Profit Margins

[jon buck]

Being very new to the business I am still very unsure re. profit margins. I have the Estlite frame pricing software which I must say is very handy. However when I do the calculations it does appear that some of the quotes appear to be very expensive ( I have not set the calculations to a daft level either)

I have done a lot of pencil and paper calculations and would I be correct in thinking if you add all your moulding glass etc plus a bit of wastage together and double it would that be a sensible price to charge bearing in mind I am out in the sticks . Or would you think I am way off the mark.

Thanks

Jon

[Jonny2morsos]

I don't use Estlite so cannot comment on what data you enter in there although I do have a pricing programme (Wessex Premier).

If doing a manual calculation I would take my material costs and multiply by at least five to give me a retail value.

From what others tell me all the pricing programmes need some fine tuning to get to what you want to charge and I would advise running a manual system alongside the pricing programme adjusting values as necessary until you get where you want to be.

Here is a scenario for you to try out. Price up a 50 x 45cm frame with moulding costing £4.00 a metre, include a double mount and standard glass, finishing etc. i.e. ready for customer to take away.

PM me with your price and I will tell you what 5 of our local framers priced this job at. We shared our results at a FATG meeting last week.

John.

[Comet]

PM me with your price and I will tell you what 5 of our local framers priced this job at. We shared our results at a FATG meeting last week.

Umm! Yea.Nice set up.

[kev@frames]

5x materials or 3.5 to 4x on higher end mouldings at least, im out in the sticks too, at 2x I'd go bust. But i'd p*** off the "opposition" while i was still around at those prices
probably get a better response posting in "business matters".
Best regards
Kev

[Jonny2morsos]

"Comet wrote

Umm! Yea.Nice set up.

e

Not sure I got this Quote formatting right but if this is meant to mean that we met for the purpose of price fixing then it would hardly be announced on a public forum.

And on the other hand we now have the information needed to undeercut our competitors if we chose. However, I think we are all likely to take a pragmatic view and consider our individual circumstances regarding our overheads and price accordingly.

John.

[Not your average framer]

I use an old fashioned price chart and all of my sheet materials, (glass, mountboard and backing board), are calculated using a non-linear method, which means my price per unit area increases as the frame size gets smaller. I have see Estlite at the Spring Fair and liked what I saw. I will get it some time, but I will tweak my mark-up on each moulding as I see fit.

I've never been a fan of the straight mark-up one size fits all method, my mark-up per moulding depends on what I think each moulding will stand. When I first started I asked for advice from Wessex Pictures who told me that I should not mark-up by less than four times and this was the advice I followed at first, but now the mark-up is no longer a fixed amount across the board. Although my price chart marks-up mouldings by a fixed mark-up, I select which band on the chart applies to which moulding according to what I think it will stand, NOT WHAT IT COST ME TO BUY IT!

Your mark-up should take appropiate account of the level of overheads which businesses in your area have to pay. You have to be realistic. or you will lose out! There is also scope for fine tuning your prices over time as you get to know what people will pay. You will be suprised how much you can put up your prices without losing trade, once you've established a good reputation for your work, but you have to be smart how you do it. Unfortunately, there are no easy short-cuts if you are new to framing. Like everything else, learning how to do things right takes time.

Above all, do not be tempted to price down to get the work, it doesn't work!

[kev@frames]

Jon if you are new to the business, dont make the mistake many of the rest of us did for years by working too cheap.
NYAF is right about aiming at the higher prices.

I'm 15 years into this, and the first ten I was far too cheap. You dont want to look back on your business after ten years and kick youself for throwing away ten years worth of labour at half price!

[prospero]

I tend to work on a cost+ basis. Work out the cost of materials and add the time involved. I find just marking up the materials can make some jobs too cheap and some too expensive. I have had jobs that involve using £300+ worth of materials. Marking up X6 would make the frame over £2000 when you get the vat on. I decent return on investment is good, but for that job I would charge about £700 (Thats a basic frame. Any complex procedures are added to the time factor). On the other hand a small frame with more 'attractively priced' materials means that you are only making a few quid. It might take longer to do than the big one.

When working this way you have to be careful costing the materials. You have to work out the cost of what you consume, not what ends up in the frame. Plus an allowance (20%?) for the odd manky bit that is unusable.

[Not your average framer]

It is important to know which are the good bread and butter mouldings, these are the ones which not only are very popular, but often are ATTRACTIVELY PRICED FOR YOU. Many of these will stand a higher than average mark-up and still look like good value to your customers. There are some good clues in suppliers catalogues as some mouldings are priced higher by some suppliers compared to others. Obviously the higher priced suppliers are still selling these mouldings, so if you buy them from a cheaper source (assuming the product is the same), then there should be scope for extra mark-up.

It is most unwise to discount your bread and butter work. Don't even think about it! My price chart gives me scope to discount my more expensive work and I often will give such customers a small discount to sweeten the deal. It also has the advantage of preventing them asking for a larger discount.

