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Question on profit

Discussion in 'Sales, Marketing, Pricing Etc.' started by john1, Dec 3, 2012.

  1. john1

    john1 Guest

    Hey guys,

    Lately i have been working on adjusting my pricing for the different types of services (cut vinyl, digital printing) and had a profit question.

    Let's say your doing a run of prints, you have $100 in time and materials in it. Once you take the price you sold the product for and take away the $100, you should divide that number by the hours you had into that to find out the hourly rate made on that job right? Or do you count the hours you had into it off the selling price?

    Stupid question i am sure but i am just wondering cause on some jobs i'm finding i'm making slightly lower than my hourly i charge after time and mats.

    Thanks!
     
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  2. Fred Weiss

    Fred Weiss Merchant Member

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    Your question isn't making sense to me.

    When I am using time and materials to quote a price the shop rate time has already been calculated to deliver the return needed based on other assumptions I have made ... such as average billable hours in a day, week or month. If those assumptions are met or exceeded then I meet my income and profit goals for the business.

    If I have employees to whom I can delegate less skilled labor, I might then have a different shop rate for those lower skill tasks. Likewise, I might have high skilled chores for which I would quote at a higher shop rate. But for most jobs my formula for quoting is:

    (Estimated Hours x Shop Rate) + (Materials x Standard Markup) = Quoted Price

    So if a job is estimated to take 3 hours and requires $100 in materials, we have:

    (3 x 75) + (100 x 2) = $425.00
     
  3. Shadowglen

    Shadowglen Member

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    years back I used an estimating program specifically for the sign industry at the time you paid for plug ins for different areas that pertained to your business when I decided to get back into the signs I found and am running the same program again. I wont say what it is because I don't want to be plugging someones software on a message board. I have a similar estimating software set up in our framing and matting shop and think they are the best way to stay consistent in pricing and keeping your hourly rates the same. I know there are different programs out there just finding one to your fit and liking is the key. I also think when you hand a customer a computer generated estimate rather than a hand written quote it just seems to be more concrete and less negotiable. once again I am new to this board just trying to share my bits.
     
  4. john1

    john1 Guest

    I guess since i use a estimating program it's alittle different then figuring the pricing up by hand.

    If you sell a job for $1000 but have $200 in materials in it, you have $800 of profit. Let's say your hourly rate is $75/hr and you had 12 hours into it. You only made $66.67 after the materials which is under your hourly. You would raise your prices at this point i'm guessing.

    Guess it's not that big of a deal but i guess some jobs you make more than others right?

    That's what i was getting at, Sorry for the confusion.
     
  5. Fred Weiss

    Fred Weiss Merchant Member

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    If you are coming up short, the reason is usually found in how your estimate of the time it takes to do a job compares to how long it actually takes you. Getting a good handle on estimating time is key to accurate quoting whether manually or by a program.
     
  6. James Burke

    James Burke Being a grandpa is more fun than working

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    The biggest factor here is a solid understanding of your hourly rate. Are you just guessing, or is it based on your actual expenses (otherwise known as "overhead")? This is where people usually miss the mark.


    JB
     
  7. Fred Weiss

    Fred Weiss Merchant Member

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    I would also add that you don't appear to be marking up your materials, which, if you did, would further reduce your average rate per hour for labor.
     
  8. john1

    john1 Guest

    actual expenses
     
  9. James Burke

    James Burke Being a grandpa is more fun than working

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    Good deal....you'd be surprised how many people don't know their operating costs.


    JB
     
  10. John L

    John L Very Active Member

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    My formula is like this... Worth of the product X 1 = Price. Doesn't matter how long it takes or how much material costs.

    If you insist on making your offerings a commodity then it's... Costs X 3 plus Time X $80 = Price. But many times, we can make something in a few hours that's worth way more than a few hours @ labor rate.
     
  11. john1

    john1 Guest

    Yeah but i'm talking about print/cut jobs, like runs of decals and such. Nothing like truck lettering which falls into what your talking about :thumb:
     
  12. Mosh

    Mosh Major Contributor

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    Materials + beer money needed for the night = selling price

    Pretty simple on how I price stuff!
     
  13. john1

    john1 Guest

    lol Mosh. You can't really be like that in real life...Can ya?

