Don’t Leave Profit on the Table: Pricing and Quoting Tips for Trades SMEs
Protect your profits
With the current fierce competition in the trades and most other markets, margins are often tight to keep services affordable. This means you can’t afford to lose profit on admin errors and oversights. Accurate pricing and quoting means you can meet expectations of your clients and turn a profit too; everybody wins!
We’ve got all kinds of business support experts on our team, including Hannah who was an estimator and quantity surveyor for a building company for 15 years. She has a wealth of knowledge about pricing and quoting in the trades sector, so of course we asked her to help us with some advice.
Here are her top tips:
Consider administrative time
Estimating the number of hours a build or project will take is all well and good—many tradies are pretty good at that! However, meeting times and other planning sessions always get missed. How frequently will you have to meet with clients or other contractors? Will you be required to be present for deliveries? What’s the travel time? Will you have to spend time measuring?
Key to accurate quoting is foreseeing all of the extra time commitments that will be involved. Most of these are small, they type of thing you’ll “just get done”, and will not be considered variations to contract, so you’ll take the hit if you’re not including them in your quote.
Buffer your materials
It’s important to add a margin to your material costs to allow for wastage, freight, and inflation. This is particularly true for a fixed-price quote! Hannah said that determining the degree to which you should mark up materials is tricky, and each tradesperson will have their own method of doing this for each type of material.
To minimise material wastage or any issues, ensure that the client is happy with and has signed off on everything!
Identify the bugbears
There will often be specific aspects of a build or renovation that clients are very invested in. This is, Hannah says, an indicator that you may need to allow more time or margin to get things right and be prepared for adjustments.
Imagine a client seeing floorboards start to go down then deciding they would look better the other way around, or a designer having second thoughts about the exact placement of a light fixture. If you can see that someone is particularly attached to some element of the project, consider allowing extra time and effort (you can discuss this with the client, too!).
Don’t be vague
Considering all eventualities is what was emphasised most. Use as much detail as possible to build your quote, and be sure to “tag out” of anything that isn’t included. Having the foresight to add exclusions can save a lot of money and stress!
The term “unforeseen physical conditions” is typically included in Master Build Contracts, and it’s a good one. Specifying that a quote excludes unforeseen physical conditions, which might mean ground oddities, obstructions, or pollutants, means that you are not financially responsible for delays or additional work that these require.
Understand the plans
It’s crucial that all parties are on the same page. For builders especially, and many other trades too, this means ensuring that the quote is based on the correct set of plans.
Hannah said that all quotes should be tied to a specific version of a plan, so there is something to point to should expectations diverge down the road. A site meeting and measure can also help to keep everyone informed and grounded in reality—this should be carefully recorded and a full inclusions list created. Walk through the entire process, starting with site establishment, machines required, removal of materials, and other foundational considerations. Will the environment require specialist equipment or materials?
Put simply, make sure that your quotes and even estimates are firmly based in reality. Look carefully over any plans before you quote from them, too; Hannah pointed out that some architectural plans can contradict themselves between pages due to clerical errors. In this case, “as per plan” can run you into trouble!
Exclude what’s existing
Hannah pointed out that tagging yourself out of existing structures is important for plumbers, electricians, and other similar trades participating in renovations or small projects. A plumber installing an exterior tap, for example, should specify that they are not responsible for upgrading any of the existing plumbing to match or facilitate the new addition. That’s a different job entirely! The same goes for an electrician installing a new power point; it’s important to ensure that you’re tagged out of any issues with the existing wiring not relating to that area.
Decide on fixed quote vs charge-up
The dilemma of whether to offer a fixed quote or operate on a charge-up basis is always a tricky one, and different trades businesses will always do things differently. A fixed quote offers certainty for a customer, while a charge-up basis allows them flexibility to change their minds. For the tradies, charge-up ensures they won’t lose money if (when!) things change, but can increase the administrative burden. Fixed price quotes carry risk, but also offer the potential for more profit when work is completed efficiently and priced right!
For those offering fixed quotes, as mentioned above it is crucial to think of all possibilities and either account for them in the quote or exclude them. For charge-up, there are a few things to consider:
You will still have to make educated guesses regarding time and labour. Hannah mentioned that even on a charge-up contract, you need to remember to include time for meetings and administration.
Make sure to confirm final choices with the client before purchasing materials! The flexibility of this type of contract means they might feel free to change their mind on the regular, so get decisions locked down before spending.
Ensure that you are tracking costs accurately and regularly communicating budget updates. Keeping your client in the loop goes a long way towards goodwill, cooperation, and being paid on time.
Keep your terms of trade updated
Your terms of trade can often cover what quotes don’t: payment terms, liabilities, limitations, dispute resolution, intellectual property rights, confidentiality, and more. Essentially, your terms of trade should provide a clear legal framework for the business relationship between you and a client or a contractor. Having these up to date and comprehensive can cover your butt in a pinch!
Quoting and pricing well is so important to a successful trades business! And in the current competitive climate, being good at this could be the make-or-break factor.
The Released team is all about providing quality, informed business support; that’s why we have clever people like Hannah on the team! If you’d like to find out more about the incredible resource we offer to SMEs across Aotearoa, book a 15-minute chat and let’s talk.
