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A Comprehensive Beginner’s guide to Pricing Signage

Discussion in 'Sales, Marketing, Pricing Etc.' started by jtinker, Jun 1, 2018.

  1. jtinker

    jtinker Owner

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    After spending the past 4 years creating my own pricing software that we use inhouse I am deciding to go through some of the things I learned while creating the algorithms and best practices for the most efficient pricing estimation. There are much more complex systems that I have worked into my own software but this should be enough to give a novice a general Idea on what's needed. Remember these values are here as an example, you'll need to look at your personal costs and expenses to get accurate results for your business.


    Cost

    The first thing you want to make sure you get out of the way whenever you begin pricing anything for estimation is your costs. How much are you spending out of pocket including shipping costs, taxes, misc. expenses that were tagged on after the fact. We need to get these and have them written down or entered in whatever software/spreadsheet you use or build yourself. The last thing you want is to be losing money on jobs or working on fumes to where money is coming in, you are working really hard but you can’t seem to get ahead.


    In our examples we are using a few different types of material to get a sense of how things are calculated. First up we have roll materials which are usually very long; at least 5meters plus, secondly large sheet or panel materials and lastly, we have any sort of consumable usually in the form of liquid, powders, pastes and the like. Things like toner, pigment / eco or solvent ink, liquid laminations would fall into this last category.


    For most of these we will be using the same or variations on the same algorithms to arrive at a final answer. While we are going through these calculations at the end I will apply them to a fictional customer sign that measures 24” w x 36”h and is a Gloss Laminated Decal, Mounted on 3mm PVC with 1 sides.


    Bear in mind this is just what the decal is costing you and does not reflect the overall price. We’ll get into that in the profit and waste sections of this guide.


    Roll Calculations Example

    64” w x 150’h Standard Economy Decal

    1. Manufacturer Cost: $100

    2. Shipping Cost: $25

    3. Tax: $10

    Total Roll Cost: $135

    Now once we get this figure we need to go ahead and see how much each square foot of this is going to cost us. For that we use a simple square footage equation. But first we need to get our 64 inches and convert it to feet link our length (150ft) in our example.


    Inches to Feet Conversion:

    i / 12 = f

    (where i is our inches value)

    (where f is the result we are looking for)


    In our real-world example:

    64 / 12 = 5.33



    Now that we’ve got our foot amount for the width of the material we can use our square footage calculator to get a total square foot amount for this entire roll of material.


    Square footage calculation:

    w * h = sf

    (where w is our width)

    (where h is our height)

    (where sf is the result we are looking for)


    In our real-world example:

    5.33 * 150 = 799.5


    The final step is getting a price for each square foot, for this we need to get our material cost and divide it against our square footage we just got.


    Cost per Square Foot Calculation:

    c / sf = csf

    (where sf is our square footage)

    (where c is our cost)

    (where csf is the result we are looking for)


    In our real-world example

    135 / 799.5 = 0.168


    This gives us a cost of about 17 cents per square foot. Using this figure in your own signages applications would require some additional calculations. You would first need to follow the same square footage calculation on your client’s required sign size and then multiply the result against our value to get a base cost for the decal used here.


    Your lamination film should follow the same structure, I am adding a new value in our example to reflect a new item that was calculated in the same manner (roll cost calculation).


    Customer Sign Requirements:

    24” w x 36”h

    2 x 3 = 6 (square feet)

    0.17 * 6= 1.02 (Decal Cost)

    0.19 * 6= 1.14 (Laminate Cost)





    Panel Calculations Example

    48” w x 96”h 3mm PVC

    1. Manufacturer Cost: $50

    2. Shipping Cost: $10

    3. Tax: $5


    Total Panel Cost: $65

    The calculations for this run exactly the same for the panel cost. First we get the feet amount for the width and height (4 x 8) then multiply them to get our square footage (32sf). With this we can divide to get our cost per square foot (65/32) which should give us our cost per square foot (2.03125).


