“How much should I charge?”
One of the most divisive topics in any contractors group is pricing. Ask that question, and watch the fireworks begin. May as well ask “How much is a bag of groceries?” There are several unfortunate methods like Despermating, WAG (wild ass guess) and RID (rent is due), or asking strangers on the internet. While convenient, these approaches don’t produce consistent, sustainable pricing systems. Estimating is such an important part of your sales success, that you can’t leave it to a roll of the dice.
Gone are the days of the neighborhood painter coming over and giving a “ballpark” price and a handshake to seal the deal. These days you may be competing against guys using no estimating method at all – no wonder customers are confused! Needless to say, there is more disparity in paint estimating on the same scope of work than ever. Good, business minded contractors are finding themselves in competitive bidding situations where they are consistently twice as high as the supposed “competition”.
Anyone who is unsure about their estimating process should be asking themselves:
“How can I estimate accurately”?
“How can I present my proposals so they stand out against the despermators?”
“How can I show my potential clients how I am different/better?”
My bp colleague, Scott Burt, sums it up well:
“Painting is a mature industry. It is not new or cutting edge. So, your job is to make it feel new and cutting edge. In a world where painters all pretty much look the same to consumers, this should not be all that difficult.”
For the past several weeks I have been trying out the PEP Cloud Estimating Program. I really like the way the program works, but it wasn’t until I read a few comments on Linked in and the above referenced post that it really clicked.
The comments on Linkedin:
“Try applying paint to learn what it is all about instead of finding an app to do an estimate and then trying to make it on someone else’s labor…”
“I wouldn’t use an app to pick paint colours let alone use an app to price up any job. As it wouldn’t be the same when finished.”
“Just be careful using apps, one size does not fit all. I have ways used the old school method, it works every time. The simplest mistake can cost you thousands.”
The common thought seems to be that estimating programs are about arriving at pricing, they are not!
They are simply tools like a brush or sprayer that can help you to produce a better finished product.
Only the estimate is the first product your customer will see, so what will you use?
I have reviewed and tried several software estimating programs and usually the biggest drawback was the challenge of setting it all up for use. Many of these programs are diligently sold, but come with a lack of training and support after the sale. This leads to user frustration and abandonment. The package gets parked on a shelf.
A notable exception is the PEP Cloud Estimating program.
Signing up for the free 7 day trial was quick and easy. I also received a welcome email from the owner and software developer, Marge Parkhurst. These initial communications had her contact info, even her cell phone! Marge and her partner Fred are very approachable and helpful. She also does a webinar every Thursday that demonstrates features and allows users to ask questions. This type of support is exceptional.
Here’s How PEP Works
The Dashboard
As you enter the dashboard area, it is very straight forward, you can add clients and jobs, track jobs, see lead sources, sales and proposals at a glance. Because Marge is a paint contractor herself, the controls are well set up and easy to navigate.
Clients
You enter your customer information in here and there are several features.
- Notes-add custom information
- Billing-add clients to QB or Zoho
- Maps-integrates with Google Maps
- Calendar-allows you to easily add appointment and follow up times to your Google Calendar
- You can import your clients from Google Contacts or Quickbooks
- Jobs-you can add multiple jobs for each client
Settings
You are prompted to enter in your company information. There are helpful explanations built in to clarify all of this for you. The tutorials and helpful tips continue through all of the settings that enable a painting contractor to create custom estimates, templates and emails. These are efficient and convenient features, because there is no “creating” – just fill in the boxes and you are done.
- Labor and Material Pricing and Markup
- Company Info-Add logos and Certifications
- Additional users can be added
- Favorite Items-for quick access
- Colors-preload most often used colors for easy access
- Add your own contract terms
- Add additional company information
- Reports for profit analysis and job tracking
Adding a Job
Simply choose the client and add a job. Then choose a preloaded template like “living room” and you are able to enter the room dimensions, number of windows and doors, trim detail or anything else. If you don’t have an item in template, you can quickly add an item. You can take a picture of the room on site from the software and easily add it in. Because you have preloaded the costs for each item, there is no math to do. If you do want to adjust the price for a single item in the proposal, it is simple to do. After entering in all the elements, the proposal is formatted and ready to submit, and that leads us back to the original question.
“How can I present my proposals so they stand out against the despermators?”
