Building a Price Book

March 31st, 2016

If you’ve been charging hourly rates, using a price book may seem a bit foreign and even a little daunting. There’s no need to fear. With just a couple pointers, you can build a price book that will serve to increase profits time and time again.

Find Your Break-Even Point

Step number one is finding your “break-even point.” This is what’s required to pay all of your expenses in order to break even. This is true regardless of what size of company you operate. To find it add all your expenses and deduct from it the total job costs. Labor does not need to be included.

Step number two is to determine the cost of doing business. This is found by subtracting job costs and materials shrinkage from total annual expenses. Now divide your cost of doing business by the number of billable hours in a year. The final number is your break-even point. You will have to charge that number in order to cover all expenses.

Step three is just to set your flat rate price. To do this you need a little more math. For example, if you want a 30% net profit above your break-even point, you would start by figuring out how many hours a task would need to be completed. You would multiply this by your break-even point. You would then add direct costs to that number and divide by .70 and the resulting answer would be your price.

A price book helps to eliminate some of the hassle by having your prices fixed. To find out how we can help you construct your price book and find the pricing model that’s right for you, contact our office today.