Don't forget that your wastage from more expensive mouldings comes out of your profit. You are the guy who paid for it and often it can look wrong or cause offence to make a cheap frame for the shop window with the left over waste when a customer has just paid top money for the same moulding as a framing order. Be cafeful not to waste too much time trying to use up left over waste, if you are chasing small money.

[prospero]

Just a plug for the hand-finishing brigade...

Sometimes you can claw back a bit of cash using offcuts. I had an order recently for 10 small frames and one biggish one. All for original oils. I managed to do the order mostly from bits that were in 'offcut corner'. Also recycled four naff frames that were lanquishing in the shed. Only used about 4ft of new moulding. Some of the offcuts had been stuck under my bench for years. One moulding was in about 5 different finishes, but the same profile. Just had enough to do 6 matching frames. The bigger frame I made out of another frame that I measured wrongly.

Cost of materials____ < £10.00
Labour_____________ £550.00

The offcut pile has not dimished noticeably.

[jon buck]

Thats what I call profit Prospero.

Thanks very much for all your comments they are very much appreciated.


Jon

[John]

...it does appear that some of the quotes appear to be very expensive...

You could try running with the prices as they are. Then, at the end of the year, when you discover that you have made way too much money, you'll know how much to reduce your margins by.

[jon buck]

I think what I have been struggling with is that in my previous life if you could take a 5% gross profit you were doing very well although it was a high price item.

I am sure I will get used to taking a decent profit. Now that it will be going in to my pocket.

Thanks again.

Jon

[Jonny2morsos]

How I wish my profit was going in my pocket.

Somewhere along the line I have to pay Suppliers, Landlord, Business Rates, Electricity, Property Maintenance, Advertising, Inland Revenue, Internet Service Provider, Telephone, Credit/Debit Card Terminal Supplier.....

Oh, and then comes me!

John.

[prospero]

How I wish my profit was going in my pocket.

Somewhere along the line I have to pay Suppliers, Landlord, Business Rates, Electricity, Property Maintenance, Advertising, Inland Revenue, Internet Service Provider, Telephone, Credit/Debit Card Terminal Supplier.....

Oh, and then comes me!

John.

Well, apart from the IR the rest are running costs/raw materials. What you have left after paying them all is your profit.

If you add up all your fixed overheads for a year and divide it by the number the number of hours you would like to work in a year (not what you actually work), you get a figure of what it costs per hour to employ yourself. The figure can be quite an eye-opener. What you charge per hour for your labour on top of this figure is your profit. In theory anyway. Somehow it never seems to work out that way.

One thing to keep a lid on is your stock levels. I am a bugger for over-ordering. You know the routine - I have to order this and that from so and so. I'll just top the order up a bit to make the carriage worth while or get carriage paid. Any clearance lines going cheap? Oh I think I'll have some of that. I have pruned my stocks down a lot in the last few years, but I must have 5-6 grands worth in moulding alone. Sitting in a shed. Can't spend it. It's nice to have a good selection of stuff handy 'on the plot', but as an asset it is definately not 'liquid'.

[Not your average framer]

Just a plug for the hand-finishing brigade...

Prospero has just illustrated a very good point. I wonder how many of us know about Pete Bingham's pricing policy as published in his picture business articles. Pete's advice is too mark-up all your materials by ten times and it's not just bravado. This is exactly what he does and it works! Hand-finishing is something which will really put your business in front of your competion, but you have to be serious about it and set youself high standards.

Jon, I was fortunate to have been funded through the govenments "New deal" program to spend one whole week with Pete just learning hand-finishing techniques, etc. I was already doing hand-finishing before this and he had to pull out all the stops to find enough things to teach me to fill one whole week. I was asking questions all the time and this transformed my whole way of doing business.

If you are considering getting trained on the business issues side of picture framing, may I suggest that one day spent with Pete would probably transform your entire mindset and approach to running a business. He has his own way of approaching almost everything and it's very different. People who are not afraid to be different in business usually do a lot better than most and it works.

I'm always on the look out for redundant stock from framers who are closing down and I'm the guy who buys the stuff which nobody else wants and is also after old out of date moulding catalogues. Why? Because there's a very good market for classic traditional framing and old fashioned quality workmanship and hand-finishing.

When you are thinking about how much to mark things up by, it helps to have something to offer which your competitors ain't got! Have you noticed that it's the mass market big name companies which are suffering in this present finacial climate? They are all discounting like crazy and chasing fewer and fewer sales.

Polish up your act, your skills and your mark-ups and go for the money end of the market. Spend time visiting auction houses, stately homes, famous art collections and galleries when you can and look at the frames, mounts, materials and workmanship. It will take time, but you will start to understand what people with money like and what they are looking for. Mass market or the latest gimick is not where it's at!

I suffer from poor health and I'm no longer as fast as I was. If I had to compete in the same market as everybody else I would be in trouble. So I need that little extra edge and stay out of the bottom end of the market as much as possible. It works for me and if you are in need of a little extra edge it's worth thinking about!