When it comes to pricing a metals project, one common misconception customers will have is that there is one standard price for each project they want to accomplish. When asking how much a steel building costs, for example, many customers will want to see a price list or a catalog. They expect that what they have in mind can be found in a price guide the way you could find a shed for the backyard in a home and garden vendor price catalog.
While it is understandable why some of your customers may believe things are listed this way, it does add to your task of developing accurate pricing quotes for them as you may have the additional burden of explaining that a range of variables will go into their project. We know you spend time explaining that you need to generate an accurate list of the costs before an accurate quote can be created. We also know how important it is for you to help newer members of your team gather this information quickly and accurately. Because of this, we put together this short primer for you to share internally.
Quoting 101: 5 Considerations Before You Deliver a Price
- Understand Material Costs
A common mistake in calculating material cost is to multiply the cost per pound by the weight of the material. But in sheet metal fabrication, for example, a whole sheet must be ordered to cut the parts from. Material costs have to include extra material not used in a given part. You need a vendor who can explain what sizes are available and help you understand the material cost as it also pertains to unavoidable waste due to project specs.
- Determining Shop Rate
The hourly rate your workers receive is just part of the cost of labor. The hourly rate for large work centers will be higher than smaller work centers. Added to the hourly rate is, energy costs, equipment usage costs, and floor space needed. All these roll up into what we call the “shop rate” for a particular work center. Make sure you understand the skill required to complete a project so that the correct rate can be determined.
- Estimating Overhead
Every manufacturing firm has five major areas of overhead which take a bite out of every invoice. They are, (in order from most to least expensive);
- Office wages
- Sales wages
- Payroll taxes
Most of these can be controlled using a good productivity program. Sales and rent, however, will always be based on utilization. Your team may have a set margin to cover these costs, but be sure you are clear when and where you can discount. Not considering these costs, even on small projects, can put the job in jeopardy and ultimately hurt the company’s bottom line.
- The Dreaded Freight Tax
Taiichi Ohno, Vice President of Toyota, said he thought there was 95% waste in everything Toyota makes. Shipping and delivery can be a deal breaker for a lot of sales made today because the customer is often surprised by the cost to ship after already having accepted the sales price. By eliminating transportation waste as much as possible, you will remove a number of unpredictable factors in shipping costs and be able to offer lower, more predictable and fairer prices to your customers. At Boyd Metals, we don't charge for delivery or require a minimum per order. This can help with these costs from the beginning of the project.
- The Price of Delay
Even if all goes well in the project estimation and approval of your bid you still need to take delivery of the raw materials for on-time project completion. As the supplier, we understand that when you call for an accurate quote for the metals needed you also need to know if the inventory will be there if/when the project is approved. This critical step is where our clients experience what we call "The Boyd Difference". We make stocking decisions locally to serve our customers best.
Knowing these basic "talking points" will help you set proper expectations with your customer and give you the time and steps to preparing an accurate estimate the first time. Helping customers know what they are getting, and what they are paying for, will help to develop trust. That trust builds loyalty and keeps them coming back project after project.
Experience "The Boyd Difference" for yourself. Let us locally stock what you need for repeat orders, source hard to find metals, and deliver accurate quotes for your estimating needs. Get started with us today.
We'd love to hear back from you about what topics would be of interest for our blog. Be sure to subscribe and receive helpful tips, tricks, and trends from the metal industry experts here at Boyd Metals.