At Fortix, we understand that behind every thriving business is a drive to work smarter, not harder. Our Fortix Freedom platform is designed to do just that: streamline operations, minimise inefficiencies, and enable businesses to focus on growth, rather than be distracted by poor systems.
But bigger than our platform is our skilled, smart, dedicated team – we work hard to make your job easier
And more fun.
And more profitable.
And just ……..….…. Better!
Our team of professionals have long pedigrees in business, and a long history of helping businesses to be better. We want you to make more money, with less stress, and a happier team.
So, what are the options to price my work knowing I make the desired profit?
There are several ways for trades and manufacturing businesses with a high labour component to charge.
- Cost-Plus Pricing
This is one of the most common and straightforward pricing strategies in manufacturing. Companies calculate the total cost of production (direct materials, labour, overhead) and then add a markup to ensure profitability.
How it works:
- Calculate total production costs (fixed and variable
- Add a markup on top of these costs.
Advantages:
- Simple, ensures all costs are covered
Disadvantages:
- May not account for market demand or competitor pricing, leading to overpricing or underpricing
- This in turn may make you too busy, or not busy enough – feast or famine cycles
- You are likely to win smaller, more painful and less profitable jobs, whilst missing out larger, potentially easier more profitable on
- A blunt and simple pricing instrument
Example: If a product costs $100 to manufacture (direct materials, labour, overhead) and the company wants a 20% profit margin, the selling price would be $120.
NOTE: This would mean marking up by 25%
- Value-Based Pricing
Value-based pricing focuses on setting prices based on the perceived value of the product to the customer rather than the cost of production.
This method is more customer-centric and can allow for higher profit margins if the product provides significant value to customers. Conversely, if the product has low perceived value in the eyes customers, and is easy to make, then the price and profit margin can be expected to be high, along with competition.
How it works:
- Understand customer needs and the value the product offers (e.g. time savings, quality improvements)
- Set prices based on the perceived value, regardless of production costs
Advantages:
- Can generate higher margins, especially if the product is seen as high-value
Disadvantages:
- Difficult to implement; requires deep customer insights and market research
Example: A specialised machine that saves a company $50,000 per year may be priced at $40,000, even if it only costs $10,000 to produce. (80% Gross Profit Margin).
NOTE: This would mean marki up by 400%
- The old chestnut – the ‘educated guess’ (commonly known as the ‘thumb-suck’)
If I was to make an educated guess – this is probably more common than most think! 😂
How it works:
- estimate the total cost of production (direct materials, labour)
- add some money on top
- then add some ‘fat’ in case you’ve made a mistake or bad guess
- submit the quote
Advantages:
- Could make a heap of prof
- Quick, easy
- Heaps of time for yoga, gym, horseriding, fishing
Disadvantages:
- Will lose jobs if you estimated too high and/or because that ‘add fat’ bit made your price uncompetitive
- Could lose money
- Your guessing skills may not be as good as you thought they were……
And the list goes on……….
