I read Ms. Wasserman’s article titled “How to Price Your Products” this morning, and if you know anything about me by now, you know it inflamed my passions.  She very accurately describes the processes required for pricing products accurately and consistently.  I think we all know a lot of what she says to be true; however, in the sign industry, our products just don’t fit the cookie cutter model of pricing – which means every time we price a job, it’s a real challenge to pull all the variables together and get our prices out the door on time.

Why are you in business?

I mentioned a couple of months ago that I was involved in a discussion on an online forum where one of the posters essentially said that he felt he was ripping his customers off if he made a great profit on his work.  This continues to mystify me because the whole reason we are in business is to make money.  Sure, we love our work, the interactions with customers (well – most of ‘em ), and the time we spend actually creating graphic arts for sale.  At the end of the day, though, our whole reason for being in business is to take home a profit that allows us to save for retirement, put the kids through college, take vacations, and ultimately secure our lives.  Otherwise we’re in business for all the wrong reasons.

Relationships are built many ways.  Don’t build yours on price.

I’ve said it before and I’ll say it again, your price should never be the foundation of your relationship with your customer. You see, relationships are built on a foundation.  As long as that foundation – the key element that makes up the core of the relationship – remains stable, your relationship will remain solid.

This means that if you build a relationship based on delivery – getting signs done quickly and delivered on time, every time – or build a relationship based on outstanding quality – knock ‘em dead gorgeous sign work every single time – your customer will pay a premium for those services, and won’t leave you unless that changes.  On the other hand, if the relationship is based on your cheap prices, you will lose the customer when you raise them unless you do some serious salesmanship.

It never pays to be afraid of your customer’s reaction to price. If your customer thinks your price is too high, it just means you haven’t done as good a job as you should have selling them on it.  People  want to feel like they are getting value for their money – and if you provide the best price/value ratio to them emotionally, you’ll sell them higher priced work every single time.

Don’t leave money on the table.

Sign pricing is a challenge. Every time we have to quote a job, we have to think through the work carefully and try to price accurately.  I remember long before I wrote EstiMate, I’d stare up at my “calculator on the ceiling” and think along the lines of, “okay.. 4×8.. that’ll cost about $90 for the board.. should take me about an hour and a quarter to cut and apply the vinyl… painting the board will take 15 minutes… so about $125 in materials and 1 1/2 hours of work… $200.”

Then I’d remember I needed to fill the edges of the MDO and prime the sucker.  After I’d already quoted the customer the price.

Sound familiar?

The heart of solid, consistent pricing is knowing your costs and having everything together so that you can get a proper price to the customer quickly without having to worry about things like me forgetting the priming of the board.  Once you really understand your costs, you won’t be afraid to charge what you have to. I’ll say that again.  Once you really understand your costs, you won’t be afraid to charge what you have to, because you will realize that in order to make money you just can’t underprice and make it up on volume!

Try an experiment and raise your prices.

Next time you have to quote a job for a new customer, spend some time explaining all the benefits of the sign you are selling them.  Talk about successes you’ve had with similar sign jobs.  Show the customer some of the best pictures of your work.  Then, quote a higher price by 20% than you normally would have and in the same breath promise the sign quickly and back it with a warranty.

I bet you’ll have the deposit in hand within an hour, because customers like being treated that way.  They can say to their friend / business partner / significant other, “I’m getting a great sign for  my business, and that guy’s gonna do an awesome job on it.  He even says so-and-so’s business tripled after they put in a new sign he made!”

That’s the power of salesmanship.  It’s really not all about price.

What Brought This Tool About?

For many years, I’ve wanted to add this tool to the website, but one thing or another has always come up and then I forget about it again. Not this time. I wanted to give sign shops (and other small businesses that base their pricing on time and materials) a way to see in a report what I’ve always known in my head — that everything you do, every day, and most importantly even the smallest things — have a drastic impact on your profits over time.

DiamondMine is exciting because it lets you answer just a few simple questions and get immediate feedback about small corrective measures you can take in your business to increase your profits immediately. It’s really amazing to me how easy it is for all of us to let simple things slide that can really hurt us.

For example, getting quotes out late — one of the areas in DiamondMine — can make a big difference in how many jobs you get. We found through talking to thousands of sign shops over the years, as well as in our own experience, that you will lose 20% of the quotes you give out just because a competitor beat you to it. This is completely in your control to fix, just by making sure that you get your quotes out within about 30 minutes of talking to a customer. Easy!

Or how about your hourly rate? How you determine your hourly rate, and how often you update it, can make the difference between getting that new truck or not — seriously!

