paying for? I don't understand that. If you were working time and materials I would understand it, but I am talking about fixed price work
> 
> John


You mark up materials to cover the cost of shipping and handling. Have you ever ordered a free gift, only to be asked to pay $10 for shipping and handling? The gift is still free, but someone has to be paid for processing the order. 

Tonight I am installing $1200 worth of subwoofers in store. I purchased and picked up the subwoofers with my truck 2 weeks ago. In 30 days I will receive payment for the job. In the meantime I am short $1200 which puts a strain on my cash flow. For these shipping and handling services I marked up the subwoofers by 18%. Which is completely and totally acceptable.

It is standard practice in any business to mark up materials. Auto dealers mark up parts by outrageous amounts, (100 - 400%). That's their fee for getting on the phone an odering a part from a supplier. Then they tack on $80/hr for labour.


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## john elliott (Oct 23, 2005)

Chris G said:


> You mark up materials to cover the cost of shipping and handling. Have you ever ordered a free gift, only to be asked to pay $10 for shipping and handling? The gift is still free, but someone has to be paid for processing the order.
> 
> Tonight I am installing $1200 worth of subwoofers in store. I purchased and picked up the subwoofers with my truck 2 weeks ago. In 30 days I will receive payment for the job. In the meantime I am short $1200 which puts a strain on my cash flow. For these shipping and handling services I marked up the subwoofers by 18%. Which is completely and totally acceptable.
> 
> It is standard practice in any business to mark up materials. Auto dealers mark up parts by outrageous amounts, (100 - 400%). That's their fee for getting on the phone an odering a part from a supplier. Then they tack on $80/hr for labour.


The examples you give are for T&M work. I am talking about fixed price work. In fixed price work the customer pays a fixed price, the price that you have offered to do the work for. They are not involved with the price of the materials, only you are. So tell me, what is the point of marking up stuff you are paying for?

This has been discussed before, here and elsewhere, and I have yet to see a reason why anybody would markup stuff that they themselves are paying for.

In my first post I explained that I bid a price which I felt was what they would, or should, value the job at. That price is the price that they are going to pay if they ask me to do the work. They are not going to pay extra just because I want to mark up some part of my costs by some notional amount, they are going to pay the price that I have bid. 

Let's try this- if it turned out that I was going to be able to buy some of the materials for less than I had originally planned, would that mean I was going to make less money because the markup was going to be less? If I was working T&M then yes I would be be making less, but I am not working T&M, I am working fixed price, so I will be making MORE money if I can buy the materials for less

John


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## Gordo (Feb 21, 2006)

Even with time and material jobs, we still mark-up the cost of materials. It costs money to make money. Nothing wrong with the way you do business.....although I believe you are short changing yourself.


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## Mike Finley (Apr 28, 2004)

Here we go again.:laughing:


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## donb1959 (Dec 9, 2004)

> Why would you mark up stuff that you were paying for? I don't understand that. If you were working time and materials I would understand it, but I am talking about fixed price work


John,
How is it that you're paying for matierials, the cost of matierials is written into the qoute, so the customer is paying for it. I add 20% to matierial cost to cover _my time_ in aquireing those matierials. You should be chargeing for the time it takes to gather matierial either in your labor qoute or your matierial cost.


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## john elliott (Oct 23, 2005)

donb1959 said:


> John,
> How is it that you're paying for matierials, the cost of matierials is written into the qoute, so the customer is paying for it. I add 20% to matierial cost to cover _my time_ in aquireing those matierials. You should be chargeing for the time it takes to gather matierial either in your labor qoute or your matierial cost.


There's obviously a language difficulty here. When I talk about fixed price. I mean a situation where the customer is quoted one single price for all the work, materials, service, everything. One price, which cover everything. Perhaps in the States you don't have that kind of contracting? 

John


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## john elliott (Oct 23, 2005)

Gordo said:


> Even with time and material jobs, we still mark-up the cost of materials. It costs money to make money. Nothing wrong with the way you do business.....although I believe you are short changing yourself.


Another language problem. I Don't work time amd materials myself, so I am not in a position to 'short change' myself.

John


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## Fence & Deck (Jan 23, 2006)

John, your fallacy is that you are paying for the material. Not true. The customer is. they are the end user.
If THEY go out and buy it all, then you perhaps shouldn't put a makup on it. If you buy it, then your time to source it all out, decide what is needed, spend time on the phone to order it, go to the shop to pick it up, run back out from the job site when you are short 2 screws, break a sawblade, lose a screwdriver down the heating duct, drop a countertop and chip it on the edge, and so on, has to be covered somewhere. That is covered in the markup of the material.

