Are we charging enough for our work?

 Mike Jackson wrote this article for the September/October 1995 issue of SignCraft—almost 30 years ago. Now retired, Mike and Darla were running a successful shop in Jackson Hole, Wyoming. Even though the vast majority of signs are produced with the help of computer-driven equipment, this article is just as relevant today. As you read it, you’ll recognize the same comments and unrealistic expectations that you hear from customers today.

I remember watching Stan Boarts letter a truck in front of my parent’s laundromat when I was young, and how it fascinated me. I was still in junior high, but even at that age, I was already headed in a graphics arts or art direction. Stan was patient as I watched for several hours and barraged him with dozens of questions.

One question, of course, was: “How much do you get for lettering this truck?”

Stan replied, “About $125 for a basic, standard truck job.”

That was 1967. Ironically, many people—including our shop—weren’t getting much more than that today [1995]—thirty years later. If you were to add even the most modest cost of living increase to that price, today [1995] it should have been $300 to $350. A skilled letterer of today couldn’t do the job any faster than Stan.

Go figure.

In SignCraft, I have read many different perspectives on computer-aided sign pricing. A few of the topics hit close to home. A few of their comments also reminded me of things I have written about in SignCraft in the past. So if any of the following thoughts sound familiar to you, that’s why. Some of it may have been updated, thanks to several years of additional “real life experience.”

Undervalued, underpriced?

It sometimes seems that I must be missing something. Some shops are producing magnetic signs for $39 to $100 a pair [1995]. What is going on? It takes the same time to letter a pair of magnetics as it does to do a basic lettering job on a truck. It takes a few minutes to prep the door, but it also takes a few minutes to unroll and cut up a couple of pieces of magnetic material. Lettering on the truck’s surface costs basically nothing, while the cost of average-sized pieces of quality magnetic sheeting is about $10 to $20 per pair.

Someone help me—these numbers just don’t add up. I haven’t timed it, but I bet that the fastest any customer ever gets back out our front door after discussing their magnetic signs is about 15 minutes. Many take 20 to 30 minutes. Once a customer gets involved in making color and letterstyle choices, it can take even longer.

Sales time matters

This sales time is overhead—pure and simple. You have to do it, and the trick is to make the sale as fast as possible. If four customers walk in during one day, it’s blown one to three hours of production time. No shop actually sells a job to every person who takes up this time, so the missed sales must be factored into every job that you do sell.

By the time you make the sale, design, and produce even the most simple job, you have considerable time invested. When the person returns to pick up the finished sign it often takes another 15 minutes, assuming everything went right.

And you still have to make an invoice, receive the check, make a deposit, and enter figures into some sort of bookkeeping system. The deposits must still be reconciled at the end of the month, and all the records must be kept for countless years. If you really get down to it, the cost to simply dot the “i” on an existing sign should cost $100.

No matter how good you are or how good your communications skills are, there will still be problems with some projects—wrong size, wrong color, wrong phone number, or simply not what the customer had visualized.

Repairs and service work are inevitable

Whatever the reason or the circumstance, correcting such problems takes time and often a lot of it. It may require another trip to the job, more materials, or repainting backgrounds and re-lettering. Occasionally, the customer caused the problem and some may pay for the mistake, but it still seems to cost the sign company. Again, this is overhead and must be figured into every job.

A few years ago, we bought a roll of magnetic material. Through the course of a year, we had all kinds of problems. I even sent in a question to SignCraft’s “Reader to Reader” section regarding it. We received many reasons and sometimes conflicting explanations.

The bottom line for us is that we had to do seven or eight sets of magnetic signs over. Considering that we didn’t really charge enough the first time, we got murdered doing them again. Dealing with the unhappy customer was no fun, either. (We changed manufacturers, and at least that particular problem was eliminated.)

Faster production shouldn’t mean lower profits

Even at an incredibly low price, customers wanting this type of truck lettering or magnetics always seem to want us to design something distinctive and punchy for them. “Oh, yeah, can you add some sort of hammer and saw on there?” “What do you mean it will cost more?” “Can you print that out so I can get my business cards printed with the same look?”

“What do you mean I have to pay for that? You already have it on your computer.”

