A Profitable Sign Pricing Formula
One concern many sign shop owners have is whether or not they’re charging the right price for their products. You don’t want to lose money by charging too little, but going too high could force your customers to find someone else. What if, instead of worrying if you’re charging your customers the right amount, you could feel confident in your shop's pricing? While many sign shops struggle to perfect their pricing, it doesn't have to be as hard as it's made out to be.
At shopVOX, we know how important it is to get your prices right. We want you to bring in the profits you need while keeping your customers happy with the cost of your services, and we’re here to help you get there.
Find out how you can start accurately pricing any of your products.
Determine the Cost of Materials
To get started pricing any project you’re working on, you’re going to need to determine the cost of materials it will require. Of course, how much you’re spending on materials to create the product will make a big difference in what you charge your customer. For every project, create a list of all the materials you’ll need to complete it and what your shop needs to pay for each one. You want to know that the money you’re bringing in from the project will cover the cost of the materials used. When creating a list of prices for the materials, you’ll also need to consider which materials you need to outsource and which ones you can produce in-house. You can easily get the price of materials you outsource, but if you’re fabricating it yourself, you’ll need to determine the price of all the materials that go into producing it in-house.
However, there are some materials that will be harder to price accurately. Smaller materials, like screws, silicone, and staples, can be difficult to plan for. You don’t always know exactly how much you’re going to need when it comes to these types of materials. Materials like this are referred to as “indeterminates” and should still be calculated into your total, although you won’t know the exact number. To include the cost of your indeterminates, you can take seven percent of the total for your materials and add that percentage on. After you’ve added the indeterminates fee to the initial total cost of materials, you’re going to markup the cost by multiplying the total by 1.5. Once you do this, you’ll have the final cost of materials needed for the project. Here’s the formula:
Material Costs + Indeterminate Fee at 7% of material costs x 1.5
Determine the Cost of Labor
In addition to the cost of materials required for the project, you need to determine the cost of labor. First, you need to figure out how many people will be working on the project and how much time will be needed to complete it. Of course, you'll need to include the hourly rate of the workers involved with the project. However, their hourly rate isn’t the only cost your shop has for your employees. Employees are much more expensive than just their hourly rate when you add in all of the other costs of keeping an employee, like money spent on their retirement plans and medical insurance. Leaving out these added costs out of the cost of labor can mean your shop is losing money when pricing products. To ensure these costs are covered, take 15% of the total cost of your employee’s hourly pay for this project and break it down by hour. This is the burden rate for the labor involved with the project and helps you accurately assess the total cost of having an employee work on this project.
Like with the total cost of your materials, you also need to markup the total cost of labor, although this won’t be marked up as much as the materials are. Instead of multiplying by 1.5 as you did with your materials, you’ll only multiply the labor cost by 1.3 to come up with the total. Here’s the formula:
Employee Hourly rate (hours estimated in project) + 15% of hourly rate (hours estimated in project) x 1.3
Include the Overhead Cost
Having the total cost of the labor and materials doesn’t mean you’re done just yet. You also need to include a cost for overhead. To do this, you first need to determine your monthly overhead cost. When you have the monthly cost, break it down to how much it costs per day and then break it down even more to see your overhead cost per hour. Multiply your overhead cost per hour by the number of hours your project requires to see what overhead costs your company will have during the course of this project. Here’s the formula:
Monthly Overhead Costs / 30 = Daily
Daily Overhead Costs / 8 = Hourly
Hourly Overhead Cost x estimated hours in project
Add Your Profit In
When you have your overhead cost, you need to add it together with the costs of labor and materials. It’s important not to forget your profitability margin. This percentage will depend on how much profit your shop needs to bring in. After adding up your costs, divide that number by the remaining number you want for your profit percentage. Later, you might also have to add on any extra costs and incidentals for the work the project needs, such as installation, graphic design, etc. Here’s the formula:
Materials Costs Formula + Labor Costs Formula + Overhead Costs Formula + Extra Costs x Profit Margin = Total Customer Price
Price Your Products Using shopVOX Today
Pricing products doesn’t have to be as difficult as many people think it is. In fact, doing this is even easier with shopVOX print shop software. With shopVOX, you can quickly and easily create prices for all of your products to ensure that you’re always giving your customers an accurate cost while bridging a profit for your shop.
Find out how shopVOX’s features can help your shop today.