DiamondMine Is Free

DiamondMine is a completely free tool available to you right here on our website. Answering the questions takes about 30 seconds and you can receive a backup copy of the report by e-mail.

Use DiamondMine Quarterly

You should probably run a DiamondMine report every few months to track your progress and see how you’re doing at any given time. By focusing on the areas covered in DiamondMine, you can keep yourself as profitable as possible and make sure your business is always financially healthy.

Now – Go Check It Out!

Click here to run your own DiamondMine report and see how your business is doing today.

I recently read Jim Hingst’s “No Time To Hunker Down, Part Two” in his column Hingst’s Sign Post in SignBuilder Illustrated.  He presents several powerful strategies for drumming up business in a tough economy, including:

• Following up on old leads
• Sending mailers to your customers
• Networking
• Upselling
• Becoming a consultant
• Constantly closing sales
• Flexibility and leadership

Great reading, everybody.  His points are extremely well made and I would have only one to add: Use good pricing software so when you do close a sale, you’re making sure you don’t leave money on the table.  If you haven’t yet read SignBuilder Illustrated, it’s a great magazine and well worth checking out for articles like Jim’s.

I live in a really beautiful part of the country — near Asheville, North Carolina — on a relatively rural road with gorgeous views of the backside of the mountains in Bent Creek that I can see from my bedroom window every morning. The other day, I was heading out to the grocery store when I passed a coroplast sign in the front yard of a small home.

The Sign Said: “$20 Signs”

Pretty ironic that sign would be in the yard of a house just a quarter-mile from the home of the guy who wrote EstiMate! Needless to say, I was stunned.

It’s really tempting to stop and talk to them about profitability, but I fear it would fall on deaf ears. I’ve found over the years that people really think cash in hand is the same as profits. I suspect this guy got hold of a vinyl plotter, a few rolls of vinyl, some coroplast blanks, some stakes, and set himself up to make some money. Granted, his cost on those signs is probably in the neighborhood of $8 apiece — or, he might think it’s $3 if he wants to believe some of the people out there shouting “get into the sign business now — it’s a gold mine!”  But, his $12 profit won’t get him very far except as funny money on the side.

It amazes me that even in our industry, a solid industry of hard workers, intelligent people, with a long track record of advertising businesses around the country and making them more profitable, we have hawkers setting people like this up with false expectations and high hopes. There is a lot of money to be made in this business, but it’s not by undercutting and devaluing the industry as a whole. We have to stand up for ourselves, and make a fair profit on our work, or there’s no point in us being in business at all.

If I sound like I’m on a soapbox, I am. This one issue is the one I’m most passionate about and long after I’m gone, I hope the impact I have on the sign industry is to help raise the floor for everybody and bring us all to a for-profit mentality. There is no reason in the world that we shouldn’t be able to sell coroplast signs for $50 and charge for the stake as well.

Why are we in this business anyway?

1. We love it! We eat sleep and breathe signs, we love beauty in advertising, and we’re passionate about this.
2. We want to be our own boss.
3. We want to make better money than if we had a “J.O.B.” — “Just Over Broke.”

Number 3 is where the profitability piece comes in. Neglecting profitability, and undercharging for work, hurts us, hurts the industry, and hurts our futures. Being in business for ourselves gives us the opportunity to retire early, and were throwing it away when we undercharge. Every time we undersell our work, we are incrementally giving away our retirement, our health care, our vacations, and our futures.

As promised, here’s the math

OK, so you’re selling a 4′ x 8′ sign with basic vinyl lettering on it for about $250. You should be making about 100 bucks on this sign, if you’re pricing your work correctly. Now let’s play with the price.

If you cut your price down to $200, yes, you’ll be more likely to get the job. However, that customer is going to come back and expect the same sign for the same $200. If you raise your price, you’ll lose the customer — not because you are too expensive, but because you set their expectations too low the first time you sold them a sign. So now you’re stuck making half the profits you should be, which leads you to work the classic 10 to 14 hours a day in the sign business!

Think about it. By cutting your profits in half — remember, profits are really the only money you’re making — you now have to make twice as many signs to make the same money! You’ve doubled your workload for the security of getting that job.

Now let’s go the other way. If you raise your price to $350 you’ve done the opposite. You now have to make half as many signs (read: get half as many jobs) to make the same amount of money, freeing up gobs of time to chase down more profitable work and really bank some profits. So now, instead of being completely snowed under by work and unable to spend any time with friends and family, you’re spending your time chasing down valuable work and going home at five o’clock. There are thousands of sign makers out there doing this every day who will back me up.  Not getting every bid is a good thing.  Actually, here’s a rule of thumb: for every bid you win, you should lose one too.  If you get more than half the jobs you quote for new customers, you’re too cheap.  If you get less than half, improve your sales skills — your prices are good.