    But i guess some jobs you make out like a bandit, Others you make profit just not as much as others. Right? Some seems like i can make $90 hour after all is said and done, Others i am making $50. Typically it's those dang cut vinyl jobs but hey, gotta pay the bills. $75/hr is where i like to be at though and typically am.
     
  14. John L

    John L Very Active Member

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    I have a theory that a piece of vinyl (or metal, or neon, or wood, etc) that is so effectively designed and placed that it sells a $1,000,000 yacht might be worth more than a no trespassing sign. Dont sell vinyl...sell advertising.
     
  15. Jillbeans

    Jillbeans Major Contributor

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    I try to sell by the advertising value of something as well.
    I might have only about $25 in paint for a window lettering job but there's no way I'm doing it for $50 or even 3x50.

    It seems to me like you are always trying to second-guess the price of every job you do, to try and squeeze another nickle out of it. You may be stepping over dollars in order to pick up a penny.

    I figure my costs using the materials cost marked up, factoring in the time it will take, the general size and appearance of the job I'm going to do, its perceived value to the customer, (sometimes the customer's PITA factor), how soon they want it, a peek at the Signcraft pricing guide, and 27 years experience.
    Love...Jill
     
  16. visual800

    visual800 Very Active Member

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    I have no formula for anything. I add up all materials and estimated time THEN I figure in the profit. Been doin this most of life. I base alot of my profit on how much I like the customer or how much of a PITA they are. If I wanna keep them or get rid of them.

    my profit also matters how the install is. How accesible is the install area? How easy was the customer when doing the art or layout? so many factors plus I just dont like estimators
     
  17. wildside

    wildside Very Active Member

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    i think your idea of "profit" may be a little skewed if i am even following you on this

    $1000 job = $1000 cash
    $200 in materials = $600 with markup
    $75 an hour shop rate with 12 hours labor = $900
    $900 + $600 = $1500 to produce job
    $1500 cost - $1000 job = $-500 out of pocket = no profit lost money WTF?

    the estimating system that you so highly push, should be setup so you do not even need to ask all the questions about pricing, i have used it, if you setup all your expenses into it, and material costs, labor estimates to produce etc, you would not be constantly asking pricing questions
     
  18. TheSnowman

    TheSnowman Major Contributor

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    I'm with visual. I generally double my materials cost, and then guess on my time and I've been doing ok with it for 8 years, so I guess I'll just go with it. When I have a PITA customer, the prices go sky high, if it's someone I feel will be a good investment and a great working relationship with, such as another designer just needing a print shop, or something like that, I'll slash my price because they're easy to deal with and will have lots of repeat business.
     
  19. Gino

    Gino Premium Subscriber

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    Based upon your post #4, you have materials figured in and whatever’s left over is yours.

    That’s a quick formula for failure and possible ruin. You’ll be running by the seat of your pants and it will become rather apparent as you branch out. You’ve been saying you want to grow, right ??

    You don’t have.......


    • Overhead figured in
    • Utilities
    • Insurance
      [*]Taxes
      [*]Any incidentals you might happen upon.
      [*]Down time
      [*]And most of all…….. mistakes


    Take for instance you have $200 in this job, you worked on it for 12 hours, you’re burning lights, heat/AC, shop insurance or home insurance in your case, your quarterly taxes and tools you had to buy at some point to do the job. Now, after figuring that into your equation, what if you screw up the colors in the entire job and have to repeat the $200 portion…. will the other items need to be repeated ??

    So, what happens to your bottom line should you make a mistake ??

    With your method, you just make less, but business wise, you’re going deeper in the hole and won’t be able or capable of paying mortgages, rent, electric bill, more inks, more vinyl, more beer more anything, cause your jobs are eating it up.

    This is the very reason, so many people are always complaining how much supplies cost. They really don’t have them figured in at all. Everything is based on each and every job going off without a hitch and no strings attached. In a play world, this works, but in the real world, not a chance. Odds will eventually catch up to you and take you down. The play world method is for a hobbyist or part-timer that has another job and this is just a slush fund or a write-off.
     
  20. signswi

    signswi Very Active Member

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    Gino is on target. I'll never understand how people in every small business field are just so damn bad at the most crucial and necessary part of operating a business (setting pricing). There's a reason small business failure rates are so high, and this question is a HUGE reason.
     
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