Posted on Wednesday, October 14th, 2015
Ever wish there was a formula you could use to check your pricing? Here’s one we learned about from Jim Jackson of Artcraft Signs, Raleigh, North Carolina. Jim described it in his comments for the Design & Price feature in the November/December issue of SignCraft.
Earlier in his career, Jim worked with one of the major companies that was selling franchise sign shops. They were looking for a simple “guideline” formula that the franchise owner could use for pricing — one that would result in adequate profits, fair pricing for the client, and also protect an inexperienced franchise owner from underpricing his or her work.
After some research, they came up with just such a formula. It’s not cast in stone, and it doesn’t apply to every type of sign work. But they found it works for most routine, everyday sign work, and that it can be used to check estimates on many types of work.
They found that if you reviewed the annual Profit & Loss statement of a typical successful franchise, the cost of the materials (known as Cost of Goods Sold, or C.O.G.S.) they bought was usually about 20% of their gross annual sales. This meant that on average, materials were about 1/5 of the selling price of most of their work.
The formula was simple. Simply estimating and adding up all material costs for a routine vinyl sign and multiplying the sum by five would give the franchise owner a workable selling price.
Jim went on to own his own shop for years, and later to buy Artcraft Signs. He has continued to use this formula as a way to check his estimates for routine signage. It’s a helpful reference tool that’s quick and easy to use.
The key word when utilizing this formula is that it is for “routine” signage. You can’t use it if there is travel time involved, since this would add considerably to the time involved in the project without affecting the materials involved. Nor will it work on small signs, since the material may be minimal, but the amount of time required can be about the same as a larger sign. Likewise, it would not be accurate on a sign that required considerable production time, such as hand carving, hand lettering or complex fabrication tasks.
In years past, some shops developed square foot pricing formulas for routine hand-lettered signs such as paper signs and signs on overlaid plywood. They knew that because the production time involved in the signs were very similar, they could use a square foot price when estimating. It requires a little common sense.
This formula requires that you accurately estimate the cost of all materials. If you’re overlooking material cost, or “throwing in” things like delivery or installation, you will be underpricing your work. Any tasks beyond those involved in making a routine sign must be added to the estimate as additional items.
There’s no doubt that pricing signs is one of the toughest aspects of the sign business. A sign person needs every resource available to make sure that they are accurately pricing their work. Pricing tools like this helpful formula and SignCraft’s Sign Pricing Guide help you avoid consistently underpricing your work, which has been the end of many sign businesses.
Rather than base an estimate on what the shop down the street might charge—or worse yet, what the lowest priced shop in town would charge—it pays to have some benchmarks to base your pricing on. If the shop down the street doesn’t have a handle on pricing and profit, you sure don’t want to use them as a guide.