    A quick check of these calculations should let you know if you’re doing it correctly

    (cost per square foot * square footage) should give you the total panel cost.


    We’ll add this into our fictional client sign for reference.


    Customer Sign Requirements:

    24” w x 36”h

    2 x 3 = 6 (square feet)

    0.17 * 6= 1.02 (Decal Cost)

    0.19 * 6= 1.14 (Laminate Cost)

    2.03 * 6= 12.18 (Panel Cost)


    Liquid & Powder Calculations Example


    Working with liquids and powders can be a bit tricky since you have to find some information on the actual substance you’re working with from the manufacturer. Most of them will have this on their websites or any data sheets that come with the product. This can be mileage, coverage, yield amounts, yardage or anything in between. But there should be a coverage amount for a standard unit whether it be ounces, gallons, milligrams or what have you.


    An easy one to do is the printer cost per square foot, most manufacturers will have this readily available on their websites. In my case we use a Roland and, in this example, I’ll just have it chalked up to 0.50 cents per square foot.


    Now for something a tad more complex. For this I am using a liquid acrylic lamination. However, this can work for any liquid or powder-based calculation; all you need to do is find a cost and coverage.


    1 Gallon Clear Cast Liquid Lamination (coverage: 400 square feet per gallon)

    1. Manufacturer Cost: $50

    2. Shipping Cost: $10

    3. Tax: $5


    Total Gallon Cost: $65

    The idea behind this calculation is that we need to find out how much it costs us to cover each square foot, same as the other materials. Once we have our input numbers (cost and coverage) we can get this pretty easily.


    Liquid Cost per Square Foot Calculation:

    c / C = csf

    (where C is our coverage)

    (where c is our cost)

    (where csf is the result we are looking for)


    65 / 400 = 0.16


    This value doesn’t apply to our client sign but as you can see it gives us a rough estimate on what it’s costing us to cover each square foot. Using this in conjunction in a similar fashion as the other values we’ve gotten so far will yield the result for your sign. In my calculator I use this method to get fairly accurate estimations of ink consumptions on most machines, if you have the know how to use macros in excel or can program you could theoretically do the same.


    Now for something that is relevant to our client example, ink


    Customer Sign Requirements:

    24” w x 36”h

    2 x 3 = 6 (square feet)

    0.17 * 6= 1.02 (Decal Cost)

    0.19 * 6= 1.14 (Laminate Cost)

    2.03 * 6= 12.18 (Panel Cost)

    0.50 * 6= 3.00 (ink Cost)


    Labor & Shop Rate

    When we talk about labor charges we need to talk about your hourly rate. A lot of shops I’ve seen can’t seem to pin one down, or just pluck one out of the air at random and just use it because it’s what they came up with in the heat of the moment. So, before we do anything else in regards to labor we need to find out how much we charge to keep the doors open.


    There are tons of great examples of this online with some slight variations for more complex formulations so I won’t go too much into detail with it but it goes a little something like this:


    (Expense + Profit) / Billable Hours = Shop Rate


    Essentially you add up all of your expenses, this includes salaries, utilities, contractor fees, insurance, taxes whatever takes money out of your pockets.


    For this example, I am going use a fictional amount of $100,000 in expenses.

    Now it’s time to find your target profit. This is your goal that you need to hit, how much do you want to mark up your services. In this example we’re using 40%.


    Expenses * Target Percentage = Profit

    100,000 * 0.40 = 40,000


    This gives us our profit amount or our profit goal. From here we can get our billable hours. These are all the hours that you have to give to your customers. Work days minus holidays, off days and vacation times. In this example I am using 49 weeks and a standard 40-hour work week.


    Billable Weekly hours * Work Weeks = Billable Hours

    40 * 49 = 1960


    We have all of our moving parts now time to put them all together into our calculation.


    (Expense + Profit) / Billable Hours = Shop Rate

    (100,000 + 40,000) / 1960 = 71.43


    From here it’s up to you to determine how many man hours a particular job is going to take. You can just multiply your shop rate by the estimated number of hours. In our client example I am going to estimate 1.5 hours to from start to completion.


