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Job Pricing #1: How Much To Charge Excel Spread Sheet

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Blog entry by billb posted 05-05-2010 03:37 PM 5088 reads 2 times favorited 26 comments Add to Favorites Watch
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I created a chart to use when pricing jobs and one of my readers, who is obviously a whiz with Excel, created a great excel spreadsheet to help him calculate job prices. His name is Mike Stewart and he generously shared this spreadsheet with me and I have been sharing it with others. So, now it’s available to all members of LJ. Just click on the link below and download it to your computer for future use.

http://woodworking-business.com/downloads/HowMuchToCharge.xls

The yellow cells can be adjusted to your needs and the pink cells calculate automatically. Not only does it make calculating jobs easier but it reminds you of all the items that should be considered when pricing jobs. Please let me know how it works for you.

-- Bill, Austin, Texas, http://woodworking-business.com



26 comments so far

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lew

11335 posts in 3216 days


#1 posted 05-05-2010 04:02 PM

As an Excel lover, this looks really nice. I’ll have to give it a try. Although I’m not in business, it will help me determine the price on those “special” jobs.

Lew

-- Lew- Time traveler. Purveyor of the Universe's finest custom rolling pins.

View degoose's profile

degoose

7196 posts in 2815 days


#2 posted 05-05-2010 10:33 PM

Very useful thanks..

-- Drink twice... and don't bother to cut... @ lazylarrywoodworks.com.au For lovers of all things timber...

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OutPutter

1199 posts in 3451 days


#3 posted 05-06-2010 09:19 AM

Hi Bill,

Welcome to LJ. I took a look at the spreadsheet and I have a couple of quick questions if you will. You have two methods of calculating the price of a job. The “Profit Included” method does not include “profit” on the material costs and the “Profit on Job Price” method does. Is that intentional and if so, why?

Also, I’m confused about the purpose of the “Profit”. Why do you need “profit” over and above the “Estimated Income”?

Best,

-- Jim

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billb

113 posts in 2405 days


#4 posted 05-06-2010 01:32 PM

The two methods are just two ways to handle the profit on a job. I only included it to provide an option. It helps to keep it simpler although I have always preferred to add the profit based on the entire amount of the job.

As to your second question, I have been working in wood in one way or another since age 12 and have always enjoyed it but I am also a business person. I spent years working for others making a salary and they had to deal with the day to day headaches. But, as a business owner, that became my job and I wanted to get paid more than just my hourly rate. For me the objective of any business is to make a profit. The hourly rate is what you would make working for someone else. The expenses that you add are out of your pocket; they are costs that you must pay not income. Running a business requires a lot of work and dealing with many people. It’s not just doing the work you love, it involves doing things that others want, sometimes even projects that you don’t really care for. For that effort, I want more than what I would make if someone else was dealing with all the headaches. That is what my profit means to me.

Profit helps you to save; perhaps for vacations or to help your kids, grand kids, or whatever else you want that improves your life. Anyway, I believe profit is a critical part of any business.

-- Bill, Austin, Texas, http://woodworking-business.com

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OutPutter

1199 posts in 3451 days


#5 posted 05-06-2010 08:10 PM

Bill,

I think I understand. Your spreadsheet seems to indicate that there are no employees and you’re just one person doing woodworking. I was concerned because, looking at the whole picture, everything after you cover your expenses is profit, when you are the sole proprieter. You can call part of your profit “salary” and another part “profit” but it all goes into the bank account and you have to pay taxes on it all. You probably need to change the “Tax” formula to take this into account. Also, if you want to have two buckets for how much you get paid, I think you risk confusing the average woodworker. (Just wait and see if this isn’t confusing just making this comment.)

Best,

-- Jim

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billb

113 posts in 2405 days


#6 posted 05-06-2010 10:49 PM

Jim, I understand your point and what you say may work fine for you but not for me. The way I see a woodworking business is like any other business where a product of some kind is produced and sold. There are four basic parts involved in the pricing of the product. The first is the cost of the materials specific to the product. With cabinets that involves all the wood, plastic, hardware, etc. The second part is the labor cost or salary as you call it and this is also specific to the product. The third part is comprised of the operating expenses and these apply to the business not just the products. These are the ones listed in the chart for maintenance, insurance, taxes, and misc cost that are hard to identify but include the many hours that are spent running the business as opposed to making specific products. Finally there is the profit.

The cost of materials and expenses only go into your bank account temporarily because you have to pay those costs at some time. It is true that all of the money goes into the bank account but that doesn’t change the tax formula since the tax formula is based on your annual income after the materials and expenses have been deducted for the total.

There are two things that I believe are important. One is that none of this information is relevant if all you want to do is make products for yourself or friends and family. It only matters if you want to be in a financially successful business. For that it’s important to pay yourself for your work and ensure that your business makes a profit beyond that hourly salary.

The second thing is to realize that the excel sheet contains figures that work in my area and for a specific situation. The figures in yellow have to be adjusted so the numbers in pink will calculate correctly for your community. It’s just a guide to help calculate the price of jobs. You have to adjust the figures to make it work for you.