An EstiMate Success Story

My friend and longtime EstiMate user, Glenn Taylor, told me a story nine years ago — this was in 2001, so think about what signs were selling for then — about selling the 4′ x 8′ sign described above for $750. That is not a typo. It was a basic 4′ x 8′ vinyl sign, and he sold it for $750. What expectations did HE set in the customer’s mind? Using the math above, he made about $600 profit on that one job.

That’s the kind of money we should all be making on our work. I grew up in my mother’s sign shop, and I remember her selling signs in the 1980s for the same prices they are being sold for today. According to the measuring worth website $250 in 1985 dollars should be worth $500 at minimum today. Yet we are still selling 4′ x 8′ signs for $250.

It’s really time for a wake-up call and for us to start standing up and charging what our work is worth.

From now on, whenever you hear me use the word “profitability,” just insert this entire article instead of that word. This is what I’m really talking about.

Please Comment

I really welcome your thoughts on this and would love to have this evolve into a profitability discussion.  Please leave your thoughts below.

Now go out and make the rest of 2009 the most profitable year ever!

At a time like this, it’s absolutely critical to be working with the best tools you possibly can to squeeze every ounce of profit out of each job that comes your way. Estimate 2 offers you extremely powerful features that allow you to identify the type of work you do that’s most profitable, and focus on that in your marketing.

You see, here’s a secret: when you do less of your low profit work and more of your high profit work, you make more money effortlessly and automatically. Estimate 2 gives you the tools you need to identify this type of work and give it your full attention.

Here’s an example. Let’s say you use EstiMate 2 to price a 4′x8′ Coroplast sign with simple vinyl graphics, and the profits on the job come out to about $53 (see screen shot below).  When you add up the times you get about 1.25 hours combined for design and production time, or a profit rate of about $42.40 per hour.

Compare the above example with a job for 1000 full color inkjet printed decals, laminated, at 3″x5″ trimmed to a rectangular shape.  The total job here sounds better – it bills at $338 compared to the $146 that the coroplast job billed at – but comparatively you took a bath!  Your profits on this job are just $41 for 4 hours of work, or $10 per hour.

Remember, it’s not what you get, it’s what you keep that matters — and EstiMate 2 gives you the tools to identify profit opportunities like this one in SECONDS, not the hours it would take to figure this stuff out by hand or by using lesser or “me-too” tools.

This is just one way that EstiMate 2 can make you a fortune and save you massive amounts of time. Stay tuned for more examples!

I said to my accountant, “I feel guilty because I feel like I should be doing more valuable work, but sometimes I just need downtime.”

And she replied, “well, what’s the highest and best use of your time?”

OK, Carol, I thought, that’s what I just said – I’m trying to make the highest and best use of my time, but I’m burned out! Didn’t you hear what I just said? Grrr, grrr…

… but then she said, “so sometimes maybe the highest and best use of your time is to take a break.”

Take a BREAK? Highest and best? What? Carol, you don’t understand, if I don’t work work work work work I’ll never get anywhere!  The sky will fall, the doors will close, the earth will fly off its axis.  How can I not work?

Then I realized the real wisdom of what she said.

If I didn’t give myself downtime, I wouldn’t have anything truly valuable to offer, and I’d just be spinning my wheels.  Kind of like when I make a conscious decision to go to bed and tackle a problem in the morning, because I know if I do it late at night it will take an hour, and if I do it in the morning it will take 10 minutes.

For me, it’s my “programming”

You see, I grew up surrounded by a full-on Protestant Work Ethic (AKA “Workaholic”) and embraced it wholeheartedly.  I believed that if I wasn’t working 12-14 hours a day, 7 days a week, I wasn’t really “working.”  I felt massively guilty about every minute spent in downtime, and still fight those tendencies to this day.

Over the years, what Carol said to me really sank in, and I have learned to take breaks sometimes.  Last weekend Jennifer and I spent the weekend gardening – building big garden beds in our yard – and it was a real triumph for me to spend the weekend *not* at my computer programming or working on EstiMate’s website.

I should take a minute here and give a shout out to Integritive for the new website – these guys are some of the best designers I’ve ever worked with and ended up giving us a site we can take to totally new levels.

