26 Aug 2018 STAT

The math is simple: Take the cost for materials, add cost of labour, Add overheads, Add profit margin and don’t forget about VAT.

How do you get it done? 

The cost of materials.

To know the cost of materials, you must do some legwork. Visit the local hardwares and suppliers to know their cost. Your client may also do the same and therefore, do not exaggerate your costs.

Your costs of materials is theexact material costs, including taxes, and any required permits and other extraordinary expenses.

Extra-ordinary expenses include transporting the material, dirt and waste removal or cleaning after the project, e.t.c.

A business rule is to establish a good relationship with your supplier so that they can either give you on some goods on discount or to pay in instalments. The latter may not happen often, but if it does, it can do wonders for a large, long-term project.

Cost of labour.

How much do you charge per day? Most people don’t know and others use the ‘mjengo’ rates. This is fine if it is your rate and what the market can stand.

However, some jobs will take longer than a work-day or just 30 minutes. This becomes tricky, especially when the client will glower and try to negotiate down because you just ‘got in and out’ after a 30-minute fix.

That is why you must have a standard hourly rate that helps you cover the time it has taken you to do the job. 

For the sake of this post, we shall work with a daily rate of KES 500.

Having a fixed daily rate will help you to determine how to charge for very short of very long jobs.

Time to calculate!

You charge 500/- per day.

1. The hourly rate is 1/8 (a day is said to have 8 working hours).
2. The total is rounded off to KES 63/hour.

With this sorted, you can be able to charge for anything from 1 hour to 12 hours on the job.

Project cost or business cost.

These are costs associated with the project, also known as overheads. 

Overheads are not your ‘salary’ or wage for doing the job or even the money you will pay when/if you send someone else to the job or to do the job with you.

This is the cost to ensure you stay in business. You have to factor in things like permits, license, rent, buying new equipment, transport, marketing, calls, all those business administration expenses. 

Time to calculate!

The rule of thumb is to charge 30% into your business expenses. 

1. Labour costs: KES 500/day.
2. Business expenses: 30% of 500.
3. Total overhead cost is KES 150.

What if you have more than one person at the project, will your labour costs change?

Definitely, remember the person has to travel and that is an expense.

At this time, your business is safe… but you cannot make any profit and therefore, you will not be able to grow.

So, you need to add the final item:

Profit margin.

The ideal profit differs from business to business. On the upper side, we have 35% margins which are on the high side and 25% on the ‘normal’ side. The rule of thumb is to go for a profit margin that is higher than (or double) the cost of loan; So, a 10% margin, which you can give in case of a negotiated discount are okay; but should never be the norm.

Time to calculate!

You are operating with a 35% profit margin. 

1. Your profit is 25% of (labour + overheads)
2. 25% (650) = 162.50
3. Total= 812.50 + VAT.

Your quote will be 812.50 less material costs.

When you charge VAT, always give a receipt.