This is a question that many new business owners in virtually every industry ask themselves. How do I determine or establish my rates and prices? Well, this is tough question to answer for someone else, but you yourself can usually answer it very well. Why is it important to know?It's extremely important because you need to be sure that your business is profitable, right? After all, we aren't all in it just to have a good time and create jobs for everyone else. Unfortunately, it's just the reality. But the good news is, that you probably wan't to create many jobs, because that means that you're rolling in the dough, right? Calculating your costs is really the only way to determine your rates. You have two different types of costs. Fixed Costs, and variable costs. Fixed costs, are the ones that don't change and are constant all the time. So whether you are doing any jobs or not, these bills will come in every month. These are expenses such as:
How to use this information to establish ratesNow the fun part, actually establishing your construction rates and pricing. Well, first off, you determine what your monthly fixed costs are. This tells you what you need to bring in each month just to stay in business.
You can take a look at how much business you are doing, and what you realistically expect to do in the future, to ensure that you are very confident that you will easily bring in enough cash to cover these costs. For variable costs, you can be a bit more flexible. That's because there is less risk. You only incur variable costs when you have a paying job that is booked. For variable costs, you should look at how much business you are doing, and expect to do. Just like with fixed costs. But now, you should determine what sort of mark up you should put on material costs. This varies depending on how much you are buying, the season, and what part of the country you are in. So only you can answer this one with relative accuracy. Next, you determine what your hourly rate should be, whether that's your pricing model or not. Estimate the hourly job cost with accuracy so you can be sure that you can have enough hired help to complete a project in time, while still making money on top of their labor. And that's it! you now have a basic understanding in determining your rates and pricing for your construction business!
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About the AuthorRobert J. Shiver is a Construction cashflow and financing consultant with over 25 years of experience in the industry. ArchivesCategories |