    Shop Rate * Hours Billed = Labor Charge


    Customer Sign Requirements:

    24” w x 36”h

    2 x 3 = 6 (square feet)

    0.17 * 6= 1.02 (Decal Cost)

    0.19 * 6= 1.14 (Laminate Cost)

    2.03 * 6= 12.18 (Panel Cost)

    0.50 * 6= 3.00 (ink Cost)

    71.43 * 1.5 = 107.14 (labor Charge)


    Profit Percentage vs Markup Multiplier

    There are a couple ways to go about calculating your profits. We’re going to be going over two of the most common ones. This concept has been covered earlier in the guide so I won’t go into explaining exactly what a profit is but more so how to go about using the different types (markup vs percentage) and how to incorporate them into our client example.


    Profit percentage works great for values that tend to get very large like panel boards but can give you some really miniscule numbers when you try to calculate something like roll media or liquids. So, for the different types we use different methods, the ones that make the most sense for your overall.


    Standard Profit Calculation


    In the example below my product is $100 and we need a profit margin of 40%


    (Profit Percentage * Cost) + Cost = Profit

    (0.40 * 100) + 100= 140


    Markup Profit Calculation


    In the example below, we have a pretty small number that represents decal costs. Even if we mark this up 100% it will still give us a pretty tiny number. So, in this case we are going to multiply the entire number multiple times to give us something that comes close to what we normally charge. My cost is 0.10 cents and my profit multiplier are 20 for this example.


    Profit Multiplier * Cost = Profit

    20 * 0.10 = 2


    Customer Sign Requirements:

    24” w x 36”h

    2 x 3 = 6 (square feet)


    0.17 * 6= 1.02 (Decal Cost)

    0.19 * 6= 1.14 (Laminate Cost)

    2.03 * 6= 12.18 (Panel Cost)

    0.50 * 6= 3.00 (ink Cost)



    3 * 1.02 = 3.06 (Multiplied Decal Profit)

    3 * 1.14= 3.42 (Multiplied Laminate Profit)

    0.40 * 12.18 = 4.87(Percentage Panel Profit)

    5 * 3 = 15 (Multiplied Ink Profit)



    Now we have to add the cost and the profit together to give us a composite price

    1.02 + 3.06 = 4.08 (Decal Total)

    1.14 + 3.42 = 4.56 (Laminate Total)

    12.18 + 4.87 = 17.02 (Panel Total)

    3.00 + 15 = 18.00 (Ink Total)


    71.43 * 1.5 = 107.14 (labor Charge)


    Material Total + Labor Charge = Final Price

    43.66 + 107.14 = 150.80


    Creating Composite Prices

    You may not want to go through all of this every time you need to create an estimate. What you can do is create some commonly used composite profiles. For example; Decal mounted on corrugated plastic, Laminated decal, Gloss deal mounted on 3mm pvc, etc


    You can crunch your numbers once, probably on a slow day or weekend and get a square footage cost for each of these composites and once you have a final number you can use that against whatever size your clients throw your way.


    That’s my 2 cents, hope it was helpful.
     
    Last edited: Jun 1, 2018
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  2. Active Sign

    Active Sign The Boss

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    Thanks for mapping this out.


    Sent from my iPhone using Tapatalk
     
  3. Texas_Signmaker

    Texas_Signmaker Very Active Signmaker

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    I like the Gino dart board method...easier and faster for me to understand.
     
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  4. Kustom X

    Kustom X New Member

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    Thanks for the info bud, it helps.
     
  5. TimToad

    TimToad Very Active Member

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    My head is swimming from the complex calculations you have undertaken. Nobody said there would be math questions on this test. I also don't see any calculations for what the intrinsic value of the advertising you are providing is worth. Applying hard fast mathematics to something as fluid, artistic and locally variable as signmaking is a really hard thing to do across the board. If I am the only signmaker within 100 miles, I can essentially charge what I want no matter what my skill level is or overhead. If I'm one of 10 shops in a 2 mile radius and 6 are underbidding the true market value of the work, we all eventually have to adjust to the low ballers.