But That’s Not Really What This Article Is About

What really got me started on this article was one I read this morning about opportunity cost when commenting on other blogs. Reading this made me think back to my conversation with Carol, and wonder, “what’s the opportunity cost of what a sign shop does every day?”

Opportunity cost is defined as “the value of the next best alternative foregone as the result of making a decision.”

In simpler terms, that means that any time you make a choice of how to spend your time / energy / money, you are paying the “opportunity cost” of spending your time / energy / money another way.

For example, if you spend time surfing the internet, watching TV or reading a novel instead of working, you are paying the cost of not getting the work done now.

What I learned from Carol is that there is another side to this – you are gaining the strength in your downtime to attack the work more effectively later.

You all have seen me mention Tim Ferriss a lot, and I’m a huge fan of his book The 4-Hour Workweek.  I think it’s very important to always do the 20% of work that really matters, and let the other 80% slide.  By focusing on the absolute key tasks you have to do on any given day, you free up time to spend on other pursuits.  That’s why you see me talk about the tradeoff of time vs. money so much, because I strongly believe that our job in this life is to make the most of it for ourselves and those around us.

The workaholic ethic really keeps us from being “all that we can be” — it actually takes us away from the world and keeps us in tunnel-vision mode.

So This Rambling Article Is Really A Poll

I’m curious, what activities do you do every day that you realize are a tradeoff for other activities?  How do you juggle time and manage burnout in your sign shop?

I look forward to your thoughts in the comments!

I remember having this dilemma for awhile with one of the guys who helped me install signs several years ago, and learning the basic 3 rules of subcontractors (full IRS details here).  The 3 rules I learned were that they had to perform the work:

• On their own time
• In their own way
• With their own tools

I highly recommend you read the full article which includes lots of advice regarding tax deductions available to you this year.

Always Go The Extra Mile

I always tried to go the extra mile with sign customers.  For example, I had a guarantee on all my work, and one horrible day I got a call from a customer that her 4×6 Painted and metallic vinyled sign was falling apart (that I had just installed two months before).  This was early in my sign career, and clearly I had a lot to learn.

What the hell happened?

Upon further investigation I discovered that the primer I had used was wholly inadequate for the job, and everything was peeling off.  In addition, I had bracketed the sign to the posts instead of carving a slot to fit it in, and it was twisting in the wind.

I totally felt like an idiot.  What kind of sign “pro” would make 2 ridiculous mistakes like that?  Man was I demoralized.

Do The Right Thing By Your Customer

I went over to see the sign the next morning, as promised, and sure enough it was a complete disaster.  At this point I could have done one of a few things:

• Straightened the sign, added more footer concrete, and replaced the brackets with better ones.
• Added a top coat of frog juice or any good solid UV clear and hope it held the graphics down
• Replaced just the letters that were in trouble and done my best to touch up the job
• Haul the thing away, shrug my shoulders and refund the customer’s money

Or I could follow through on my guarantee and replace the sign.

It’s been 10 years now and the replacement still stands, and still looks good.  I had the new sign up in five days, shelving all other projects to make it happen.

What do you think the customer thought of my ridiculousness when this was all over?  She sent me a steady stream of referrals from the time I replaced her sign until the day I closed up shop and started EstiMate.

How Can You Over-Deliver?

I really liked what Rich said in the article I read this morning about where it all begins.

“The only way for anyone in your organization to be perceived as a “winner” or champion in the eyes of your clients is to over-deliver. And that starts with under-promising.”

Start with your customers by offering them a very stable image of your shop, with (of course) solid service and a friendly demeanor.  Then, when finishing the job, always do a little something extra – maybe a SignGold accent they weren’t expecting, or a follow up call after the job, or a drive by and visit two weeks later to ask if the sign has increased their business.

Maybe even bring a flower.  Seriously!

When we sold EstiMate at trade shows in the early 2000′s we always had a huge vase of roses in the booth (once in Orlando we bought these from a guy selling them out of the back of his van for a couple of bucks apiece.  What a hoot!)

Every time someone would buy EstiMate, we’d give them a rose.  They totally weren’t expecting it and it brightened their day.  Even the embarrassed guys would still walk around with that rose sticking out of their trade show bag.

The French Call It “Lagniappe”

“A little something extra.“  I remember when we also would send follow up cards, hand written and hand signed, to our customers when they would buy EstiMate online.  We had to stop after passing the 5,000 customer mark — it was just too time consuming.  But we’ve tried to maintain the same level of service by offering our EstiMate Café and now this blog.

It’s worth strategizing about ways that you can offer your customers extra; they will end up being Raving Fans (fantastic book by the way) and your star will shine brightly over there in your corner of the universe.