Sign Sales: Proper job estimates and pricing techniques

by all | 6 December 2016 9:15 am

By Tim Pedrick and Nick Hansen
In the sign industry, estimating can be one of the most important and, at the same time, frustrating parts of running a business. When it is not clear where to begin, ‘winging it’ might seem like an enticing option, but that can easily lead to losing money on a job that wasn’t priced right and/or losing jobs to the competition. Too often, sign companies try to produce fast and accurate estimates that end up sacrificing one of those two qualities or, even worse, miss the mark on both counts.

There are many factors signmakers need to consider when developing an estimate. Best practices can help them optimize both speed and accuracy, providing excellent service that keeps clients returning time and time again.

What it is and is not
First of all, it is important to understand the difference between estimating and pricing. Estimating is the process of looking at a project in detail—including materials and labour—to determine what it will cost. Pricing is the process of providing a number 
to the customer.

Guesstimating, meanwhile, is a third 
process that can be helpful early on when setting a budget. It is important, however, for guesstimates to stay on the high side and not be put to paper.

In the end, an estimate is a tool for determining what a product or service will cost. In addition to being presented as a projection of all costs to the company for labour and materials, it can also be thought of as a document for the purpose of calculating the price that can be charged to the client.

Types of estimates
Estimating is a team effort. It involves not 
only the sign company’s estimator, but also its accountant, production staff, purchaser, sales representative and client. Besides rough guesstimating, there are two major types of approaches they can take for sign project estimates: area-based and cost-based.

Area-based estimates are calculated, as the term suggests, by square footage. The process can be an effective choice for simple projects, such as billboards, sign cabinets and standard wide-format graphics. That said, the formulas for these estimates will need to be updated continuously and it is very important to be careful not to miss any unique features of a project that could increase its cost.

Cost-based estimating takes a different approach by listing all of the costs associated with the project, including various materials, labour, overhead and indeterminate items, such as allowing for misprints. This list takes more work to set up and maintain than an area-based estimate, but when a project is priced based on its costs, it will be easier to predict the sign company’s profit margin. This opens the door to opportunities to become more or less competitive in the market. It also means the material list can be transferred to the order, providing additional control over actual costing during production.

So, while area-based estimating is a recommended process for pricing, cost-based estimating is more highly recommended for purposes of accuracy, as it allows for multiple dimensions of analysis before, during and after the project.

Keys to accuracy
Given the aforementioned factors, the following are the five keys to developing an accurate estimate:

• Knowing overhead costs.
• Listing all materials needed to build the project.
• Calculating labour needs (including ‘burdens’).
• Determining the sales commission as a percentage.
• Predicting indeterminate costs.

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.

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.

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[1], www.albertasigns.com[2], 
www.hansensigns.com[3] and www.sac-ace.ca[4].

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