Job costing can be a headache for those installers looking to move into the commercial sector. Rory Carron, Account Manager at Brymec, provides advice on how to overcome the challenges.
A move into the commercial sector can prove lucrative and rewarding for domestic installers with designs on larger projects. One of the biggest challenges is costing out jobs – with higher budgets and greater amounts of stock there’s a lot at stake.
On the face of it, job costing sounds simple – define the needs of the project, calculate the materials required, find potential suppliers, assess the time needed to complete the task, and then estimate the cost. In fact, far too many projects suffer from inadequate or inappropriate job pricing decisions and the result is over-pricing or under-payment.
Effective job costing is about accurately defining what resources will deliver the development that the client wants.
It is the process of planning, organising, and putting into action a process that will result in the project being completed on time, at the right price, and to the highest quality. And that is more complex than it sounds.
There is no such thing as a standard price for a job because no two projects are the same. Organising your job pricing effectively will help you prepare for imminent expenditure, such as tax, and thus maintain a healthy cash flow. That’s why it pays (quite literally) to take a measured approach to job pricing.
The price of a typical job comprises of three critical elements: labour, materials, and profit margin. A fourth consideration is the need to account for the unexpected delay or other problems – the contingency cost.
You can calculate labour costs by setting an hourly rate, gauging how long the job is likely to take and multiplying one by the other.
Determining the cost of materials, meanwhile, has become simpler since enlightened suppliers have embraced the power of the Internet and started to equip their websites with sophisticated purchasing elements. The best websites make it easier for customers to find and purchase the right products and reference technical information.
To remain profitable, your business will also have to add a mark-up for profit. The margin will depend on the project, but you will want to factor in costs such as running a van, training, accountancy fees, tools, and advertising/marketing.
Finally, when estimating the cost for a project, there is always uncertainty about how work will be performed, what work conditions will be like, whether unexpected delays will be encountered, and so on.
Some people refer to these risks as ‘known unknowns’ because the estimator is aware of them and, based on past experience, can estimate their probable costs. The estimated costs of the known unknowns is referred to by cost estimators as cost contingency.
Contingency refers to costs that will probably occur based on past experience, but with some uncertainty regarding the amount. However, it is poor practice to make second-rate estimates and then try to satisfy them by using a large contingency account.
If you are thinking of moving into the commercial sector, don’t go it alone. At the end of the day, manufacturers want you to buy their products, so should support you in making the right choices, in the right quantities.