Tuesday, August 13, 2013

How much should I charge for that... how to price your work!


"How much would you charge", is a question that I hear and see often, posted on Facebook and other social media sites, or asked when showing a design in a class.

Being creative is fun, but working out how much to sell our work for is not quite so exciting! 


Sue Bowler
Candy Swirl Arch created by Sue Bowler CBA


I suppose it’s like anything, if it’s something that is readily available at a variety of outlets, such as carton of milk or a helium filled 18” foil balloon on a weight, then it will have a ‘market’ price, however if it’s a one off balloon sculpture, event decor or even an elaborate arrangement then pricing is not so straight forward.


So how do we price our work?

I know that when I first started selling balloons and balloon decor I really had no idea how to ‘cost’ my work, and generally used ‘gestimate’... the what price sounds about right theory!

Now sometimes this worked really well and I am sure that I was paid a princely sum for my work (although I cannot be sure), however, I do know for sure that on most occasions that I was well and truly underselling my work and my time! 

For me, my saviour was the QBN - Qualatex Balloon Network, it gave me enough information and confidence to help me to work it out so that I did cover all my costs and make money too!

I do not do so many decorating jobs today, however when I do, I always use the job costing method to make sure that I am on the right tracks!

So to help us through this blog, we will use the Candy Swirl Arch that I recently made at JBAN, I have absolutely no idea how much I would sell this design to a client for... maybe we should all take a guess now before we work it out? 

£100? or maybe £150? or even £200?

Remember, the price that you charge may well be VERY different from the price that I would charge and you will understand why very soon... so please read on!

So how does it work? 
(For your eye's only you do not show your customer these calculation or this form)

It all starts with a ‘Job Cost Form’ and Pricing Primer, designed by Tim Vlamis, Managing Director, Business Delevopment at Pioneer Balloon Co. 

The job cost form allows us to:

  • Calculate how much the work will cost BEFORE you do it
  • Calculate a price to charge that is higher than the estimated cost and gives you the profit that you want.
  • Calculate how much the job cost and see how much money you actually made.
The Job Cost form is very simple, and by using it correctly it will ensure that you have all the information that you need to complete the job successfully.

So lets start by completing all the job details, 

Clients name
Clients address
Job Number
Job Date
Contact details
Phone numbers
Description of work

Sue Bowler CBA


All this information is extremely relevant and forms part of the contract between you and your client, again the QBN will help you to establish a good working business contract that can be used for each of your jobs.

The job cost form is divided into 2 parts, estimate and actual. 

The estimate allows us to calculate a price to charge the customer, the actual will show us how accurate we were with our estimate and how much we actually earned. 

You need to complete the estimate to establish a price to charge your customers, this is where you list All the materials you believe that you will need for the job, you will probably over estimate on materials, but it is better to over estimate rather than under estimate:

Balloons
Helium
Weights
Ribbons
Don’t forget to include everything tangible as they will have cost you something to buy in the first place!

SUe Bowler CBA

So, here are all the items that I will use to make the Candy Swirl Arch. This is the first point at which I can say that our estimate costs will vary. Your costs will depend on how much you pay for your balloons and what taxes you need to apply, so please use the job cost form that I have added below, and this time use the prices that you pay, so that you can work out the same design but accurately for your territory.

To download this form just right click and save to your desktop.


Labour/Labor Costs
How much time will you and your staff spend working on the job, prep time, design time, build and tear down all should be taken into account.
You may have different wage rates depending on skills and abilities, all these can be listed on the form to give an accurate account of the wage costs.



Other costs
Mileage, parking, meals or snacks, any additional costs that you may incur to complete the job should be included too!

I have known balloon companies to add terms into their contracts that cover some of the other costs, like hotels and food, as it may be better (less expensive) for the customer to cover these costs, this is always worth discussing with your clients in advance.

OK, now you have MATERIAL, LABOUR and OTHER COSTS (known as Total Direct Cost) you now have some idea how much the Job is going to cost you! So this is not the price that we are going to charge our customer!



So I know now how much the Candy Swirl Arch cost me to make and that is 67.19, again this is where your price will vary from mine, your hourly rates, mileage allowance, parking fee's etc. will differ from mine...


Now for the next and very important part that I certainly did not think about when I first started running my business.

To run a successful business we need to ensure:
  1. That we make enough money to cover our overheads.
  2. That we make enough profit to grow and prosper.

Overheads are our day to day running costs, and no matter how small a business you are, and even if you work out of your home, you will still have overhead expenses:

Think about all the things that have to be paid for even if we don’t sell anything!

Rents & rates, electricity, water...
Telephones and call charges
Computers, computer supplies and WIFI connections
Business stationary 
Marketing costs

These are all examples and some of us have more overhead (running costs) expenses than others. To calculate your annual overhead % you will need to have been trading for several years to get an accurate figure (typically the first years trading will have higher overhead expenses as you will need to invest in equipment, computers etc) you will need to total all your overhead expenses on an annual basis and divide it by your total annual sales. 

Lets say your annual turnover is 200,000 and your overhead expenses add up to 60,000
that would suggest that the overhead % equates to 33% of the annual turnover.

We all need to make a profit and depending on the size and type of a business will determine what the profit percentage should be?

I cannot tell you how much profit you should make, looking at other business’s it varies considerably and maybe some of the items we sell cannot always reach the same profit levels as others especially if a ‘market price’ has already been established for a regular selling item? But I am talking about our designs and decor, our ‘art’ so we should be able to make a pre-determined (by us) profit %?

