Posted on Wednesday, October 9th, 2019
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 2015 issue of SignCraft. Since then, we’ve heard from many readers who are using it with success.
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 of the typical everyday sign work, and that it can be used to check estimates on many types of work.
When they reviewed the annual Profit & Loss statements of successful franchises, they found the cost of the materials they bought (called Cost of Goods Sold) 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.
So if the material cost on a sign is $135, the selling price would be $135 times five, or $675.
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. It would not be accurate on a sign that required considerable production time, such as hand carving, hand lettering or complex fabrication tasks. 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.
This formula requires that you accurately estimate the cost of all materials. If you overlook material costs, or throw 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 sadly has meant 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 proven guidelines as a basis for your pricing. If the shop down the street doesn’t have a handle on pricing and profit, you surely don’t want to use them as a guide.
Don’t miss the Design & Price feature in each issue of SignCraft. It’s a great way to compare your pricing to that of three or more successful sign shops on a particular sign project—such as a freestanding sign, vehicle lettering, window graphics and more.