Calculating overhead requires current, up-to-date information about all general and administrative costs, such as rent for a sign company’s facilities, utility bills for power, water, etc., salaries for non-billable administrative staff, office supply costs, amortized expenses for company vehicles, insurance (e.g. workers’ compensation), taxes and a ‘new growth’ budget for purchasing additional equipment. A rate of around 22 per cent is standard for the industry.
If materials can be broken down into different categories when listed, the estimate will likely be more accurate. They should be listed in order (i.e. of when they will be used), with their specifications spelled out and with their quantities indicated, such that both unit costs and total costs are made clear. Scrap pieces should also be included; too many shops underestimate their material costs.
The labour burden should be expressed as a rate per hour, keeping in mind the amount of money paid to staff is not the true labour cost. In addition to the aforementioned workers’ insurance, for example, it is important to account for payroll taxes, benefits, training and any other labour-related costs.
Labour should also include the cost of the design process. Many sign companies probably do not charge enough in this respect, however, and choose instead to include design among their administrative expenses.
This multi-tenant pylon sign, featuring light-emitting diode (LED) illumination, steel poles, stonework and concrete base, was priced at $32,800. The shop’s cost was $26,420.
As for salespeople, their commission will depend on what the company is willing to pay to help increase its sales numbers. Salespeople should be tasked with bringing in new work, after all, not just serving existing clients. They also need to be held accountable during production for any promises they have made to the client. With all of this in mind, some sign companies’ sales commission is set at 20 per cent of pre-tax profit margin.
Indeterminate costs, as mentioned, can include unforeseen problems like misprinted graphics.
Steps to the process
When estimating, in addition to being as precise as possible, it is important to use the right tools, be aware of how much time is available, measure early and often and, finally, present the estimate in a professional manner.
To be competitive, one of the first things a sign shop needs to understand is market value, i.e. what the product and/or service it is offering already sells for in the local marketplace. This is a matter of using historical data from the shop’s own experience and records.
It is essential to get to know the full scope of the work by gathering all of the facts. The sign may be short- or long-term, for example, which will affect the choice of materials. And some projects offer more flexibility in material options than others. This can be helpful if a client does not like the first price presented to him/her, as the sign shop can then change the materials to change the price.
A site survey is also an important tool for determining costs, particularly those relating to the sign’s installation. Indeed, the survey should be included in the proposal to the client—and the client should be charged for the work of conducting the survey.
The site survey can reveal important details about a project. For one thing, it will help the sign shop determine whether it can do all of the work by itself or it will need to bring in others as subcontractors at additional cost.
Priced at $4,750, this full wrap of a 2014 Chevrolet Avalanche cost $2,300 to print and install.
Indeed, understanding the scope of the work will help clarify if the job is a good fit for the shop in the first place. It is very important to be able to meet the client’s delivery expectations once an estimate has been provided.
Software can be very helpful when developing sign project estimates. There are different programs available that are suitable for different sizes of companies.
The estimate should be presented in a clean and clear format to the client, including a sign layout or concept design if the client did not already provide one. Indeed, the quality of the estimate presentation is a great way to separate a sign company from its local competition.
With that in mind, the presentation of the estimate will come to represent the sign company’s brand experience. It is an opportunity to speak in a common language to the client, show how he/she is saving any money through discounts, lay out how the project will be completed, highlight any fine print and, finally, tell them how to approve the proposal.
Fuelling profitability
Costing out work post-production is key to ensuring profitability. Otherwise, a sign company is ‘working blind’ and will only know at the end of the month or year if it made or lost money.
If a business is making a five per cent pre-tax profit, for example, it is slowly declining. If it is making 10 per cent, it is simply maintaining its current size. And if it is making 15 per cent or more, it is truly growing.
The closer a shop can get to knowing its actual costs on each job, the better it will be able to refine its estimating process for future jobs, as it can identify areas where processes need to be improved.
Tim Pedrick is a senior sales representative for Hi Signs in Edmonton and past president of the Alberta Sign Association (ASA). Nick Hansen is president of Hansen Signs in Moncton, N.B. This article is based on presentations they made in 2016 on behalf of the Sign Association of Canada (SAC). For more information, visit www.hisigns.com, www.albertasigns.com, www.hansensigns.com and www.sac-ace.ca.
