Increase profits by proper job costing
For years I have been asked questions about what to charge or how to price a particular service. If we are in business or we have ever tried to sell something we have most likely struggled with this question and the issues surrounding pricing. There are so many factors to consider that we sometimes forget one of the most important elements – that is, what will it cost to do the job.
I have seen and heard of all methods for determining prices, ranging from very accurate estimating to simply charging what people want to pay. With the later, if you are selling something to simply get rid of it, it makes sense to sell very cheaply. That works if you have stuff that you want to dispose of. That is the way it normally works at garage sales. However if you are selling services, you must make sure that you are selling for more than it costs to complete the services. The worse case I saw was a contractor who was knowingly selling at a loss for “cash flow”. Although selling for cash flow, may give you an immediate influx of money, it will eventually lead to a crash in the business. Let’s face it; to stay in business we have to sell for more than it costs to do the project.
Of course there will be exceptions to anything here, but it is critical that you have a good method for pricing your services. This is where pro-active job costing comes in. By pro-active job costing I mean determining your job costs when you are doing the estimate. Knowing what the job will, or should cost will give you a much better idea of what you should be charging. This may seem obvious, yet I have seen many contractors who are struggling with cash flow and don’t know where to turn.
Rather than guessing, it is far better to establish the anticipated job costs before-hand. Not only will that give you a better sense of what to charge, the projected job costs will also establish the base-line for tracking the progress of your projects. By monitoring the project as you go, you will be able to job cost as the project continues.