When I price out a job, I take my raw material and my labour, add it up, put on an administrative "pack" anf then mark the whole thing up. 
$1 for material + $0.10(10%)for waste, $1 for labour, plus $0.10 (5%)admin = $2.20. My sale price is $2.20x1.5 = $3.20
If I just go $1.00 labour, plus 5% for admin, = $1.05 x 1.5=$1.58.
So, my profit goes from $1.10 to $0,53, or half. I can't run my business on that, so it's simply not enough. I have to mark up the material.


In general, my prices are not out of line with my competition, so everyone must be doing much the same. To be honest, I am no longer worried about what the competition charges. I have my own reputation, and If I don't get my price, I don't bother.


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## mahlere (Aug 6, 2006)

I think john is just looking at it that all the time and effort required to find and acquire the product is already added into his labor.

For example. 

A project will take 40 man hours on site to do.
It will take 10 man hours to get material and do admin.
Material cost is $200 with taxes.

Johns hourly rate is $100.

So john price for the job will be 50x $100 = $5,000 +$200 mat = $5,200

With the assumption that he is covering all the admin time in his labor. Is that correct?


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## john elliott (Oct 23, 2005)

Stone Mountain said:


> In general, my prices are not out of line with my competition, so everyone must be doing much the same. To be honest, I am no longer worried about what the competition charges. I have my own reputation, and If I don't get my price, I don't bother.


 I’m going to try a different way of explaining this-

As stated in the first post, I figure out the value of the job to the customer, and I also figure out the cost to me (including my daily rate, which covers all my overhead and profit requirements)

Lets call the cost to me C. Let’s call the value to the customer V. If V is greater than C then V will be quoted. If C is greater than V then C will be quoted, unless V can be increased in some way.

My prices are somewhat above those of my competition and I am able to do this by concentrating on keeping V high

John


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## john elliott (Oct 23, 2005)

mahlere said:


> I think john is just looking at it that all the time and effort required to find and acquire the product is already added into his labor.
> 
> For example.
> 
> ...


Yes, this is correct and I am indebted to you for you clear explanation. 

I concentrate on the time that a job takes to do because that is the one thing that is in short supply. Adding markups to material is a notional exercise because the price to the customer isn't going to change as it is already as high as I can make it. 

For instance, let's suppose I have quoted a job at $20,000. (having ensured that that is suitably above my cost for doing that job)
I have quoted that price because that is what I think it is worth to the customer. Everything that I am going to have to pay out in order to do that job is going to have to come out of that $20,000 dollars. If I decided to markup the plywood by 20% that money is still going to have to come out of that $20,000. So what's the point in marking up any part of the costs of doing the job? There's no more money, it's all in the quoted price of $20,000

John


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## john elliott (Oct 23, 2005)

john elliott said:


> Actually I already know what I am going to ask, but I prefer not to be there when they read my quote, so that they can get over the shock, have another read through, see all that I am going to do for them, think about it some more and then realise that actually maybe they should pay that much after all, and then they can call me and say yes (not all of them do this, BTW, probably around 30% at the moment)


I'm surprised that no-one's picked me up on this bit yet, I know that many traditional salesmen would be horrified to see that by posting or emailing my quotes I was missing another chance to 'sell myself'

John


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## Mike Finley (Apr 28, 2004)

John, as usual when you get the desire to bring this topic back up every few months you run into the same problem. You started this one off differently, you obviously tried to keep focus on what you do and even went to effort to stress this was in regard to you, which nobody can fault your system for. I wouldn't even go so far as to say you are short changing yourself or leaving money on the table. Nobody can argue against what works for you, since you are the final judge, jury and executioner of your own business.

Where you get into trouble is where you always do, you begin the departure from what works for you and begin the blanket statements about everybody else.



john elliott said:


> This has been discussed before, here and elsewhere, and I have yet to see a reason why *anybody *would markup stuff that they themselves are paying for.


The reasons why *anybody *would not do it your way have been outlined at least a half dozen times in other threads where you bring up this exact subject over and over again.

I'm much more interested in what works for you and listening to you describe why, this is a good glimpse into other ways of working and especially an insight into another country and culture. But when you start those blanket statements it's just beating a dead horse again. Is this just an exercise you like to go through every couple of months?


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## Mike Finley (Apr 28, 2004)

john elliott said:


> I'm surprised that no-one's picked me up on this bit yet, I know that many traditional salesmen would be horrified to see that by posting or emailing my quotes I was missing another chance to 'sell myself'
> 
> John


Nevermind, I actually see from your post that got posted while I was writing mine that answers my question. 

