Video transcript: How to price a job
[Audio / Visual: Upbeat music starts playing as a blue introduction screen with wording “Tips for tradies e-learning series” pops up.]
[Audio/ Visual: Upbeat music starts playing with blue introduction screen with white business.govt.nz logo. The word “presents” in smaller, thinner lettering is beneath the logo. These words disappear and are replaced with white text “Tips for tradies e-learning series”. These disappear. White text saying “How to price a job” then appear in the centre of the screen.]
[Visual: The screen changes to a profile shot of the presenter, standing in a garage/tool shed. In the bottom right is the business.govt.nz logo which remains there until the end of the video.]
Getting your pricing right is key for your business to be successful. Too high and you can scare clients away. Too low and you could be losing money on every job.
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It’s an important first step in making sure you deliver accurate quotes to potential clients.
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In this video we’ll take a look at what you need to factor in when setting your prices. This includes working out your yearly financial goal, setting your margin and calculating your hourly rate.
[Visual: The screen zooms into a upper body shot of the man. White lettering saying “Yearly financial goals”, “Setting your margin” and “Calculating your hourly rate” appear as a list on the right side. These disappear after 5 seconds.]
[Visual: The screen zooms out to a profile shot of the presenter.]
This is important so you can pay your bills, yourself and make a profit to help your business succeed.
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There are lots of ways to set your prices, but three popular strategies are:
- Cost-based pricing
- Competitor-based pricing
- Customer-based pricing
[Visual: White lettering saying “Cost-based pricing”, “Competitor-based pricing” and “Customer-based pricing” appear as a list on the right side. These disappear after 5 seconds.]
[Visual: the screen blurs to a semi opaque background and an infographic of a man and a woman character appear on the bottom right hand corner. The man is holding a clipboard and a pen and appears to be taking notes. The woman character has her hands outstretched and appears to be talking. On the left hand side of the screen, a blue arrow appears pointing upwards with a blue ‘dollar sign’ on the left of it. A pink circle appears with text “Your selling price” and an equal below it. Below that, there is a dotted, empty circle with text “Margin” and a solid blue circle with the text ‘Manufacturing price”.]
- Cost-based pricing is where you work out all the costs involved in providing a service and add a bit extra to make a profit. It works best if your costs are low and your clients are very focused on getting the lowest price.
[Visual: the previous screen disappears and a new screen appears. The background still has a blurred, semi opaque background and a new infographic of a man holding some documents in his left hand and a single sheet of paper in his right hand appears. On the left hand side of the screen, a blue arrow appears pointing upwards with a blue ‘dollar sign’ on the left of it. One at a time three blue circles appear. First is the top circle with text “Competitor A’s Price” on the right hand side next to it. Below that, a second blue circle appears with text “Competitor B’s Price’ on the right hand side. Leaving a gap , the fourth blue circle appears at the bottom of the screen with text “Competitor C’s Price” on the right hand side of the circle. In the blank gap after the second circle and above the last circle, a pink circle appears with the text “Your price”.]
- Competitor-based pricing is when you look at what other people are charging for similar work and set your price around that. You may charge less to beat their price, you may match them, or even charge more and use some other benefit like better customer service, or getting the work done quickest to win the job.
[Visual: the previous screen disappears and a new screen appears. The background still has a blurred, semi opaque background and a new infographic appears. There are two animated characters that appear on the bottom right hand corner. One is a character in a business suit shaking the hand of a man with a tradie hat on. He is also holding some documents in his left hand. Behind the first character in a suit, there is a infographic building behind him. On the left hand side of the screen, a blue arrow appears pointing upwards with a blue ‘dollar sign’ on the left of it. A blue circles appear and on the right hand side of it, text appears saying “Customer’s willingness to pay”. Below that, a dotted, empty circle appears with text reading “Margin”. Below that, is an equal sign and under the sign, a pink circle appears with the text “Your selling price” next to it.]
- Customer-based pricing is where you find out the highest price your clients are willing to pay. This works best if your clients value quality over the cheaper price.
[Visual: The screen zooms out to a profile shot of the presenter.]
Whichever pricing strategy you choose, your prices need to be profitable or at least, break-even.
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Consider all the costs involved in delivering your services.
[Visual: White lettering saying “Costs delivering services” appear as a list on the right side. This disappear after 4 seconds.]
Including:
[Visual: The screen changes to show a video of 4 rows of stacked wooden planks. In the background, there is a blurred out power tool.]
- all the materials you need to buy
[Visual: The screen changes to show someone wearing a tool belt, using a hammer to bang a nail into two planks of wood.]