My feeling is that if the chart seems confusing it would definitely be a good idea to bring it to clarity before trying to make a living with woodworking or any other business for that matter.

-- Bill, Austin, Texas, http://woodworking-business.com

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OutPutter

1199 posts in 3451 days


#7 posted 05-06-2010 11:51 PM

I’m an accountant Bill. I’m not making this up and it doesn’t depend on what I think or what you think. You really will have to pay taxes on all that profit. Really. Now to try one more time to simplify this, let me say just the basics for anyone who cares about making a living working for themselves.

1) Revenue minus expenses equals profit.
2) You will pay income taxes on all your profit, not just what you call labor cost. (In USA that is)

No offense Bill, just telling it like it is. The spreadsheet may lead someone to believe that “profit” doesn’t get taxed. If I were you, I’d change it. How you came up with your idea to have four basic parts to pricing a product instead of five or three or twenty five is your business. Just let’s not confuse the people. You can’t redefine profit for the IRS and neither can I.

Best,

-- Jim

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billb

113 posts in 2405 days


#8 posted 05-07-2010 01:06 AM

Jim, I’ve never mentioned taxable income. Certainly profit is taxable and so is every penny of the salary anyone makes. Every individual has to pay taxes on their salary and all businesses have to pay taxes on their net profit. The intent of my chart and Mike’s excel sheet is to calculate the price of a job in a way that will ensure that you don’t lose money. Accounting for your taxes is done with an accounting program like Quickbooks or Peachtree or something like that. You can deduct your expenses (if you have receipts for them) and you can deduct the cost of materials but every penny you make as salary or profit is taxable and I didn’t say otherwise.

Regarding the Taxes line on this excel sheet, it is there to make certain that the business person charges an amount on every job to put aside for their taxes. Many small businesses have problems with the IRS because they failure to set aside funds to pay their taxes. Adding a certain amount to every hour and then wisely setting it aside, ensures you won’t be scrambling to pay your taxes at tax time.

I guess it’s possible that someone would get confused by this chart but I have been careful to title these posts both here and in the forum so it’s clear that pricing is the purpose not accounting for tax purposes. I’m not an accountant or a tax attorney so all I ever tell people about taxes is to make certain they either save money to pay their taxes or pay estimated taxes quarterly.

A final note, I’m not redefining salary or profit I am merely identifying it to make job pricing easier and more accurate. It’s a system that has worked for me for 20 years of woodworking and every other business I’ve ever owned and I’m just sharing it with others. If anyone is confused, I welcome their questions and I’ll do my best to answer them. I’m sorry if you found it confusing but it works and I’m not changing it. You are certainly welcome to download it and change it anyway you like. Personally, I’m not an Excel expert so all I do is use it.

-- Bill, Austin, Texas, http://woodworking-business.com

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OutPutter

1199 posts in 3451 days


#9 posted 05-07-2010 02:21 AM

Bill, you don’t address the reason why you have a tax rate for one and not the other. It wouldn’t damage your ability to use the spreadsheet and may reduce the confusion for someone else. Win win in my book. Plus, if you’re using this spreadsheet to set aside money for taxes, you’re going to come up short.

People who may be coming from an “employee” environment and going to an “owner” environment may not understand that there is only profit. No salary for the sole proprieter. Just profit. That means that if you take your prices from a calculation like this, you need only to decide how much profit you want to make. You can look at how much you make before taxes and do just fine. You can look at how much you make after taxes and do just fine too. But, don’t confuse yourself with part of your profit before taxes and part of your profit after taxes. It keeps you in the “employee” world. The faster you get your mind wrapped around being the owner of all the profits, the better you will do. It may lead you to use different methods for pricing your products too.

-- Jim

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billb

113 posts in 2405 days


#10 posted 05-07-2010 03:33 AM

Jim, we are obviously on entirely different wave lengths. We obviously have different views of how to operate a one person business. Nevertheless, I’ll take another shot at clarifying this form.

The Tax line relates directly to the estimated annual income on the adjustable part of the form and changes accordingly. Estimated income includes all income, salary or profit. Whatever income an individual makes, after deducting materials and expenses, is taxable. I don’t disagree that it is all taxable income, that is simply sensible.

We differ in that I strongly believe that it’s important to calculate a salary for yourself and then, over and above that, calculate a certain percentage for profit. But all of it is taxable, period. I know that and, after reading many posts on this forum, I believe everyone else does also.

The objective of my chart is to help woodworkers establish an hourly figure for their time on jobs that will cover everything to make certain they will make money and be able to save for their taxes. And, it offers the option of figuring the profit on a job as part of that figure or add the profit to the job as a percentage of the total of labor and materials. Either way, whatever money is made on a job, after deducting the materials and expenses, is taxable. That is a given.

