The most frequently asked question by owners of new construction businesses is "How do I price my work?"
The answer is half science and half art.
You are going to have to carefully consider a bunch of different factors to make sure that you remain competitive, cover your costs, and ultimately make money on the job. Early on, you may not always get it right, but with experience and time, you'll get a better feel for how to bid a job properly.
Let's get into it.
Calculate Costs
First, you're going to need to calculate the costs of the job.
Costs are broken down into two main categories: direct and indirect. Direct costs are things like materials, labor, subcontractors, etc. Indirect costs include insurance, permits, equipment, office expenses, etc. To properly account for the costs of a project, you need to sit down and really think about what's going to go into the project, down to the smallest detail.
For labor, you need to keep in mind costs like wages, benefits, payroll taxes, and any other expense that might be related to you or anyone else that will be working the job.
Material costs you can figure out through the quotes you get from suppliers.
Be mindful also of administrative costs. So if you have something like an office with utilities and/or someone picking up the phone to schedule your estimates for you, you should factor in those costs as well.
Ask yourself how much time this job is going to take and how does that translate to the money that's going out to pay for the office and the secretary? If you've got a potential 3-day project, then you probably want to figure out what 3 days worth of administrative costs are for your business and factor that into the bid.
Now let's say you have absolutely no idea how to begin pricing out a job. One free tool you could use is something like the True Cost Guide that Homeadvisor has.
To use it, simply type in the type of project you want to see projected costs on. For this one, I typed in "roofing."
Once you punch in the type of project you want to learn more about the cost of, you'll get an entire article on how those jobs are typically priced out as well as a way to calculate what the typical cost is by zip code.
Again, don't always take the numbers that this spits back to you as the gospel, but it is a good starting place if you need help.
Profit Margin
After you figure out what the job is going to cost you out of pocket, you then need to figure out how much you actually want to make in profit. Most people will set this as a flat percentage above the total costs. The profit margin you set should cover the money you actually want to put into your pocket after the job done plus a little extra to store away for the future for situations like if you want to expand the business or if you get hit with an unexpected expense. 10-20% above costs is a good standard to start with.
Whatever margin you ulitimately decided to go with, make sure you're not putting yourself in a situation to have razor thin margins. If you are in this business long enough, something will go wrong on the job and you will need a buffer in the margin to help take care of that problem.
Let's say you have some knucklehead subcontractors drop a marble vanity you're suppose to install as part of a remodel and it breaks. Now you need to go out and buy another. If you put your margins at a point where their profitable only if the project goes perfectly, you could be putting yourself at risk for losing money because a couple of your workers got a case of butterfingers.
Another thing to consider when figuring out what to set your profit margin at is how risky the job is. Let's say you run a landscaping and tree removal company. Taking down a 50 foot oak tree right next to the homeowner's house brings far more risks than trimming their hedges and putting down fresh mulch. The riskier the job, the higher the profit margin should be.
Pricing Model
Much of what has been described above revolves around a cost-plus pricing model where you simply add a percentage to the costs of the project.
Depending on the job, you could always go with a simple fixed-price for the project like a lot of lawn care companies use or perhaps an hourly charge that professionals like handymen will use.
Regardless of what you ultimately go with, the golden rule is you have to actually make more money than what you spent to do the work AND you have to be able to make a decent living for yourself at the same time. Coming out breakeven on a job might as well be losing money.
Conclusion
Remember that pricing is not a one-size-fits-all approach. How every company determines how to bid out a job will be a little different. Just make sure you figure out the costs, figure out how much money you want to walk away with, and track these over time to make sure your approach is working for your business. With experience, you'll dial in your approach until how you price out your work is truly tailored to match your business.