[Visual: The screen changes to show someone in a tool shed, using his computer while talking on the phone.]
- your business running costs like
[Visual: The screen changes to someone typing on their iPad.]
-
- internet charges,
- insurance,
- ACC, and
- the profit you want to make from the job
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Working out your labour costs gets easier when you have been contracting for a while and have a better feel for the market.
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But, if you’re starting out, a good method is to take the rate you would earn from a similar salaried job and add at least 20%.
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This covers things an employee would pay if you had a salaried job, like ACC, holidays and sick leave.
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Then there’s your profit. When you’re thinking about the amount you want to make in a year, build in profit, too.
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Profit is what you have left over once you have paid for all your business costs, materials, labour costs and yourself.
[Visual: The screen zooms up on the presenter to an upper body shot.]
To make a profit on your jobs you need to add a markup to your pricing. You can work out a general markup like this:
[Visual: The screen zooms in to the presenter, and on the right hand side of the screen the following text appears:
“Turnover – Job totals ($)
_____________________ x100 = % Markup”
Job totals ($)
The “% Markup” text gets circled in with a pink circle.]
[Visual: The screen zooms out to a profile shot of the presenter.]
Turnover minus the total dollar amount from all jobs divided by the total dollar amount from all jobs times 100 equals your markup as a percentage.
Turnover is all the material and labour costs for your jobs, plus costs to run your business - like rent - which don’t relate to individual jobs, plus your profit goal.
[Visual: The screen zooms up on the presenter to an upper body shot and then blends to a screen that has a blurred, semi opaque background. An infographic character appears on the bottom right of a man wearing safety ear muffs and holding a clipboard. Behind him is an infographic of a man in a digger. On the left hand side of the screen, a blue arrow appears pointing upwards with a blue ‘dollar sign’ on the left of it. A blue circles appear and on the right hand side of it, text appears saying “Labour” Below this, there is a plus sign with a second blue circle. On the right side, there is text “Materials”. Under this text, there is an equal sign. Below this is a pink circle with the text “$500,000”. All of the text then disappears and is replaced with a new blue circle with the text “Running cost $50,000. Below that is a plus sign with another blue circle with the text “Profit $50,000”. Under this line is an equals sign. Below is a pink circle with the text “Turnover $600,000.”]
Let’s look at an example. Scott is a builder who reckons the total cost of labour and materials for all his jobs for the year will be around $500,000. He has worked out his business running costs - things like rent, power, phone and insurance - and these come to $50,000. He also wants to make a $50,000 profit, so his turnover needs to be $600,000.
[Visual: The infographic on the right hand side slides off screen so only half of it is now on screen. All of the text disappears and new text appears on screen.
The formula is shown on the top third of the page:
“Turnover – Job totals ($)
_____________________ x100 = % Markup”
Job totals ($)
Below this formula, new text appears:
“$600,000 – $500,000
_____________________ x100 = 20% Markup”
$500,000
The text “20% Markup” is circled with a pink circle.]
$600,000 Turnover minus $500,000 Total dollar amount from all jobs divided by $500,000 Total dollar amount from all jobs times 100 equals a 20 percent markup.
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Markups can vary from one business to another.
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Whatever you decide, it has to work with what the market and your clients can handle, as well as for your business goals. If it’s not looking like a fit, see what could be tweaked. Are there any business running costs you could trim?
[Visual: The screen changes to a profile shot of the presenter.]
Can you adjust your profit goal? Is your labour charge-out rate set at the right level?
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If it still looks like it might not be enough to cover your business running costs or get the profit you want –
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- ask around and see what others are charging and maybe test out your rate with friends and whānau.
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You can find a handy downloadable pricing workbook on business.govt.nz. It's included in a link below this video.
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One last tip before I leave you - I’ve heard that keeping track of things as you go – especially how long each job actually takes – is a good way to get better at pricing and quoting for jobs.
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Make sure you check out the –
[Visual: The screen zooms into an upper body shot of the presenter and on the right hand side, a thumbnail for the “How to prepare a quote” video is shown and mouse cursor clicks on it.]
- ‘How to prepare a quote’ video where I go through ways to make quoting for individual jobs easy and offer tips on contracts.
[Visual: The screenshot of the “How to prepare a quote” video changes to a second thumbnail.]
[Audio / Visual: Upbeat music plays while a blue outro screen appears with the business.govt.nz logo in the centre of the screen. This logo disappears and the Ministry of Business, Innovation, and Employment logo appears on the left-hand side and the Te Kāwanatanga o Aotearoa, New Zealand Government logo appears on the right-hand side.]
[Video ends]