Maybe the computer is the problem. In many cases, it may be. But I just don’t think that some shops have taken the extra time to work out some numbers to see their actual costs.

Let’s say we have to letter a precoated panel that costs about $5. (For the sake of simplicity, I am eliminating the cost of coating the background.)

When I had to hand letter this panel it might have taken about two hours. If my shop rate for a lettering person was $50 per hour, then the labor would have been $100 plus a few dollars for the half dollar’s worth of paint.

Now that I have some pretty fast and efficient computer equipment, I might be able to actually produce and apply the lettering in 30 minutes—or even less. If I charge for 30 minutes at $50 an hour, the total for lettering would be $25. So to equal the original $100 sale for a hand-lettered sign, I now have to letter four signs and deal with four more customers.

In addition, I have the costs of vinyl and transfer tape, plus the cost of owning and maintaining my “fast” computers. To be fair to my business, I should charge $200 per hour or more when I am using my computer.

Technology and computers have made some things cheaper. Ironically, technology has even made computers cheaper. The fact that someone can make something cheaper seems to drive prices down or keep the price of a specific product from increasing in value. The sign industry is not immune from those same forces.

Some products, such as low-end truck lettering, banners, and magnetics may be a lost cause. Aggressive competition has “devalued” those products in the eyes of many customers. Many shop owners now refer this work away rather than do it at a loss.

All this reminds me of a story that the late Steven Parrish used to tell, which I wrote about once in SignCraft. Steven specialized in fine gold leaf lettering and often worked on bank windows. One day a bank manager complained that Steven had charged $400 for only four hours work. Steven replied, “When I get fast enough to do the same job in three hours, it will cost $500.” I love that story and thought of it often as I spent more money on faster, better equipment.

I once had a discussion with a lawyer about a sign we had done for him. We used the Gerber Edge to print a beautiful graphic on his sign. He was complaining that he shouldn’t have to pay as much for the sign because we didn’t have to hand paint his pictorial.

The materials were definitely more expensive, and the job looked better than I could have painted—but it took less time to produce. The job went up on time and under budget, but he was still complaining.

I went on the offensive. “Let me get this straight,” I said. “When you bought the fax machine, office copier, laser printer, and word processing equipment, your hourly rate went down, right? I doubt it. My guess is that your hourly rate went up with every piece of equipment you bought.”

“Uh,” he replied, “that’s different.”

Computer time is often underpriced

In many shops, there are employees with different talents, speeds, experience, and ultimately different wages based on those attributes. The estimator in a shop probably shouldn’t use the same shop rate for everyone working in the shop.

Charging the same rate for an entry level employee as a journeyman employee is potentially dangerous. If the computer operator and equipment can produce at twice the speed of the journeyman, and you are only charging at the journeyman’s rate, you are probably making a mistake.

I am writing from a small business owner and estimator’s point of view. Every sign business is different, but there is an abundance of common ground. Some larger shops may have a designer/estimator on staff whose salary is written off purely as overhead. I can’t even imagine the volume of sales required to absorb such an expense, but I’m sure those large companies can tell you what it is.

Value-based pricing

When the dust has settled, a shop should charge for a job based on its “value”, not on how it was produced. “Value”, as Steven Parrish would say, “is determined not by what you pay for something, but by what you get for what you pay.”

Signs have “advertising value” which offsets the customer’s actual expense. When put in the context of the advertising value (compared to other forms of media) the signs we produce become a true bargain.

I very seldom quote a job to a customer showing the number of hours at the rate per hour. It would take all day to justify the rate per hour, so I simply price the sign with a final price. (Actually, I usually give a “three tier” price—a basic version, then an enhanced version, then top-of-the-line.) If an uncertain installation is involved, I do an estimate showing the expected price and also allow for a variation based on things I couldn’t anticipate.

When all the numbers are added up at the end of the year, you will have worked a lot of hours, paid out a lot of money for materials, equipment, overhead (including all the wasted time and fixes), taxes, and payroll. Hopefully, you will have charged enough during the course of the year to make the amount of money you and your family deserve for all the effort.

But I still bet that many of the small jobs you think are making money are actually costing you money. It seems like I have said that before.