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The Price is Right. Or is it? Estimating Tips That Make Sense

The rules are simple and straightforward. To win, you must find an applicable price point that affords you an appropriate profit margin while, at the same time, keeps your competition at armís length and keeps your customers happy and satisfied.

By Greg Nelson

ďCome on down! Youíre the next contestant on The Price is Right!Ē

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  • When estimating jobs, you may not be called up on stage with Bob Barker, but you should consider a variety of factors to help determine whether or not your pricing is a real winner. And when you do find the right combination, youíll likely win more than the fantastic prize hidden behind curtain number three.

    In many ways, your pricing strategy is similar to a game of The Price is Right. Itís a game that is constantly changing, a game that requires careful thought and a wide range of strategy. Itís a game with numerous participants and cunning opponents.

    Pricing in the sign industry is a game that, when played poorly, can result in fewer customers and reduced profitability. But when played properly, itís a game that can offer you a great deal of self-satisfaction and success ≠ both now and in the future.

    The rules are simple and straightforward. To win, you must find an applicable price point that affords you an appropriate profit margin while, at the same time, keeps your competition at armís length and keeps your customers happy and satisfied. Yet the game remains full of mystery and intrigue as a variety of variables and unexpected circumstances can come into play at any time, leaving you potentially vulnerable.

    Like any game, sometimes youíll win and sometimes youíll lose. The key to overall success is playing with enough smarts to know how to win the close games and knowing when to walk away from the games that get out of hand.

    So where do you begin? The most obvious variables include materials, labor and overhead.

    There are many pricing guidelines to help you estimate these costs. But a winning strategy goes beyond the basic estimations. After all, those average estimates may actually be way off base when compared to your own unique local market.

    For example, while material costs may fluctuate only slightly, the cost of labor and overhead might vary greatly between two markets. A shop in Manhattan, New York likely pays substantially higher labor and overhead costs than a similar sized shop in Manhattan, Kansas. The building lease alone may be twice as high in New York. But the same variables can be just as different between two shops only miles apart. Only you know what your exact labor and overhead costs really are, so only you can determine where you profit margin actually is.

    The most skilled players will carefully evaluate their own local variables when estimating from generic pricing schedules. Most of these estimating guides are generic manuals for pricingÖa starting point representing the simplest rules for beginning players. The more you play the estimating game, the more skilled youíll become in taking those generalities and making them specific to your shopís marketplace and environment.

    For those who are ready to play the game at this more advanced level, there is help available. Several software companies sell specialized software programs designed to build local strategies and pricing logic into a comprehensive business system for a sign or screen printing business. These systems can effectively help you dictate the proper pricing on these variables to help you find your most efficient profit margins. Once you reach that point, the game really gets interesting.

    Finding the right price point for your shop is the beginning point, because this game is not a game of solitaire. Your next key strategy move is to size up the competitionÖor, even the lack of competition.

    Take a long, hard look at the other players. Who else is in your market that you might be competing against? How was the competition in the past? How many times have you won? How many times have you lost? Is there any new competition in your marketplace?

    No one should know your competition better than you. And if you donít know that competition, you better figure it out soon. What are the strengths and weaknesses of the other shops? What does your shop do better than the others? Where can you learn from what others are doing? What are their pricing tendencies? How will their pricing strategies affect your own pricing and profit margins?

    Once youíve sized up the competition, your next strategy is to determine how much you want to win a bidding war ≠ and at what cost? Are you willing to go below the profit margin youíve set for yourself? And at what point do you simply throw up the white flag and walk away?

    If you canít answer these questions, youíre playing with all the decks stacked against you. And, in effect, your estimate is little more than a roll of the dice. As a result, chances are the more experienced players are going to land the job that you really wanted.

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    How do you learn about the others players in your marketplace? The same way they are learning about you.

    Check out their Internet sites and their advertising campaigns. What are they promoting? What are they listing as their competitive advantages? Do they offer anything unique, or do they do something differently than you? What type of customers do they currently have? What type of customer are they trying to attract?

    In regards to pricing, check with your own customers and prospects to see what other shops they are contacting for comparative estimates. By simply asking, you may learn more about the competition than you ever dreamed. Ask what the other pricing was and offer to beat it by 10 percent, if it is still profitable for your shop. Or even if you lose a price bid, call the customer and ask why your bid wasnít successful. Was it the price? If so, how low did the other shop go? If it was something other than price, you definitely want to know that, as well. If thereís a problem, you canít fix it without knowing what needs fixing.

    Another strategy a prospect may try using against you is a quote that doesnít really exist. You may be asked to beat a price that was never actually quoted. You can get around this tactic by asking the customer to show you the price estimate they are already claiming. You shouldnít try to beat a phantom price point.

    Competitive pricing can make or break your shopís profitability. Itís a fine line between success and failure and you need to do everything in your power to stay ahead of the game. Those who win know all the rules and tweak their strategy to make those rules work for them.

    By doing your homework, by sizing up the competition and by analyzing and fine-tuning your estimating to match up with your specific local market, you can ensure that you will be a factor in every pricing game.

    By simply rolling the dice, you may be eliminated before you even get started. But by following a strategy, youíll always give yourself a chance. Remember, the best price doesnít always win. Other factors also come into play such as your reputation, past experience, quality of work, timing, etc. The key is to at least put yourself in the ballpark and allow your other competitive advantages to push you over the top. Then, when it all comes together, youíll likely find that the price is right!

    Greg Nelson is an independent writer and marketing consultant with more than 20 years experience in advertising, marketing and public relations. His professional background includes working with several Fortune 100 companies and providing expertise in a variety of fields, including the financial, travel, automotive and high tech industries.

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