A Sign-Pricing Primer
Essentially, quoting a sign's price is determining a price your customer can accept, with a profit that enables you to earn a living. Like everything else in the sign business, it's part science and part art.
I've seen many pricing theories over the years. The most common shortcuts I've seen include doubling material costs plus tripling labor expenditures and multiplying labor alone times four or five. These shortcuts are fine for a ballpark price. However, a customer probably isn't going to be happy if you say a job is going to cost approximately $4,000, and the actual price comes out to $4,850.
Likewise, there are the ballpark "square footage" or "per inch" methods that can give a customer a quick budget number. To the contrary, I encourage the scrupulous estimator to figure out actual costs. Being lazy will only get you in trouble.
I prefer breaking down every job into its essential components, isolating all material, subcontracting and labor costs. A project may turn out to be a winner, a big disappointment or somewhere between. As such, I like to readily identify what went right or wrong.
When first looking at a potential job, I approach it intuitively. This is crucial because it sets the stage for the rest of the pricing process. Any number of factors can come into play, such as:
- Was the job referred to my company or did a salesperson chase it down on a thin lead?
- Is it a repeat or infrequent customer?
- Is the job highly competitive?
- Does it require the type of fabrication or installation in which we specialize or will we fare better by subcontracting the work?
- Is special tooling required?
Most importantly, what is the perceived value of the job and how much do we want it?
If my company needs work, I might be inclined to make my price as competitive as possible. If we don't need work, the contrary applies. I might even inflate the price if we're working at full capacity and the customer has a pressure-cooker deadline. $image1
Formulating material costs
After profiling and qualifying a job to determine its viability, I begin a quotation by pricing the materials. I list everything required for the job under specific categorical groupings:
- Structural components, including internal framework and uprights
- Surface materials, including sides, backs and faces
- Special trims, moldings or embellishments
- Electrical components
- Hardware/welding supply/fasteners/adhesives
- Primers, paints
- Installation materials, including concrete, rebar, special plates and fasteners
- Subcontracted components, such as time & temperature units or fiberoptic lighting.
We file material costs in a database that allows me to call up prices and multiply by whatever numerator I decide to plug in. Remember, no two jobs are alike, so none will have identical material markups. However, some markup guidelines should prevail. Here are some parameters that I use.
For raw material such as vinyl, aluminum sheeting, structural steel, extrusions, paints, transformers and plastics likely to be kept in stock or specialty items, such as laminates and unique electrical components, multiply the cost of material and shipping (if applicable) by 1.5 (low) to 2.0 (high). Markup on materials should exceed your gross profit averages. If your gross profit is around 40%, then a 20% markup won't fuel the bottom line. Remember that you have to cover that inventory sitting on your shelves.
For small electrical components and hardware such as lamps, sockets, neon posts and fasteners, multiply the cost of material times four. The small stuff is a protected profit center in our industry. There seems to be an unwritten industry standard that dictates cranking up the price of lamps, sockets and hardware. I don't feel guilty about it.
When a guy driving a junk car comes into our shop, whips out a bag of screwdrivers, turns a screw on our copier and hands over a bill for $125, I start to feel pretty damn inferior about billing a measly $100 an hour for a 100-ft. crane and operator. That's why we charge $15 for a fluorescent lamp that costs my company $3.75. This compensates for high levels of inventory, along with breakage, product failure and disadvantageous labor pricing.
Subcontracted goods and services such as fabricated letters, cast plaques, and time-and-temperature units should use a multiplier of 1.25-1.5. To remain competitive in our industry, the markup on finished goods should be lower.
Generally, goods bought from a vendor and ready for resale don't require the same handling as raw material. They don't sit in-house as long and are generally ready for resale with little or no fabrication or assembly. Your customer's money is likely to be in your hands sooner because the job can be installed sooner. Also, most wholesalers offer a 40% discount off their list prices, so retail prices should essentially be kept to book value.
Greater markups should apply for small jobs. Their administrative requirements are disproportionately large and can match those of larger jobs. Those $100 orders seldom offset the time and aggravation in processing the order. A sign-company owner must use discretion, but I don't feel guilty doubling or tripling the price of a cast-metal plaque, which might cost $40, when it takes an hour to process, including 15 minutes of struggling through a phone conversation with a customer who requires a lot of hand-holding.
On the flip side, a large digital message center requires less of a markup – maybe 25%. If an electric unit costs $10,000, then a $2,500 margin isn'tt bad, especially when nothing more than a sketch and a few phone calls gains the order.
Formulating labor costs
Estimating labor requires creativity, but after years of experience, the professional estimator should memorize the shop's worksheets. I know that a sans-serif channel letter can be built in roughly three-fifths the time required for a serif channel letter. But even within those categories, styles like Windsor or Cooper Black require less time than Clarendon or Americana. To make things more complicated, sans-serif styles like Optima can consume more time than a simple serif letter. The bottom line is experience -- the longer a sign estimator works on the job, the more accurate his quotations.
Some companies use formulas for labor based on a multiplying factor, rather than as direct labor. At ARTeffects, we pay greater attention to direct labor and the related overhead components. If we pay a worker $20 per hour, it's likely that the associated overhead will probably exceed double the hourly rate. For every production worker, we factor in benefits such as vacations and sick days, as well as such costs as rent, utilities, liability insurance and warranties.
In practice, the worker that we pay $20 an hour may actually cost us $50 to $60 per hour when overhead is included. We then multiply by 1.5 to determine our shop rate. Design, router and crane work are billed at a slight premium. Design work we assess at a higher rate because we feel our expertise entitles a higher rate. Router and crane work justify higher rates to offset the cost of the equipment. I also price neon tubebending more expensively, because I don't factor the neon tubes, electrodes or gas prices into materials – it's too much detail, and I figure the higher labor rates will "wash" the material costs.
ARTeffects is located in Hartford, CT, where the cost of living is relatively high. Our mean labor rate is probably above the national average. However, metropolitan New York City (100 miles southwest) is about 30% higher, while Rhode Island (75 miles east) has rates about 20% lower. Labor rates fluctuate around the United States. You'll have to analyze your own internal costs based on your location and its economic climate.
Now that your head is spinning, I will walk through a typical quotation. For our example, we'll look at the illuminated, multi-media projecting wall sign for Coach's, a sports bar in downtown Hartford.
In the past few years, I've learned firsthand that a sound design process and efficient organization are the two critical components that make estimating the spearhead for a profitable operation.
On a more complex project, like the sign for Coach's, the estimating, engineering, design, fabrication and installation department heads all coordinated and brainstormed prior to the quotation. The positive interaction and planning set into motion there stayed with the project from design to installation. Remember that a sound estimate should reflect a sound plan. In the case of Coach's, the project proved to be a winner in every way.