So I was “cleaning” my office today looking for one particular article I printed and saved years ago on estimating and I ran across a print out of another old article I had printed out that belonged in my “Markup & Pricing” file bucket.
Frank Blau is to Plumbing and Mechanical readers in many ways what the late Walt Stoepelwerth was to Remodeling Magazine readers over the past couple of decades although Blau while retired is (to the best of my knowledge) still plugging away out there hunting and fishing.
In 1996 he wrote an article called “I Want A Breakdown,” about how to deal with customers who asked for a Price breakdown and then another article as a follow-up he wrote four years later: “”I Want A Breakdown” Revisited”
Blau advocates Flat Rate Pricing which is essentially Retail or Street Pricing for line items. Give the consumers the Pricing for what they will have to pay for the product or service installed.
—“The object of flat rate pricing is precisely to avoid laying bare one’s costs of doing business for the world to see. After all, does the butcher, the baker, the candlestick maker, etc., break down their labor, material, overhead and profit in setting the selling price for their goods and services? Nobody would even think of asking them such a thing. It would be a breach of social etiquette, sort of like asking a stranger what his salary is and how much he spends on his mortgage, groceries, recreation, etc. Sad, isn’t it, that because of our industry’s senseless time and material tradition, the public has been trained to think they are entitled to see our finances.”—
For all that Blau says when you’re asked for a breakdown:
—“Give them what they want. That’s my advice. No need to lie, to argue, to deceive. If a customer wants to see a price breakdown of your flat rates, then give it him.
Only thing is, make sure you give a thorough enough itemization.”—
He says: —“To make it even better, I would attach a separate sheet breaking down how this contractor arrived at the $65 hourly overhead.”—
Okay, I’m with him on that, you can give them a print out of your Capacity Based Markup Worksheet or display your markup methodology like I showed in that demo file I built last week..
While I agree with Blau when he writes about dealing with customers who want a Price Breakdown:
—“The article dealt with how to deal with customers with price complaints who insist on getting a time-and-material breakdown from flat rate companies. My basic advice was to give them what they want. Except make sure it is thorough and complete. Don’t just factor in broad concepts of time and material. Also show how overhead factors into job costs and go into detail about how much overhead goes into your selling prices.”—
I’m not a fan of his method for calculating Sale Price. He making it harder and more obfuscated than it needs to be. My formula…
Estimated Labors for the Task x Loaded Labor Rate [Loaded Labor Rate includes Desired Net Profit on Labor]
(Materials Cost + Any Material Acquisition Costs) x Markup for Desired Net Profit on Materials
(Subcontractor Cost) x Markup for Desired Net Profit on Subcontractor
1996 PMMag I Want A Breakdown PMMAG.COM Best of Blau: November 1996