This is just an excercise to get an argument going. Carry on, enjoy.


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## George Z (Dec 23, 2004)

john elliott said:


> I'm surprised that no-one's picked me up on this bit yet, I know that many traditional salesmen would be horrified to see that by posting or emailing my quotes I was missing another chance to 'sell myself'
> 
> John


No, I do that too. I know my numbers and it works.
I am not for the two visit close even though it works for the traditional salesmen.


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## john elliott (Oct 23, 2005)

Mike Finley said:


> The reasons why *anybody *would not do it your way have been outlined at least a half dozen times in other threads where you bring up this exact subject over and over again.


I think half a dozen is something of an exaggeration, and anyway, this thread isn't only about markups

I'm still waiting to hear a good argument in defence of markups in fixed price work. The best I've had from you, if I recall correctly, is stuff along the lines of 'it works for you' and because it gets you 'gravy'?

I'm sorry if my attack on markups (in fixed price work) is upsetting you. I'm not really sure what to do about that. I'm not doing it in order to provoke a pointless argument, although that is what it seems to be turning into. 

There were several points I made in the first post that were open to discussion, and it's a shame people are choosing to concentrate on the markup part, but I guess if they've never thought about doing their pricing in a more modern way then I suppose it's inevitable.

John


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## Chris G (May 17, 2006)

Fer crying out loud. I think mahlere clarified everything. 

Your not doing things much different than any of us are. I personally find it easier to calculate a price by multiplying the hours I think a job will take by my hourly rate. And then adding the retail cost of the fixtures. And then adding some more money to cover the cost of handling. Tada! Is that any different than what you are doing? 



> Let's try this- if it turned out that I was going to be able to buy some of the materials for less than I had originally planned, would that mean I was going to make less money because the markup was going to be less?


No. Though if you bought them at a rediculously low price, you should add in a few bonus items for the customer, so as not to be a shyster.

When the restaurant makes you a meal, there not working on time and materials. They build your meal and calculate a cost for labour and material. When you order a fixture, (bottle of wine) to go with the meal, they deliver it to your table, open it up, pour it in your glass, and gladly mark it up by 100% or more.


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## john elliott (Oct 23, 2005)

Gordo said:


> John,
> I have been trying to follow you. You seem to be talking in circles. I will leave it at that. Thanks for your input.


Not quite circles, but I have had to repeat myself a few times, near enough to circles I guess.

John


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## Mike Finley (Apr 28, 2004)

john elliott said:


> Let's suppose that after researching a particular job I decide that I need to charge $23,500. Now it may be that knowing my market (which is much easier for me to do that it will be for most of you), I decide that the value of the job to the customer is actually $27,500. If that is the case then $27,500 is what I will ask for. On the other hand, maybe the value to the customer is only $20,000. If that is the case then I will quote the $23,500, but I will also make a determined effort to somehow raise the perceived value of the job.
> John


I love it, I can't follow it and connect it to any rational pricing system, but since we long left the realms of reason, what's the dif anyways?

I'm going to print it out and hlold it next to a mirror and see if reading it backwards and reversed helps. If that doesn't help, I'm going to turn it into one of those kids boxes where you put your fingers in it and ask it a question and open and close it and read the answer, barring all that working I going to have to resort to the magic 8 ball. Can't say the ouiji board cause Md will be disappointed in me, even though I do think faced with trying to use John's "modern' thinking method or bringiing a ouiji board along to the estimate I would probably get more consistant results with the ouiji board.:euro:


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## RobertWilber (Mar 5, 2006)

This is a very common, well known pricing method known by the acronym WTTWB.


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## mdshunk (Mar 13, 2005)

RobertWilber said:


> This is a very common, well known pricing method known by the acronym WTTWB.


WTTWB? Perhaps WTMWB?


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## RobertWilber (Mar 5, 2006)

whatever the traffic will bear

gotcha...
hi md


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## dumplin1078 (Feb 14, 2006)

What a complete waste of time this thread is. I agree with mike it seems John likes to bring this up every once in a while and no one can change his mind so why try.