    I'd rather see beginners actually worry more about gaining competency and skills in order to become viable while not driving the existing sign market into the ground by either giving their work away than spending way too much time calculating how to charge for beginner level work.

    This feels like just more math for geeks to wrap their brains around and further commodification of an artform...

    FWIW, a subscription to the premier magazine for signmakers, SIGNCRAFT gets you a hard copy and online pricing guide and overhead calculator.
     
  6. Gino

    Gino Premium Subscriber

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    So, if someone has this printer and laminating process you are describing, but has a small shop of maybe 2,500 sq ft..... where in all of your calculations, do you figure in your overhead, like rent, electric, water, gas, insurances, auto insurance and taxes for paying after the transaction takes place ?? Then again, if you have a shop of say 15,000 sq ft with 9 emplyees and more overhead and payroll, let alone perhaps 5 or 6 trucks with buckets and cranes..... how does that all get figured in ??

    Nope, I'm afraid, unless I'm reading your essay wrong, that you are calculating the loser's way of running a shop not taking into consideration your cost(s) of equipment, running it and you don't even have figured in any loss factors. This is hardly a method which would work, unless you are a department head, giving your monthly figures to the company accountant to figure the real costs out.
     
  7. jtinker

    jtinker Owner

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    The overhead is figured into the shop rate expense, This value goes up on down based off of your overhead. Then ran against the number of hours taken to complete. This value is calculated separately and added later closer toward the end of the calculation.

    The material cost just provides a realistic view of what material actually costs. I really never got the idea that I should charge some static value for the materials I used that the sign pricing guides were showing me. I did my own math and needed to see exactly what went where so all of it got broken up into its smallest pieces.

    Mind you it is not a complete calculation, like I said earlier in the post there are much more complex algorithms that I used in my own calculations that would not really apply for a beginner's guide. Like advanced waste calculation and operational costs for machines which I think should get their own thread or at the very least their own post in the thread.

    Very true, I went over this briefly in the beginning of the post. All of these calculations are just math, they don't reflect what you should be charging but only act as a guide to factor in how much you have going out and how much you want to come in. Its a little easier for me to wrap my head around it because once the calculations are set in my software it is only a matter of adjusting a slider or changing a number to take into account for outside factors or variables.

    I think theres a big problem with the sign craft calculations, it is an international publication and outside of the usa, im pretty sure none of those calculations apply. At least in my experience they literally were almost never right or felt very off. I live in the Bahamas, and I travel to central and South America frequently and while Im there I geek out and go visit other sign shops to talk shop with the owners for a bit. In my experience and in most of the signs that I visited abroad and home, they stopped using the guide because all the prices were either too high or too low for what the market was like there.

    So, I think all of the math needs to be take with a grain of salt while whoever reads this reflects on what exactly is going on in their own shop so they can figure out how to break even, not get screwed and find some balance with the markets around them.

    Thanks for reading and reviewing and scrutinizing the post. Amendments and corrections are always welcomed.
    But, it is a beginners guide so I left all the hard math out :)
     
  8. Texas_Signmaker

    Texas_Signmaker Very Active Signmaker

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    I see you add tax in your supplies. How does your tax system work over there? Is there income tax or is it all a consumption based tax system?
     
  9. bob

    bob Major Contributor

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    Thank you for your exposition. Perhaps next you'll tackle an in-depth report on how to pour pi$$ out of a boot.
     
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  10. jtinker

    jtinker Owner

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    As it stands we have a value added tax. So we are charged by the government for example 12% and we then have to charge our customers 12% to take into account. However only businesses making over 100k per year are able to charge this tax so its not applicable to a some. They just absorb the cost elsewhere or add it in somewhere else.

    For something like an income tax I would more than likely add that into your overhead expenses through shop rate calculations or if it got more in-depth than that have our CMS add it in as a compound tax after we already got a price for the material and labor.


