Am I charging enough for work?

A woodworker wonders where his profits are. June 7, 2000

I have a one-man shop, in business for six years.

Although I've managed to pay the bills, from some of the messages I've been reading, there is obviously something wrong. It sounds like a lot of you are doing pretty well and after this long so should I. I am reading this forum because business know-how is my weakest area. I could use advice on advertising and pricing my hourly wage.

Estimating materials goes well but from what I'm reading, I don't charge enough.

In a nutshell, decide how much you want to make per hour, every hour you work (like you payed someone else to do everything). This is your wage. Now add up ALL expenses,preferably a full year's worth(mortgage, leases, insurance, telephone, etc.), divide that by the number of billable hours worked in that time period to get the overhead/hr.

Add the two together and then add a profit of 25% or more. This will give you a good figure to start with, although it does not include labor overhead (time spent on books, maintenance and so on).

If this figure is accurate, you should be able to pay yourself wages for ALL the hours you work, all the bills, and have some left over.

I cringed when I first did this because it was a lot higher than I was charging. I was used to not making much, so I didn't spend much, and that made the rate look higher to me than my customers.

Nobody says anything when I turn in invoices, so I'm starting to relax about it now! A friend said always work for the people who make more money than you do -- that helps!

Here is the way I figure jobs.

Calculate the material required, this has to be exact.

Then estimate the labor cost. (Labor cost would be the going rate for cabinetmakers in your area plus sdi, worker's comp, fed taxes the employer pays, health insurance, etc.) Add these two numbers together and divide by .6

This will give you a 40 percent gross profit that most business's need to make.

If you have trouble estimating the labor then start tracking time on the jobs you do.

Six years is not that long. In fact it's just about right. You should start making more money now.

You last statment says it all: you don't charge enough.

If you get every job you bid on it's proof. We count on losing about 1/3 of our quotes, and could stand to lose some more. Because I know the ones we do get will be profitable.

It's hard to let someone walk out the door (it was hard for me too), but they would not work for nothing, so why should you?

In competitive bid, I am happy with a 15 percent success rate. With negotiated work where you are the only one, or one of two or three bidding, then it is okay to be higher. We track our hit rates monthly. If you are getting two out of three then you may want to bump some pricing.

In my market area I most often have only two or three competitors.

We are bumping pricing, but very slowly, and not across the board (so to speak. ;-) Thanks for the input.