Are cost increases killing your Profit?

Every day, material prices go up, and with skilled tradespeople in short supply, it is harder than ever to keep a lid on wages. How do we make sure that our profits keep pace with cost increases?

Looking at how we price our jobs gives us insight to understand the challenge.

Square metre rates are the most common way sign-makers price their materials in quotes. Square metre calculations are easy to understand, easy to calculate. You list all the materials you use in the business and calculate a square or lineal metre rate. The rate includes the cost of factory work, such as laminating, trimming, and printing, and your profit.

You charge for extra artwork, factory, and installation work at a factory rate that includes the cost of the overheads. You might have worked these back to some price lists for standard-sized signs to make it easy for the team to quote.

The trouble with these fixed-price methods is that they are difficult to adjust and don’t allow for waste.

Consider an industry benchmark - a printed and laminated aluminium composite panel sheet (ACP). Breaking down the job, we have material costs for the composite panel, vinyl, laminate, digital printing inks and some labour time. Each of these costs can increase at different rates - do you recalculate your price each time one cost changes, or keep our price the same and hope it works out OK?

Taking a more detailed look at the pricing for our composite panel sheet; we know the costs of those materials using list prices from well-known suppliers. A printed sheet of ACP costs $143 to manufacture or $50 per square metre. But what about the cost of labour?

This table shows the actual cost per hour of labour when we factor in superannuation, downtime due to holidays, personal leave and public holidays. A tradesperson earning $35.00 per hour now costs $52.00 per hour they spend on the job. Even the most efficient tradesperson is not always working on paid jobs - toolbox meetings, maintenance and other work that can’t be directly billed for means that 70% productivity is a goal. Including these non-billable hours, our labour cost rises to $68.00 per hour.

Our sheet of ACP now costs $177 per sheet to make or 61.00 per sqm. With a 7% price increase and a 5% wage increase, this cost increases to $189 per sheet.

From this these numbers, we see that the actual cost of labour is much higher than we imagine. If you are charging $80-100 per hour, your time estimates and staff management had better be accurate, or you risk losing money.

Together these cost increases seem to have a minor effect on the total cost of the panel. Depending on your current price, we need to increase the price by 2% and 5% to make the same profit. If we don’t pass these costs, then the effect on our bottom-line profit is more dramatic. If you start with a 15% net profit figure, it drops by 24% to 11% net profit on sales. In conclusion, while printing is highly profitable, you must pass on cost increases.

Square metre rates are easy to work with, but I doubt that many people take the time to check their rates whenever there is a cost price increase. We hope that our fellow sign makers pass on their prices, too, or we are competing against people who are flying blind.

You can use this link to download our charge rate calculator, which will allow you to modify the costing breakdowns with your costs.

There is another way to price jobs: to calculate the actual cost of each material and process used. All good software estimating systems should automatically calculate the material and labour costs in a way that is as simple to use as a square metre rate calculation. You can still price to the market but be confident that your actual job profit targets are maintained.

Written by Nigel Davies

Founder of M-Power Software and

President of FESPA Australia Association

The All New 2023 Sign Price Guide is now available from Amari, Graphic Art Mart and Spandex. Click here for more information