This is where PEP shines, the proposal that is generated is detailed and professional looking. You can email a pdf or csv on the spot. The eBid feature allows you to have a customer sign on the spot. It also allows you to add pages to the bid that will allow your clients to learn more about your company and you can track when they are opened and viewed.
Take a look here and see how your current proposals stack up!
So yes, you can use software to estimate, but not to determine price. The software is as good as what you enter in, and it sure streamlines the process for you while enhancing your professional presentation.
Let us know what you think below.
Chris makes a very good point. You cannot sustain your business and be profitable by guessing. It is also as dangerous to “bid to the competition”, That is, to tell yourself I know XYZ Painting is going to 20% lower than me, so I’ll knock 21% off what I think it should take. You won’t stay in business long with that approach.
You must have an intelligent and consistent approach to estimating. If you are new at this, you can try to glean production rates and pricing from the PDCA manual or from other books, but the best and most accurate method is to diligently track your own production and spread rates. It may take some time to build a comprehensive data base, but once you do you will be equipped to address estimating with accurate information. Keep in mind, that different people produce at different rates, so you can’t track one job and think you have a reliable base to estimate from.
I have been in the Industry for over 20 years, and I am still adding different tasks and outcomes, and building into my data the many variables that can effect your jobs. This has paid off well, as I have bid and managed jobs as large as $5,000,000 successfully.
I have also spent my career trying to give back to the painting community by conducting seminars and joining in web sites discussions such as this one. If I can be of help to anyone regarding contracting practices, estimating or blueprint reading please don’t hesitate to contact me. Lynnj10.2013@gmail.com.
Best Regards, Lynn Jackson LEED AP.
Hi Lynn,
Thanks so much for such a thoughtful response. Your comments on getting production rates from PDCA and historical data are absolutely correct. Let me know if you would like to contribute to BP and follow up on that.
Chris, anything at all, I would be happy to contribute. I work at home now, mostly estimating work for projects such as Intel, Nike, Google and such. I am also in the process of revising a book I wrote some years ago; Paint Contracting and Estimating Made Easy. I can always make time for you.
Thanks for your reply.
Lynn
Thanks Lynn, I sent you an email!
Chris,
It occurred to me that I neglected to answer the question that began this post; “How much should I charge?”
Salary
The easiest approach to determine what number to use for salary is to simply add together all the salaries of each crew member that will be working on any given project, and find the average. You can choose to do this project by project, or calculate the average for your entire crew, and use that figure for each of your jobs. As salaries do change, you will want to refigure this number every few months, to keep it current. If, for instance, you have a foreman at $26 per hour, four journeymen painters at $22 per hour, and two prep men at $19 per hour, the total would come to $152. Divide this by the number of people (7) and you get $21.71 per hour as an average “mixed rate” salary. This rate will vary, depending on mix you have at any given time. You can use this same process to calculate the salary of any single employee as well.
Load
The term “load”, or “burden”, is used to describe several expenses which are related to employee salaries. Normally, these include federal government taxes (F.I.C.A. and F.U.I.), worker’s comp., state unemployment tax, liability insurance, and health insurance benefits. You can check with your accountant, or calculate these percentages yourself. Either way, you should be sure to keep them current, as they are subject to change. For the purposes of this example, I will plug in our company’s latest number, which totals up to $6.64 per hour. Add this to the average for your salaries, and it comes to $28.41 .
Overhead
To arrive at a figure for your overhead, take your latest financial statement, and total all the indirect costs associated with running your business. This should include items such as support staff salaries, rent, utilities, office expenses, vehicle insurance and repairs, advertising, and whatever else you have to pay for. Remember this fact; “If you overlook something, you’re going to lose money.” Once you have arrived at a total monthly expense for your overhead, divide that number by the total number of hours your crew works each month. Obviously, as with your other costs, this one is going to vary. Again, for the sake of this exercise, I will plug in my figure for overhead, which is currently $13.80 per hour. Adding this to the salary and load figure gives you $42.21. This is how much it costs us per person, per hour, to run our crew, based on the mix above. This formula can be applied to any one pay level as well.
Profit
I’m going to take a wild guess here, and assume than you are in business to make a profit. Therefore, you need to add something to the above number, to ensure that that happens. The question is, “How much profit do you want to make?” As I have pointed out before, this can change, depending on your work load, how badly you want the job, or on what type of project it is.
