One of the main reasons people go into business for themselves is the prospect of making more money than they do at their nine-to-five job. Getting paid is largely the point, but when you are an entrepreneur, it can be a challenge to figure out what to charge for your services. This is true if you want to be a carpenter as well.
Setting the right prices is very important. You need to make money, but you also don’t want to price yourself out of jobs and opportunities. Many businesses fail early on, and in some cases, they couldn’t figure out their pricing before it was too late. They either asked too much and couldn’t bring in clients or asked too little and couldn’t continue to function. Here are some factors to consider before setting your prices as a carpenter.
How Much Do You Want to Get Paid?
Of course, you probably want to get paid hundreds of thousands of dollars a year. While that might be realistic at some point, it is not realistic when you are starting out. Figure out your monthly budget, including debt repayment, incidentals, and entertainment. When you are launching, you might need to cut back on certain things just to be safe. Your business might take a while to get to where you are making the amount you are hoping for.
How Much Do You Need For Your Business?
There are also business expenses that you need to consider. Remember, your profit is not just the revenues you bring in. You will also have to calculate how much is going out as well. If you don’t build a comprehensive list of all of your monthly business expenses, you could charge too little and end up very tight with your margins. You will need to account for equipment, materials, utilities, transportation, hiring, marketing, and anything else you might need.
One of your most important expenses will be insurance. Being a carpenter comes with risk since you could use heavy equipment and work on job sites. You could get injured, your workers could get injured, or you could cause an injury to someone else. You will need coverage tailored specifically to the industry in which you work. Always take carpenter insurance cost into consideration for pricing because it is a crucial component of protecting your business.
What Profit Margin Do You Need?
You will also want to earn a profit for your business on top of your personal salary and the overhead for your business. You can use this amount to invest back into the business or save for a rainy day. Most businesses choose a profit margin between 10-20%. It is perfectly acceptable for a profit margin in that range. As you continue to grow your business, you can adjust that margin depending on how the market goes.
What Are Your Competitors Charging?
It’s never a bad idea to know what your competitors are doing. You can investigate their operations to see what prices they are charging for their products and services. Once you have established that, you can then rationalize your prices. It doesn’t necessarily mean that you will charge less, however. You might decide that competitor prices are too low, and that you can charge more and market your quality workmanship. However, you certainly can undercut their prices in the hopes of taking their customers. No matter what you charge, always make sure that the product is of the best quality.
How Many Hours Do You Want To Work?
Remember that you should base your salary and the overhead for your business on the yearly cost. You will also need to calculate how many hours you want to work in the year. Be realistic about this. You might think you can spend your first year working every day for 52 weeks, but you will no doubt suffer from burnout. So give yourself some leeway for time off, attending soccer games and dance recitals for your kids, and mental health days. The time off will refresh you, and you can build the cost of those “missed” workdays into your pricing.
What Do Your Customers Want?
This one can get tricky since it’s impossible to know what is in the mind of your customers. However, you need to understand what makes customers choose one carpenter over another. Is it the lowest price? The best workmanship? A balance of the two? It may also depend on the job. For example, someone who has a home built will probably want the best quality work to rely on the fact that their home won’t collapse in a few years. However, if they need a small repair, they must just want the lowest price to get it done and forget about it. This also means that you need to decide what type of carpenter you are going to be and present yourself as. Do you want to be known for quick and cheap jobs, or do you want to market yourself to higher-end work?
How Much Is Your Time Worth?
You will need to figure out how much you need to earn in a day to make the yearly amount that you want. That means calculating using that yearly total, which includes your overhead, personal salary, and profit. Include your off days in the calculation, and go from there. Make sure to include that you may need to hire for certain jobs as well. You can adjust that price by the job, however. You can then narrow things down to a daily rate or an hourly rate, depending on the job.
At that point, all you need is to get the scope of each individual project and put together the amounts. Once you have the hang of it, you might be able to do it in your head while consulting with the client. You never want to make a mistake when you are providing them with your estimated prices, however. You could get stuck with that amount and end up not making enough for a project. Use all of these factors to set the perfect prices to build your business.