I have done a little research on the internet, and net profit can vary considerably from as little as 10% to as much as 40%, so you need to work out where you fit into that equation! Of course we would all love to achieve 40% net profit, however that may well price you well and truly out of the market, making your balloons too expensive, so you will need to do some calculations and a little bit of market research to see how your prices compare... but remember you do not need to be the cheapest to succeed!


Tim (Vlamis) suggests that a larger business may look to achieving 20% net profit and a smaller business 30% net profit!


Once we have determined what our overhead % is and how much net profit % we are looking to achieve we can find out what our MINIMUM selling price should be... 

So, for this exercise I am going to say that my Overhead % is 30% and that I would like to achieve 25% net profit, by adding these together I will get what is know as a Gross Profit Percentage and that is equal to 55% (Overhead % + Net profit % = Gross Profit %).



So all we need to do now is find our selling price using the information that we have, knowing your Gross profit % is the key to finding our selling price!






What could be easier, total direct cost = £67.19 / (1-55%) = £67.19 / 0.45 = £149.31

You can change the gross profit percentage to what ever you decide is appropriate for your business, taking into account all your running costs.


So if your gross profit % was let's say 60% the equation would look like this:

67.19 / (1-60%) = 67.19 / .40 = 167.97

So, we now know that the minimum selling price for the Candy Arch using all of my information works out to be £149.31, however, I still have to add a small charge for the rental of my poles and bases that I will need to use for the design. I have listed them as a rental item in my contract and therefore I can add in a fee, I would also probably add in refundable deposit if I felt there was a chance that I might lose them, but obviously that would depend on the customer and relationship that you have with them.

£149.31 plus pole & base rental £10, would give me a total price of £159.31 ( let's round that up to£160.00)... now here is my opportunity to look at the design and decide if I feel that it might be worth more, this is known as perceived value, I know that I cannot sell the arch for less than £160, otherwise I will be selling for less than my target price, and that would have impact on my net profit %, but I can sell for more, and that would also have an impact on my net profit by increasing it! 

So finally, sorry, I know that this has been a long blog, and believe it or not, I could write so much more (but I won't), we can also do one more calculation especially when we have to make quite a few guess's when calculating materials and production time, go back to your original job cost and complete the right hand side with all the actual information and see how it actually turned out and how much money you actually made, this will help you in the future when quoting for similar jobs!

Final note: I think that many people find pricing their work one of the hardest thing to do, and happily go along either guessing or copying others pricing structures, but sadly they will find in a very short time that this may not be right for them or their business and eventually they could find themselves in financial trouble. I promise you that once you do this a few times you will really get to understand how easy it is!


I hope that you find this information helpful? Don't forget that the Qualatex Balloon Network (QBN) will really help you to build a very successful balloon business.

Happy Ballooning!

Sue
www.suebowler.com

Additional reading:






12 comments:

Marvalista Malone said...

This has really helped me with my pricing. Thanks

Erwin Gomes said...

Amazing work your very creative.

Paula Marshall said...

Hi Sue, I'm just looking at my costing form and adding in a few bits that are included on here. And was wondering, if the customer wanted more then just the arch above would you do a separate job cost form for a different design, or include it all on one. The reason I am asking is do you then add Additional Expenses (e.g Transportation) as an expense for each design. Or do you work out the cost for each design and then add on Additional Expenses right at the end. I'm just getting so puzzled as to whether I should price all my designs up separately or as just one whole job. Mind is about to explode! lol Any help would be much appreciated! Paula x

Sue Bowler (Marston-Weston) said...

Hi Paula Marshall, thank you for leaving a question. When you are working on multiple designs for one client you need to cost this as one job. It is important that you include everything when your working out your costings as there can be so many additional costs when working on a larger project. I have just posted 2 new blogs in the past week that talks about working on a large job and all the elements that you need to include in your costing. They are called 'Ready for the BIG Job, check out part 2 as I think that this will help you. Sue x

Paula Marshall said...

Hi Sue, Thank you for your prompt response! And Thank you for that it is a big help. And I have had a read of your recent blog posts. They are very useful. My only problem I am having, is my clients like to know the price of each design so they can decide on how many to have. When it comes to this situation is it best to offer certain packages containing the designs they are interested in or as I am currently doing, giving them the price of each design. It is only recently that bigger jobs have been coming my way and trying to go about everything in a professional manner when your new to it all is rather difficult! lol . x

David Del Valle said...

Hi Sue, Excellent article. This is an area in which I continue struggling. Your article brakes it down in baby steps... Exactly what I needed to understand pricing/profit. THANK YOU! The only question I have is how to price my service. I see that in the example that you used, you said $15.00 x hour. How do I get to my number? I do not want to over price but I certainly don't want to under price either. Thanks in advance!

Valencia Gaines said...

Hello, This is a very helpful article. My question is did you use helium for the arc? Because I notice you didn't charge for helium. And my next question is the same as Daivid, how did you come up with the charge by hour?

Beka's Kids said...

Thank you so much.This is really going to help me

Sue Bowler (Marston-Weston) said...

Thank you for your comments. I am very pleased that this article has been helpful for so many!

Teresa Stevenson said...

Hello, I am just getting my business started and was wondering about taxes. Does the customer pay taxes on the balloons or is this strictly a service? I was wondering if i needed to file a tax form with the state and collect a sales tax. Thanks!

Sharon Dalde said...

Very Helpful.... i am a starter in the business.

esmietana said...

This is very helpful thank you for your time and consideration to us newbies. I really appreciate you.