I have been in business for almost 10 years now. I have never run things like a real business and just charged what I felt was right, paid my bills when they became past due, and did whatever was necessary to keep customers happy. And I have given a lot of stuff away for free and been taken advantage of over the years.
Two things. I want to become a serious business, and I want to be taken seriously from now on. I have no problem with this part and I think I know how to handle this. The problem I am having is pricing. I have no idea how to price jobs and manage my money. I never get asked for prices up front. The cabinetmakers bring me the job, I finish it, and fax them a bill when it is done. This signals them that I am done with the job and to come and get it. They pick it up and drop off a check.
Does anyone know how to figure out what to charge? My costs have skyrocketed, chemicals are $5000 a month, rent is 1500, electric is 500, etc.
From contributor L:
Add up everything that it costs to have the business running. Rent, electricity, phone, insurance, what it takes to get you there in the morning, your coffee, paper clips everything. That is how much it costs to run your business. Now divide that out by 12 to get your monthly figure. Now stick in a figure of what you want to get paid a month. Add at least 20% to all of your materials. Add all this up and then add another 7-12% for profit. There you have it, your formula.
I started with a formula as contributor L stated. I extended it out to an hourly production rate goal and discovered this rate needed to be doubled. I was afraid to shock the system this much, so I took an incremental approach over a period of a few years. It took awhile, but it worked out and I still work this formula today to stay on track.
Another factor I took into account in my formula was the amount of hours I wanted to work. What I mean is that to reach your gross income goal, you can always correct a shortfall by working more hours, but if you consistently have to work 65+ hour weeks to reach your baseline goal, then you're still giving yourself the shaft. Not that I don't still work long weeks here and there, but now when I do it is for real gravy, not to survive.
Whatever system of pricing gets you as much profit as the market will bear is the ultimate goal, but all systems begin with some level of analysis of cost per hour. I did not mean to recommend using a static hourly rate to bid all work so much as using this number as a tool to help evaluate how well you're doing on your bids.
Anthony Noel writes a terrific monthly business column for CWB Magazine and has been all over this topic from a shop owner's perspective. The questioner would do well to read through some of his archived articles.
To me it is a combination of 75% sqft and 25% hourly rate.
I charge $120/sqft French polish
$100/sqft high gloss filled grain
$45/sqft stripping and refinishing open grain semi-gloss
$35/sqft shellac and wax
This does not apply always for every job, but you will be surprised how much more you end up with when you take your time to calculate a job rather than guessing. The other thing is you appear much more professional to quote a number in front of a client by doing the math than dancing in front of the client and throwing out a number which nobody can understand how you came up with.
Another thing I learned the hard way, especially by restoring furniture - you are suddenly confronted with problems you didn't see at the time you quoted the job. I put on my quote a disclaimer that reads like this. "This is an estimate and not a fixed quote. I will confirm changes with the client ASAP when labor or material for any unexpected reason increase more than 10% from this estimate." At least you have a backup for unexpected situations.