ExecutiveChronicles | How To Make Profitable Quotes As A Contractor | The goal of making quotes is to price your service so your customers will find it attractive—or fair at the least—yet still bring profit to your business. However, service pricing is one of the main challenges for contractors, as so many factors can affect the final price, not least the fact that every job is different to the next. One wrong move and you may scare customers away or incur losses yourself if you have set an incorrect profit margin.
Being a contractor and providing a service isn’t as simple as being a retailer. As a retailer, selling and pricing products can be a much simpler process. When pricing a service, you need to consider all business outgoings, equipment rental, materials, and other overhead costs that are often subject to change, as well as the cost of labor.
While there’s no one size fits all pricing scheme, you can follow a simple step-by-step process to ensure you don’t accidentally go overboard with the prices you quote:
Get business management software
Before you do anything, get business management software like the one offered by Jobber. Most business management programs come with estimating and quoting functionalities that make your pricing processes and responsibilities much easier and faster.
Some applications can even allow customers to self-serve. With this functionality, your customers and leads can access your services by themselves and even generate estimates at a time that is convenient to them, that includes your pre-determined margins.
Choose the pricing scheme that works for you
To make profit on your projects, make sure you’re using a pricing scheme that works for you. Here are the pricing setups you can use as a contractor:
. Cost-plus price: Contractors often use a cost-plus pricing scheme when they already have a crew. They start with a base price and add all extra costs on top of it, depending on the products used and labor provided. (1)
. Value-based price: Most contractors start with value-plus pricing. In this case, you base the cost or quote on what you think is fair for you and the customer. If you think USD$100 is a reasonable price for one of your guys to mow a lawn, then it probably is. (2)
. Fixed price: A fixed price can simplify the transaction in large projects and contracts. However, wrongly declaring a meager fixed price can risk you suffering losses if the materials and other overheads exceed your estimation.
. Hourly price: Once you have multiple teams working for you and dealing with tons of projects, it makes sense to turn your pricing scheme into hourly or set some of your services to be billed hourly instead.
Identify your breakeven margin
Knowing your business’s breakeven point is crucial if you want to have functional quotes and if you want your business to survive. You’re breaking even if your profits manage to pay expenses and overhead costs your business incurs. To profit, you must ensure your quotes generate enough margin to exceed your breakeven point and keep your purse strings tightened through various money-saving techniques for your business. (3)
Identifying the breakeven margin you want is critical. It’ll determine how much and how fast you need to work to achieve the profit you wish to have. An additional 10% on your markup on top of your breakeven margin goes a long way if you’re currently getting 10% gross profit.
Quote accurately and systematically
While your business isn’t as simple as retail, it doesn’t mean you can’t quote as if you’re selling a product. With the right systems and checks in place, you can simplify your quoting system and considerations to make sure you can provide good accurate quotes to your customers. Also, don’t forget to keep your monthly business finances up to date.
Know when to quote
Simply knowing how to quote isn’t enough. You should know when to quote as well. First of all, never quote anything if you can’t do or perform the job. It’s much better to only work on projects within your team’s skills and abilities.
Also, gauge your customer. While it’s nice to have plenty of customers, you don’t need to be desperate to get more if you’ll force yourself to lower your price. So, it’s good to avoid customers who can’t pay.
Then, only give a quote once the customers understand everything. You must make everything clear—the job you’ll do, the resources you’ll need, and the intricacies of your contract. Never service or quote a customer who has no idea what’s going on.
Regardless of how good your computations, considerations, and programs you use to generate a good quote, they’ll be of no use if you present them to the wrong person. Pay attention to the detail and keep your accounts up to date.
Conclusion
How you put together your quotes largely determines how much profit your business can generate. As much as possible, every quote you release must be profitable for you and your crew. Don’t settle for less, but don’t be too greedy. As long as you maintain the right balance and follow the tips above, you’ll consistently make profitable quotes for your business to be sustainable and grow.
References:
- “Cost-Plus Pricing: Definition And Example”, Source: https://www.indeed.com/career-advice/career-development/cost-plus-pricing
- “Value-Based Pricing”, Source: https://corporatefinanceinstitute.com/resources/knowledge/strategy/value-based-pricing/
- “The Break-Even Point And The Break-Even Margin”, Source: https://www.zenbusiness.com/blog/breakeven/
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