Let’s say you settle on 10%, just to make it easy. Taking the dollar amount we arrived at as your cost of doing business, $42.21 per hour (again this based on the mixed rate example), you need to calculate how you are going to end up with a 10% profit on top of that. If you multiply $42.21 times 10%, you get $4.22. Add those two together, and you end up with a “sell rate” of our mixed crew is $46.43. If this is your approach, you will actually be making 9% profit, not 10%. To see if I’m right, take the number you arrived at as your profit ($4.22), and divide it by the billing rate of $46.43. The correct way to go about this is to start with the cost figure ($42.21), and divide that by 90%. The result will be $46.90. This is your correct sell rate, representing an hourly profit of $4.69 which, if divided by the sell rate, will show a profit margin of 10%. You may have already been familiar with this method of calculating profit, if not, you just made a whole lot of money!
Sorry for a lengthy post, but I hope it helps.
Regards,
Lynn Jackson LEED AP
Great reading here. Thanks for this
Hi Mike, thanks, hope you find it useful!
Hi Lynn,
Years ago I worked for a small painting company, however was not privy to the owner estimating methods. My goal is to start a property services company with a primary emphasis on painting. My question is, now that you have your your sell rate how do you apply it to a specific job? Estimate the job by the total estimated hours or break the number down to square footage, example 0.50 per square foot?
finest regards,
Ron Townsend
Ron,
You have identified the two main commonly accepted methods of pricing; Production Rate vs. Unit Pricing. In Production Rate estimating you determine the total number of hours needed for any given task based on your various production rates (Determined from your historical data) and multiply that number by your hourly labor rate. With Unit Pricing, as you suggested, you take the total quantity of sf., lf., eaches etc., and multiply that by a pre-determined “Unit Price”. The Unit Price is typically determined from historical data by tracking your actual production results, and encompasses all the aspects; labor, material, equipment and such.
There are pros and cons to both methods. In my opinion, Production Rate estimating is more accurate because you break your pricing down to cover each separate aspect of the labor: prep, mask, prime, paint, staging, etc. specific to each bid. With Unit Pricing you just roll it all up together. The problem with that approach is that every job is different and will have variables that are not necessarily accounted for. You may have more or less prep, masking, equipment needs, access issues, travel, different substrates and products and so forth. You get the idea. The attractive part of Unit Pricing is that it is fast.
So, if you are more concerned with accuracy I would suggest the Production Rate method. If your focus is more on volume, and shooting as many arrows as possible, then Unit Pricing is for you.
All the Best,
Lynn Jackson
Thanks for all your very generous knowledge you have shared. I just learned alot from your comments.
My pleasure.
Hi Chris,
Terrific article. I know so many pros that would benefit.
We are looking for terrific writers like yourself to join our blog. Interested in writing for our growing audience?
If so, please email me at jacob.hurwith@craftjack.com.
Thank you.
Best,
Jacob
Jacob,
Sorry, I’m new to this format – were you asking me or Chris?
Regards,
Lynn Jackson
Hi Lynn,
Are you perhaps a painter? Either way, if interested, please email me at jacob.hurwith@craftjack.com.
Thank you so much!
Hi Jacob, thanks for the kind words, I’ll keep you in mind, but honestly, I can barely keep up with my writing here! We do have a great community of bloggers that contribute here, hopefully one of them will contact you. Thanks again
Hi Chris,
Sorry to hear that. You are a great writer.
I will surely reach out to other writers on the site.
Best,
Jacob
Hi Chris,
After a paint contractor compiles there estimate of quantities from their take off. They can separate the the quantities into two (2) estimates. One for labor and one for materials.
On the materials end; a sales rep can provide cost per gallon and area of coverage.
Labor can based upon production rates for each individual task. The bidding paint contractor can apply their labor production rates based upon their historical data of previously completed jobs that are similar in size and scope.
If there are no known production rates for labor; many sales reps, trade associations or other friends in the industry are always a good alternative.
Thank you,
Brad Marsh
brad@threecllc.com
Thanks Brad, good point, knowing production rates is one of the toughest challenges for many!
Hi Chris,
Great article!
Would you like to try our estimating software at 247PRO? It is designed to work for general contractors and we have templates specifically for painters. We’d sure like your input and we would love it if you could create a post to recommend your readers. If you have time, please feel free to email me directly at russell@247pro.com
And feel free to check us out at http://www.247PRO.com
Best,
Russell