As to not confusing myself with part of profit before taxes and part after taxes, I honestly don’t have a clue what you mean. The form provides the option of figuring your profit as part of the hourly figure or figuring your profit as part of the total including materials. You could also just pull a number out of the air for the profit amount. No matter how it’s figured, all the money you make on jobs, after deducting materials and expenses, is taxable. The only role the tax line plays in the calculation is to help you save for it.

Sorry Jim, I don’t believe the excel sheet is confusing. In any case, I am simply sharing a simplified version of something that I have used most of my business life. Those who find it valuable are free to use it and change it if they choose.

-- Bill, Austin, Texas, http://woodworking-business.com

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OutPutter

1199 posts in 3451 days


#11 posted 05-07-2010 03:47 AM

Oh, I assumed you knew. I’ll try again to explain. You build up an hourly rate that takes the tax rate the user inputs and multiplies it by the “estimated annual income”. Those taxes are then converted to an hourly rate that depends on how many hours you plan to work each year and become part of your “Total Per Hour Without Profit”. Then, you add another amount to the hourly rate called “Profit – Hourly”. That’s the amount of the hourly rate that doesn’t have a tax rate associated with it. Wouldn’t you agree that part of the hourly rate contributes to profit? If it’s important to teach the user to allow for taxes in the “Total Per Hour Without Profit”, isn’t it important to teach them to allow for taxes for the “Profit Hourly”?

See what I mean now?

-- Jim

View billb's profile

billb

113 posts in 2405 days


#12 posted 05-07-2010 02:56 PM

Actually No, at least not as you describe it. Certainly, one has to pay taxes on all income and the calculation takes place as you describe, using the total number of hours. However, the amount of the tax line is not based on the hourly rate without or without the profit. It is based entirely on the estimated income.

The estimated income includes all the income an individual estimates will be taxable for the year including salary and profit. This figure is determined by each individual based on personal experience, knowledge, or projections. Mike used a sample figure to make the form workable but I have made it clear that individuals must adjust the figures to their own situation. In addition, even the calculating figures can be adjusted by anyone with Excel skills since there is no password required to access them. It is an extremely useful and flexible form.

I created the top part of the form and simply adjust the figures based on my own calculations. Mike’s Excel sheet used that information and made things easier by creating a valuable tool to help woodworkers profit from every job.

After so many posts, I have no illusions that we will ever agree. I shared the form as a job pricing tool to help woodworkers profit. It seems that you want to make it into an accounting and tax tool. It’s clear, as I’ve mentioned before, that we are on entirely different way lengths.

I believe that anyone in business should either learn good accounting practices or hire an accountant to handle it for them. And, if they aren’t absolutely certain of how to prepare their income taxes correctly, they should hire a professional tax preparer. However, pricing jobs is the responsibility of the woodworker and pricing is the only purpose of this form.

While I don’t believe we will ever agree on this, I think this form could be a valuable tool for many woodworkers and it worth the time to make certain it isn’t discounted by unnecessary confusion. It’s not important whether anyone uses the form. It is important that anyone interested in using it understand exactly what it is and how to make use of it.

-- Bill, Austin, Texas, http://woodworking-business.com

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OutPutter

1199 posts in 3451 days


#13 posted 05-07-2010 03:46 PM

Our disagreement stems from the formulas in the spreadsheet and nothing else. Look at it this way. If you bill at the “Total Per Hour Including Profit” rate for the total number of hours in a year, you will arrive at a total revenue that is greater than “Estimated Income” plus all the expenses you have listed.

Test this for yourself. To make the test easy, zero out all the expenses and the tax rate and use 40×48=1920 for the “Total Hours” billed. You’ll see the “Total Job Price” will be larger than the “Estimated Income” by the amount of “Profit”.

So, if you did the test and got the results I describe can we now conclude the profit is not part of the “Estimated Income”?

-- Jim

View billb's profile

billb

113 posts in 2405 days


#14 posted 05-07-2010 04:10 PM

Sorry Jim, there is a reason why the total estimated income is completely separate from the other figures. All the figures are for the purpose of making certain that you make a profit on every job and have to be based on something but they don’t have to add up because you may not work 48 weeks. You may make mistakes along the way that will cost you more and reduce your income. That is why it is an estimate not an exact figure. There are too many variables. Your premise once again proves what I stated before that you want to make this an accounting tool when it is a pricing tool. You’re an accountant and I have no doubt that your “test” turned out exactly as you say. That changes nothing for me since the estimated income is just that, estimated not based on the hourly rate. Plus, there is no way to determine total hours billed for a year until the year is over other than projections. Nothing you say will change this to an accounting tool.

That being said, if you insist on the figures balancing for your test, you can simply adjust the tax percentage in the yellow lines and that would change the tax amount up or down until it matched the estimated income when you run your test. It still wouldn’t prove anything but it would balance the figures if that is what’s important to you.

-- Bill, Austin, Texas, http://woodworking-business.com

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OutPutter

1199 posts in 3451 days


#15 posted 05-07-2010 04:43 PM

Let’s keep it simple Bill. Do you now agree that the “Profit” is before taxes.

-- Jim

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