pricing: m2 vs time?

[Tony Starks]

I'm after some tips on getting my head around switching from our current method of working out jobs by guessing how many hours a job will take, to doing a square metre rate.

We've had a lot of feed back saying our pricing can be all over the show and alot of the bigger companies use a m2 rate. The only problem with that is they just work on 20/30mm granite, where as we only work with mitred Corian and Stone which requires more work than just polishing an edge.

I've made initial calculations and a m2 price against our current way can vary by upto $600. Now, either we've been massively undercutting ourselves or my calculations are wrong and there an easier way to get a rough cost.

Any help would be greatly appreciated

Alex

[Carsie]

Hi Alex,

You haven't stated what business you're in - I guess flooring or worktops?

There are a couple of elements to the questions that you've raised, one is about costing and the second about market pricing.

My first recommendation would be to get your team together and analyse and document each step of your process from the time that you select your stone within the warehouse (?) to dispatching the finished piece onto the delivery truck (?)

The cost elements that you are looking for are:

1. Time
2. Material
3. Machining

Against each of the above elements you need to apportion a cost.

Over the course of a year you can amortise your costs to give a mean average or alternatively cost per individual job but I guess you are looking to the former.

The above information will give you the differentiation between the different materials used and the degree of refinish required.

You may struggle to understand how to cost a polishing machine but at a simple level - Machine purchase price = £36,000, you can run it into the ground over three years before replacing it - thus cost per annum is £12,000 and it is 100% utilised each production month on 100 pieces - ergo cost is £10 per piece

The next element of your question regards pricing

Once you've understood your base cost then you can apply your margin.

Your margin is determined by:

1.Your Added Value

2.Market rate

3. Competitiveness of your own cost base

I am guessing that your Customers don't understand how you are pricing and thus you are getting kick back.

The solution is one of marketing and selling - namely, state explicitly how you're pricing and ensure that you're communicating it adequately to target market that values your work content

If your competition prices, per Std Stone, then so should you and then ...add your Menu Items for the different stones and refinishes required - no difference to a carpet shop, a restaurant or a car showroom.

Once you've got your head around the above the next step is to start driving the different elements of your cost base and the market segmentation - you're the Conductor of your Orchestra

Final comment - DO NOT adjust your price until you are 100% happy that you understand your cost. Sometimes years of experience and a pat on your belly can tell you a heck of a lot more than any Accountant or Business Consultant

Hope the above helps; always happy to talk you through further.

Have a good week

Edited by Carsie on Monday 11th July 10:25

[Tony Starks]

Thanks Carsie,

Benchtops here, Carpets or paving would be so easy to cost lol.

I think the biggest problem is, the whole industry over the years has priced itself into a position it cant/it's hard to get out of.

Every fabricator in the country prices by the hour, but every job has slight differences and some you may be on target, some massively under or over.

My thinking is (in this industry anyway) that trying to work out a m2 rate on a product that varies in thickness is the wrong way to go.
But a m2 rate on material and a Linear rate on fabrication is the way.

[Simpo Two]

I'd use (1) cost of material plus margin, and (2) labour. In other words, a bit of both.