    Not sure what that means.
     
  11. equippaint

    equippaint Very Active Member

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    Did everyone have a bad saturday night or something? Guys trying to help, its a beginners guide not some advanced corporate accounting calculation.
    I think one important thing that small businesses miss in the OH calc is depreciation. Its not a physical check that gets written every month so it gets ignored. Equipment has a finite life and everyday its value diminishes which is a real cost.
    Always figure on the new cost of the machine, even if you bought it used. It depreciates daily so really should be added into your overall hourly rate whether it gets used or not and not as an expense for a certain job.
     
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  12. TimToad

    TimToad Very Active Member

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    While in complete agreement over the need to fully account for overhead and all other costs and the importance of folks doing so right from the beginning of their business life, my eyes glaze over when confronted by too much math being applied to a mostly creative endeavor with huge variables. All pricing guides should be used as their name implies "a guide" to be molded and adjusted to each shop's individual circumstances and localized conditions.
     
  13. Gino

    Gino Premium Subscriber

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    I've never been concerned with hurting someone's feelings regardless of what day or night of the week it is. It's more about reporting accurate numbers and not back-pedaling after being corrected. Glazed eyes, I can't even get that far....... and I'm skimming.

    As for that tax thing....... for us, what you're describing and explained is called double taxation. Completely illegal. You cannot pay tax on something, then charge tax again to your enduser, as you provided.

    Looking back at your OP, you did say this was a good method for quoting or pricing.
     
  14. TimToad

    TimToad Very Active Member

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    I had an excellent Saturday night, and our shop "runs the numbers" on our overhead including depreciation a couple times per year. Where the problem comes in for me with the OP, is the presentation of these calculations as being for beginners when many of us are surrounded by shops who apparently aren't using similar tracking or calculators and appear to be flying by the seat of their pants or what they need to earn to just cover monthly bills on what to charge instead of what the work is really worth and our local costs.

    I applaud him for sharing it and hope more start to take the entire issue of company finances and how they relate to pricing more seriously. For a long time, signpainters thought of themselves as artists first and business people last. In order to survive in highly competitive economic conditions we all need to make sure we're using good data to formulate our pricing and shop rates.
     
  15. equippaint

    equippaint Very Active Member

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    I agree but overhead is what it is. If you dont know and cover your overhead, this creative endevour is a hobby rather than a business.
    Our business is full of variables and I always said the same thing. After religiously tracking jobs and really paying attention to productivity the past year, I have started to not follow this thinking anymore. Many of the variables are from poor job management which comes from never tracking data. Unharnessed inefficiencies from poor time managment will kill your profit faster than anything. Trust me, the variables are not that variable once you start paying attention to them.
     
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  16. equippaint

    equippaint Very Active Member

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    True and not limited to signs. Many business owners just dont get it. They are good at their trade and bad at business. It seems like restaurants are the best show of this. They think that becuase they can cook great food that they will have a killer business and then fail. Business acumen is almost more important, mcdonalds is the shining example of this. The food is not very good but they run a tight, efficient business model and make a killing. Their achilles heal is the workers. Every single process is streamlined, measured and consistent all the way down to cleaning the bathrooms.
     
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  17. TimToad

    TimToad Very Active Member

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    Is it that you just don't want to be seen as agreeing with me, or accept my agreeing with you?

    Aren't we essentially in agreement in our last several responses to each other?
     
  18. equippaint

    equippaint Very Active Member

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    I agree with and appreciate many things you say. I was just attempting to draw out the differences and create more dialog on an important subject
     
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  19. bob

    bob Major Contributor

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    What it means is that you put forth an excruciatingly detailed description of things that anyone with a couple of functioning brain cells already knows. Rather like an exposition about how to determine which way is up.

    If you manage re-write it leave out all of the pronouns. At least that way if won't be quite as pedantic.
     
  20. Texas_Signmaker

    Texas_Signmaker Very Active Signmaker

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    Some people just cant keep their negative opinions to themselves.
     
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