Interested in starting a foreclosure trashout or cleanout service? Many people are today.
One of the most important things to know is how to bid. Bid too high, and you won’t get any jobs. Bid too low, and you’ll end up working for pennies an hour. So you have to know how to bid right.
How do you bid wrong? By following advice to “charge $x [often around $1] per square foot.” Bad, bad advice. Or by setting a flat rate, such as $x per house. Or by calling around and getting numbers from your competitors and figuring that those are the “right” numbers.
Your price should depend on two primary factors: (1) your hourly rate, and (2) how long it’ll take to do the job. And those depend on you and your specific job. Not on what someone else may be charging or what an “average” job is.
How do you bid right? Follow these 6 steps in this order:
1: Hourly rate.
What is your time worth? $10 an hour? $20? $30? $40? Don’t sell yourself short. Plumbers, electricians, auto mechanics, and others aren’t afraid to charge what they think they’re worth. You shouldn’t be, either.
If you’re going to be hiring other people to help you, know what their hourly rate is, too. It probably will be less than yours (you’re the boss) unless you need a specialized skill that you can’t perform.
2: Number of hours required.
First, you may work faster or slower than your competitors. Maybe you’re working with better, more efficient equipment, for instance. Or maybe you’re just starting off and your competitors have that faster equipment. Either way, that’s OK.
Second, some jobs will be easier, with less trash or needed repairs. Some will be more difficult; they’ll look like your local junk yard. Some houses will be larger than others. You think that it takes the same amount of time to to a 3 bed/2 bath 1,500 square foot home as it does to do a 5 bed/3 bath 2,600 square foot home? Of course not. You’ve got to factor in the length of time for each job.
So what you’ll come up with here is simple: Number of hours required to do the work.
3: Hourly Rate Times Hours
Then you multiply hourly rate times number of hours. Let’s say you figure it’ll take you 20 hours to do the job. And you think you’re worth $30 an hour. 20 times $30 is $600.
If you’re going to be using some helpers, you do the same here. Figure out how many hours of work they’ll need to do and what their pay rate is. Example: 20 hours at $15 an hour. That would be $300 worth of labor for your helpers.
What you’ll come up here is simple: Total labor cost for the job.
Add on your overhead. That’s the time you spend on your business that isn’t revenue-producing. It includes marketing, recordkeeping, driving around to provide estimates, etc. It includes printing business cards. It includes your phone. And so on. A good ballpark figure for overhead is 30%. However, once you get rolling, you should adjust that figure up or (more likely) down.
If we use the example in (3), above, your total labor rate is $900–$600 for you and $300 for your helpers. In that case, you increase the $900 by 30%, and come up with $1,200. Also, factor in any special or unusual expenses–let’s say the rental of a piece of equipment for a special task.
If you also offer painting and minor repairs, here’s how to incorporate those items. Price it the same way you would cleaning. What’s your time worth? And factor in the supplies, of course. But you’ll find that supplies are not a major portion of what you’d be charging. Usually, labor is 65%-70% of the total expense involved.
If you need to use a subcontractor to do some of the work (let’s say flooring repair), find several companies that perform that service–wholesale, not retail. You don’t want to go into your local retail flooring center and get a quote from them on repairing a 3′ x 3′ area of an oak floor. Find some suppliers up front. Generally understand what they’ll charge, and make sure they can give you quick quotes when you need it. Let’s say that a floor repair person quotes $150 for work. You’d take that figure and mark it up to cover your expenses and the services you’d be providing (a one-stop shop). A 30%-50% markup might be considered reasonable. It’s up to you. So when you present your bid on cleaning and repairs, you present one number. You’ll know what you’re doing yourself and what you’re contracting out for. The primary thing your customer wants to know is: What will it cost? And: When can it get done?
Many new business owners forget to build in profit. Above, you’ve accounted for your labor, but that’s just an hourly rate. Overhead doesn’t include profit. It just includes all the other expenses you’ll encounter. Marking up other services isn’t profit. That’s to compensate you for getting quotes and managing the job. There are many ways to calculate profit (return on investment, return on equity, etc.), and different types of companies have different profit margins. You might want to try a 10% profit margin and see how that works out for you.
6: Stick to Your Numbers
The final step is to stick to your numbers. This is important! If someone else bids cheaper, let them. If you try to be the cheapest, there’s always going to be some dummy who’ll do it for less. Always. You want to be known for offering a good, dependable value. Or even (eventually) for offering an excellent high-quality service with a price to match. But start off offering excellent value at a fair price.
Follow these 6 steps and you’ll develop bids that will give you the financial reward and success you’re looking for.