PRICING FOR PROFITS CALCULATOR™
HOW TO QUOTE PROFITABLY ON EVERY JOB!
WHAT IT DOES:
Allows you to create quotes that ensure profitability on every job you take.
Understanding how to do this allows you to:
1) Adjust how you price jobs when sales fluctuate
so you stay in the black vs. in the red
2) Adjust overhead costs to maximize how
competitive you can be
3) Set profit targets and budgets so that when you
quote, you’re quoting profitably
*For a better experience all downloadables should be used in a computer
OR SCROLL DOWN TO SEE INSTRUCTIONS
WHY YOU NEED IT:
In order to quote properly, we have to charge properly
Understanding the difference between Margin and Markup could determine whether you make an extra 5% and extra 5% on your bottom line.
On a 1 million dollar business, that's a $50,000 difference! Your numbers matter. They are the language of your business.
So when it comes to quoting, the number one thing you must take into consideration in order to make profit, is your break even margin.
BEFORE WE BEGIN:
Before we get into learning the differences between Margin and Markup, there are 3 other areas (and their formulas) we need to understand and what order they go in.
They are:
Knowing these formulas will benefit you for the life of your business.
If you don’t get this right, you can't confidently answer the questions below.
QUESTIONS TO ASK YOURSELF
1) Do I know how to adjust my pricing based upon the cycles in my business?
2) Do I know how much to quote to ensure I’m profitable?
3) Am I pricing for profits or poverty?
The first thing must do is determine our Break Even Margin.
STEP 1: DETERMINE YOUR BREAK EVEN MARGIN
Your break even margin determines how much you need to charge on your quotes just to make a flat $0 (not making profit, but not losing money on the job either).
All you need is 2 numbers:
1) Annual Overhead Expenses (also known as fixed costs)
2) Estimated Annual Sales
EXAMPLE:
An electrical contractor has $250k in annual overhead expenses. (expenses must be paid regardless of getting work or not; lease, salaries, utilities, etc). His estimated annual sales are $1M. This gives him/her a Break Even margin of 25%.
Once you’ve determined your break even margin, you’ll be able to know what you need in order to cover your overhead. This information allows us to start setting budgets and determine how we have to quote in order to make the profits we need.
STEP 2: DETERMINE YOUR BREAK EVEN
PROFIT MARGIN
Break Even Profit Margin is my own term. I see this as the amount of profit the business owner wants to make beyond the Break Even Margin.
EXAMPLE:
Continuing with the example on the previous
page, let’s say you want to make $100k net after everything has been said and done. All you do is add this to your annual overhead expenses and you’re good to go.
Now that we know how much money we need to break even, and how much we want to actually make, it's time to calculate our conversion rate.
STEP 3: DETERMINE YOUR MARGIN
CONVERSION RATE
You now need to determine your margin conversion rate in order to determine what price to charge on your quote. In the previous example our the “Break Even Profit Margin” was 35%.
If you think that all you need to do is multiply your job cost by 1.35, YOU’RE MAKING A FATAL MISTAKE (one that 90% of Contractors make).
Let’s keep using a 35% “Break Even Profit Margin.” In order to estimate a profitably, we need to calculate something I call the “Margin Conversion Rate”.
EXAMPLE:
With a 35% Break Even Profit Margin (.35), we subtract
that from 1, giving us a Margin Conversion Rate of .65 (65%).
EXAMPLE:
Let's say our labor & material costs (direct job costs) are
$1000, we would take $1000/.65 = $1538.00
WARNING:
If you didn’t use the Margin Con-version Rate formula and just multiplied your $1000 cost by 1.35 (to get $1350), you could be in big trouble! Your Gross Margin (26%) = sales - expenses / sales 1% over your Break Even of 25% from Step 2.
Not only would you basically be working for nothing, but if any unforseen errors occur, you would be in the hole!
STEP 4: MARKUP VS GROSS MARGIN
Most contractors use markup to do a quote, but as you can see from the previous example, this can be dangerous.
Using Markup or Margin is fine so long as you know what the difference is.
Use the Pricing For Profits Calculator™ to know very quickly what you need to multiply your cost by in order to achieve a price that is profitable.
So how do you use this tool:
Let’s say you wanted a 35% Margin.
Step 1) Input your Desired Margin (Break Even Profit Margin).
Step 2) You’ll see that the “Mark-Up Multiplier” column which gives us 1.538
Step 3) Multiply your cost by 1.538 and you’ll get your 35% Margin.
STEP 5: GET ADDITIONAL SUPPORT
Throughout this document, Profit For Contractors showed you how important your margins are to your quotes.
This not only effects your profits, but also your time and team.
If you want to take and install The Margin to Mark Up Converter™ tool into your business but don’t know where to start, be sure to book in a quick 15 MINUTE CHAT with one of our Contractor Specialists for help!
Andrew Houston
Founder and Owner, Business Consultant
Liam Morin
Coach & Sales Manager
What this chat will do for you:
• Show you how you can be more competitive and win more work
• You’ll learn how to quote to ensure your making 20-30% GP
• Get the top 5 tips to use when quoting to increase your profits by 23%
• Receive strategies on how to get your team on board with implementing the strategies found in this too
BOOK YOUR CALL HERE
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