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Sign Pricing Series - Mysterious Art of Electric Sign Pricing
By Scott St.Cyr
I've put this industry segment towards the end for good reasons...it is definitely the hardest of those I've mentioned! Even so, the same techniques I've discussed in previous articles are pretty consistently applied to electric signage pricing as well. But I am jumping ahead of myself. Let's start with the basics first.
Question: When should someone use area pricing for electric signs?
Answer: That's a good question, since area pricing is much easier to use than cost-plus. For illuminated signs, the general guidelines are that area pricing (for example $60 per square foot) is appropriate when:
Question: Assume I want to use area pricing, how would I calculate the appropriate value?
Answer: Study the mechanics for cost-plus below. After you understand them, run the numbers of 5-10 orders for a specific range and type of sign. Once you have the prices, plot them based on the size. You should see an obvious trend. Excel has a great feature (called Trendline) that will give you the numbers to use, but that is a little too deep for this article.
Question: How is cost plus pricing most commonly calculated?
Answer: The basic approach to cost-plus is the same as in other industry segments. The general model in electric sign pricing is:
In layperson terms, one multiplier is used for material, another for labor, and a third for equipment. These components are then added and multiplied by an overhead multiplier to arrive at a final price. In most cases, outsourced items are marked up and added to the price separately.
In practice, most (electric sign) companies I know ignore Equipment Costs in manufacturing and ignore Labor Costs for installations. (Actually, these costs aren't ignored. For manufacturing, equipment costs are usually built into the Overhead. For installation, labor costs are built into the Equipment Costs.)
Though it is common to ignore equipment costs in the production process, I am not necessarily a fan of ignoring the equipment costs in manufacturing except when:
If these aren't correct, than you should really think including the machine costs in your pricing equations.
The most common reason people give for not including equipment costs are that the machines are fully paid for. This is an unprofitable way to view the situation. When you buy a machine, it is (usually) because you want to make more money. Even when it is paid for, the company should treat the machinery as though you are paying for it. This way you can continue to repay the company (or yourself) for the investment in the first place. Besides, your competition will have to purchase or run machines to make the product. Do you care how they finance their business?
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Question: How do I calculate my machine costs?
Answer: A detailed methodology will be covered in my future article on Budgeted Machine Rates and Overhead. This is such a detailed topic, that it requires its own paper. However, I gave a simplified example in Article II: Digital Print Pricing of calculating the cost of a digital printer. While this approach is simple, it is a good starting point and a good way to see if you understand your costs. One thought may be helpful. If the machine is fully paid for (or even if it is not), consider using the market value. That is, consider the cost of the machine the amount you could get for the machine if you sold it or how much it would cost you to buy.
Question: How can I simplify my electric sign pricing?
Answer: Using area based pricing works within ranges and certain options. This is a good first step if it applies to you. For the other 90% of us, the bad news is that your options are limited. The primary way to simplify your pricing turns out to be simplifying and standardizing your production process. This will directly result in a simpler costing analysis, which will then make pricing easier.
Beyond that, (and I have wrestled with this question for a long time,) I will propose that you should focus on automating the pricing rather than just simplifying it.
Question: Can I really automate my electric sign pricing?
Answer: Because of the production complexity, electric sign pricing is the toughest to automate. Nonetheless, I've done it countless times with different companies, so I know it can be done. But if your pricing is still only in your head, it will take lots of work (and probably some outside help) to do it. You should assess if you are committed to the work first, and only start if the answer is a definitive yes.
Some of the signs you are ready to automate are that you have a good manual system, you want to reduce the time spent on quotes and paperwork, you are expecting 20% or greater growth in the future, you want to accelerate growth, or you are planning to sell or retire in the next 3 years.
Question: How do I automate my electric sign pricing?
Answer: Let's focus on improving the estimating. To automate the pricing, you will probably need a special-purpose application like Cyrious and others produce. Microsoft Excel is the best tool I know to improve a manual system. Your first step is to become familiar with Excel. You don't need to be a master...just knowledgeable.
In Excel, create a template with all of your materials, labor, and equipment (collectively we'll call these "parts"), and the rates you want to charge for each. Collecting this information is a large task by itself.
One mistake I often see is that people want to reuse a spreadsheet. My rule is that bytes are cheaper than time, so always create a separate spreadsheet for each estimate. Yes, this means you have a lot of spreadsheets. But it is a lot easier to find and work with one, than figure out what you meant from the chaos when multiple quotes are done in one spreadsheet.
Once you have the material costs, different labor rates, and equipment rates, organize them into separate tabs. Then create a general tab for customer information, etc. The tabs at the bottom of your spreadsheet will now look like this:
The general tab will contain Customer information, Multipliers / Markups, and the total price. The materials, labor, and equipment tabs are simply lists of all possible parts and their costs. By setting the print range, with a bit of formatting you can even use the General tab as the actual quote form. This works well because it keeps the information together.
In the next article, we'll review Vinyl Sign Pricing. The last article in this series will cover the concepts of Budgeted Machine Rates and Overhead. If you have a question before then you can contact me at firstname.lastname@example.org.
About the Author: Scott St.Cyr is the C.E.O. of Cyrious Software, Inc., a software company that specializes in pricing and business management software for the sign and graphics industries. He formerly owned 5 sign companies with Vinyl, Electric, Screen Printing, and Digital Printing departments. He holds a BS in Electrical Engineering from the University of Louisiana and an MBA from Harvard University.
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