Huston says labor is such a problem now that virtually all of his clients could do 20 to 30 percent more work if they had the labor to do it. “Now, we are not in that market – it’s the other end of the spectrum, and in a robust market, the client’s primary concern is, ‘When can you start?’” “So, you need to know when to say no in a recessionary or tough market. “In a depressed market or recession, the customer’s primary concern is, ‘How low can you go?’ ‘How you value-engineer this price and come back with a lower number?’” Huston says. But if a competitor offers do to the same job for $8,000, let it go! You’ll make absolutely no profit if you match that low-ball price since your break-even point is $8,000. Set your pricing minimum: Start the price for this project at $10,000. Apply a 20 percent net profit margin to $8,000 for a price of $10,000. Your general and administrative overhead expense is $2,000 for a break-even point of $8,000. For example, in today’s healthy market, a residential design/build contractor can apply a 20 percent net profit margin to the break-even point.ĭo the math: You’re pricing a job where materials cost $3,000, labor is $2,000 and labor burden is $500. This is your break-even point – the money you’ve got to bring in to stay in business.Īdd net profit margin: Now that you have the break-even point, apply the net profit margin. You’ll also know your indirect costs, including general administrative overhead.įind your break-even point: Add your direct costs and overhead. With an accurate budget, you’ll know the costs for labor, labor burden, payroll (taxes), equipment costs, subcontractors, equipment rentals, vehicles and materials. The bottom-line price you can build up from, and perhaps generously, depending on the market and economyīefore you can figure your minimum price, you’ve got to have a solid budget that aligns with industry benchmarks.How much room you have to value-engineer a contract to retain a client or compete against another bidder.“You’ll have low-ballers in your market that will come up with some ridiculous price and you need to know when to walk away from a job,” he says. So, what’s the best way to figure out pricing so you know when to draw the line and know what flexibility you might have to give a customer a break? Huston suggests a bottom-up approach that will give you a minimum price to charge for services. “If you know your costs, then you can make those decisions,” Houston says. Well, that contractor did, in fact, end up adding many more clients because his market was particularly competitive. “We really dug into the numbers and discovered that he could lower the hourly rate,” Huston says. Huston describes a contractor who wanted to lower his hourly labor pay rate by $2 an hour because it would decrease the cost of services by 10 percent and allow him to pick up more work. “It’s important to know your numbers, know where you need to be and know when to say ‘when’ on lowering a price,” says Jim Huston, president of J.R. Pricing is the one common frustration because no matter the market or economic landscape, you’ll always face low-ballers and feel cornered by clients who try to squeeze the profit out of a contract. Pricing is a constant pressure for landscape businesses, whether you’re operating a lawn care company, design/build firm or commercial maintenance business.
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