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## TMAN677 (Nov 13, 2006)

i have found that after completing a full materials estimate and time estimate with conversations with the required subs that i have to return to a axiom of business that i heard a long time ago. "it's not the best estimate that gets the job,but the worst estimate". that said ,experience has taught me that customer relations is where the correct price for the job is found. before i state my price for the work ,i try to find out thru conversations about the quality expected / time line / other bidders qualifications/ ETC. that a price of $23500. may be the correct estimate but the other bidders are not qualified / licensed /foreign workers / and or the owner is really expecting a price of $27500. due to his higher quality workmanship standards and can be convinced by a good presentation / that you are the better price


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## TonyD (Aug 4, 2006)

2 fixed price quotes, 1 customer
material markup=10%
labor rate=$50

job1:supply and install cheap item
$10 mat+$1 markup+$50 Labor - Won't sell
$70 High Quality install with a smile - Will sell

job2:supply and install expensive item
$1000 mat+$100 markup+$50 Labor -Won't sell
$1150 HIGH Quality install with a smile -Will sell

Although, IF YOU'RE CUSTOMER ISN'T SEEING YOU'RE SPREADSHEET THEN THIS WHOLE ARGUEMENT IS MUTE!!!!


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## Tscarborough (Feb 25, 2006)

John, it is as simple as this:

The money used for items that will remain on the job (materials), requires an outlay of capital on your part. Any time capital is used, you should receive value for it's utilization. In addition, there is an assumption of risk on your part by purchasing and installing materials manufactured by others(warranty work/non-payment), and that assumption of risk should also be rewarded.

If you add material markup when calculating the price, your minimum price for the bid will simply increase by the amount of the markup.


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## POOLMANinCT (Oct 7, 2006)

time/expense/materials = 1/3 of price

ray


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## Luke's Dad (Aug 29, 2005)

*Stop this ride I wanna get off!*



Gordo said:


> John,
> I have been trying to follow you. You seem to be talking in circles. I will leave it at that. Thanks for your input.


You hit this thred right on the nose Gordo! I've had to take sea sickness pills after every page just to continue on! :no: :laughing: I think Mr. Elliott should change his name to "stir the pot"


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## Gordo (Feb 21, 2006)

:laughing: 

Stir John Elliott:w00t:


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## Plan 9 (Oct 22, 2006)

*Hypoctites*

Many people here are hypocrites. It's sometimes hard to tell who they are but they all share one defining characteristic: They feel that charging what-ever-the-traffic-will-bear is an unethical practice.

Until they decide to sell their house....


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## john elliott (Oct 23, 2005)

Plan 9 said:


> Many people here are hypocrites. It's sometimes hard to tell who they are but they all share one defining characteristic: They feel that charging what-ever-the-traffic-will-bear is an unethical practice.
> 
> Until they decide to sell their house....


Absolutely correct, although they would probably say that they are marking up the garage by 20%, the lawn by 50%, the labor they used to clean the house by 100% etc etc

You may have noticed how many people in this thread are starting to sound like kids at the back of the class s******ing and making silly remarks because they don't understand what is being discussed.

They should try a google search on 'value-based pricing', and there is a very good article here
http://www.refresher.com/!gecvalue.html

John


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## HandyFeller (Feb 19, 2006)

john elliott said:


> You may have noticed how many people in this thread are starting to sound like kids at the back of the class s******ing and making silly remarks because they don't understand what is being discussed.
> John


I don't understand what is being discussed... What the heck is s******ing supposed to be a euphemism for? Can I buy a vowel?


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## john elliott (Oct 23, 2005)

HandyFeller said:


> I don't understand what is being discussed... What the heck is s******ing supposed to be a euphemism for? Can I buy a vowel?



Have another look through post 1 in this thread, that is what is being discussed.

The word I tried to post was sni gg ering, in the sense of a sly or snide laugh

John


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## HandyFeller (Feb 19, 2006)

Let's see if this gets through.
S******ing is not profanity, at least not in US parlance. I'd probably censor myself if I posted "fanny" on a UK site 'cuz it don't mean the same thing to you'se guys. Is s******ing similar?


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## HandyFeller (Feb 19, 2006)

I get it. It's the word within the word. I suppose we contractors can't be trusted to refrain from posting racist trash.


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## john elliott (Oct 23, 2005)

HandyFeller said:


> Let's see if this gets through.
> S******ing is not profanity, at least not in US parlance. I'd probably censor myself if I posted "fanny" on a UK site 'cuz it don't mean the same thing to you'se guys. Is s******ing similar?


I think the problem with the word that I posted is that it contains another word, sometimes referred to as the 'N' word. Obviously the forum software is programmed to censor that word and presumably the other variations such as ending the word with 'ah' in order to try to sound like ******* pronounciation

Interesting subject

John


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## HandyFeller (Feb 19, 2006)

Isn't Swindon where the BBC original "The Office" was set?


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