TEXTILES.ORG
Fabrication work can be rewarding, but it often includes long hours. Unfortunately, outworking competitors doesn’t always translate into a more profitable operation. Getting estimates right for custom work is essential to run a successful business, but it’s tricky by nature to accomplish because of the myriad variables that go into each job.
Easier said than done
Estimation issues are business issues. Of course, each estimator’s calculations will vary according to the company, its overhead and its market.
Chris Swanson helped found Garage Starts, a company located on the North Shore of Lake Superior outside Duluth, Minn., and he helps entrepreneurs and businesses get off the ground or identify problems that are holding them back.
“The first thing we do is we just go to good old Excel or Google Sheets, and we start plugging in how much we did, what we spent on that material, etc.,” Swanson explains. “When you start to do that, it creates a very clear picture. Sometimes it takes a month or two of doing that. So as you study it, the real key is to start taking that out of the invoicing that you’re getting, keeping those receipts and plugging that in into Excel and just really making sure it’s clear what the cost is.”
Jamie Marozzi took over his parents’ operation, BayView Canvas, on the New Jersey shore in 2010. It was just him, his wife and a part-time employee. At first, Marozzi would simply double his material costs for his bids, but doubling the cost wasn’t enough.
To determine a fair labor rate, Marozzi argues that fabricators need to calculate their shop rate—which is the cost of operating their business, including payroll, utilities, internet and rent. A common method is to total annual operating costs and divide by the number of working hours in a year. Based on a theoretical $100,000 of annual operating costs and 2,080 working hours, the base cost would be $48 per hour.
From there, fabricators add profit margins, often aiming for another $30–$40 per hour, bringing the total to $80–$90. However, rates vary widely by region, demand and perceived quality.
Even with that equation, Marozzi still wasn’t charging enough to make it sustainable. He lasted more than 10 years but substantially raised his prices over the last five or six years. While the money was better, the hours were still long, and he moved in a different direction to get a better work-life balance. He took a sales job at Keyston Bros in Roswell, Ga., and was recently promoted to branch manager at Keyston Bros Atlanta.
“A lot of guys are charging $100, $125, $150 an hour,” Marozzi points out. “I think somewhere in between there is probably where it should be, if not more. The work that we do is very difficult. It’s time-consuming; it takes a lot of practice—years and years and years of practice—to do a perfect job. And even then, sometimes it’s not perfect.”
Handshakes are great, but writing is better
People who work with their hands often like to seal a deal with a handshake. That’s great for symbolism and tradition, but businesses are only as strong as their contracts.
“I did use QuickBooks® for the software, for my estimating and invoicing software,” recalls Marozzi, who quickly realized that paperwork was crucial. “I also used it to send my contract, which I will say is another super important part of estimating. It’s not necessarily the price, but it lays out and protects you from all the things that can go wrong. Part of estimating is the time. If you tell somebody four weeks and you don’t have anything in writing, say you think you told them four, and the customer heard two—now it’s you versus the customer’s word, and you don’t have a leg to stand on.”
The estimate paperwork or work order should include the price and how long that price is good for, delivery date and all the usual caveats about materials, weather and other anticipated events that could impact work. It’s also a good idea to itemize costs, especially on bigger jobs, so customers can see what they are paying for. Having it all broken down is also necessary when an insurance claim pays for the work, such as in the case of a natural disaster.
The contract should outline when payment is due and what happens if clients do not pay. Andrea Lynn, co-owner of Sonoma Shade Sails in Forestville, Calif., normally follows several steps before delivering the final product to the customer, including design, engineering, ordering fabric, cutting and sewing, and installation. Customers must pay for each step before the company moves forward with it.
If this step-by-step payment process is too much administrative work for a small shop to manage, it’s a good rule of thumb to get 50% of the estimate up front, according to Russ Griffin, co-owner of Northcoast Marine Specialties LLC in Port Clinton, Ohio. Although this may seem like a lot to ask, there is enough customer buy-in that they are unlikely to back out. It also enables fabricators to cover the cost of goods.
Defining custom variables
It’s best to define the job parameters and submit a written work order for a project. Not only does this help avoid sticker shock, but it also helps mitigate unfulfilled expectations.
“We always try to obtain as much information as possible so that we can accurately translate the customer’s vision into a manufacturable product,” explains Fred Tracy, co-owner of Fred’s Tents in Waterford, N.Y. “In aligning that vision, various types of visual tools such as CAD drawings or even 3D models may be required. These tools help ensure that the concept is clearly understood from both a design and production standpoint.”
Tracy sees every project as having its own unique requirements, so he weighs a series of key variables that influence both the design and manufacturing process, including the anticipated project labor, internal design and engineering time, material specifications, cost of goods, and associated freight and logistics. Often building large custom tents for events such as weddings, Fred’s products typically use specialized technical textiles, so there may be complex finishing processes, or the job may require custom hardware or structural integration that must also be accounted for.
For shade installations, it’s not just about the materials and shop labor used to make the end product. The location where it’s to be installed can add costs that need to be accounted for. Site visits are essential to attempt to mitigate these challenges. Code requirements or engineering needs, such as for attachment points to a building, could require changes to a customer’s desired design. Older buildings may also present challenges ranging from the materials originally used to needing special approvals for historically significant structures.
Other site-related costs could include permitting fees, safety equipment (and insurance) needed to work at heights and site inaccessibility by equipment, requiring extra labor and time to hand-carry materials to the location.
Technology can be your friend
Software such as QuickBooks and SAP have helped companies run more efficiently for decades. But enterprise technology has advanced far beyond traditional accounting tools suitable for estimates. There are full-scale Enterprise Resource Planning (ERP) solutions—once reserved for global manufacturers—now available to small and midsize textile firms. ERPs are not just a production or sourcing tool; they also are a complete accounting system, integrating modules that manage every aspect of business operations, from finance, production planning and quality control to inventory, purchasing and customer management—all within a cloud platform to provide offsite backups.
Lynn uses MPanel, which is a design software for tensile fabric structures. Sonoma Shade Sails designs the sail or project with multiple sails, and the software provides the square footage and a mock-up of what it looks like for the customer. Then she enters the design information and measurements into an Excel spreadsheet. It crunches the job details for fabric, corners and hardware, shipping, contractors, and related expenses, combining them at the end for the estimate.
“I was blessed with a woman coming into my life who is an Excel wizard,” she explains. “She put together an estimating Excel sheet for me that I can input the job’s numbers and it figures out the cost based on the supplier’s price sheet, taxes, and then [it adds] a sliding scale operating expense of 20%–30%. I mean, it’s saved my life.”
Tad Hendrickson is a freelance writer who lives in Minneapolis.
SIDEBAR: The price is right?
Chris Swanson, co-founder of Garage Starts, says that too many businesses are hurt by pricing issues. Whether it is the cost of goods sold (COGS) or the cost of services sold (COSS), he’s watched companies go out of business because they didn’t price properly.
“They’ll price a product just kind of guessing and pulling a number out of the air,” he says. “They’ll do it based on what they’ve seen on the internet or maybe somebody that they think is competition or just a guess on a number.”
Even if business owners get the number right at first, they need to adjust over time as COGS or COSS changes. Still, they often resist the need to raise prices.
“If you talk to CEOs, they’ll tell you that changing prices or increasing prices on a customer is one of the most fearful things they can do,” he explains. “It’s because they feel like they’re going to lose customers by doing that. Going up or down, if you’re not carefully monitoring that—and I run into this a lot with businesses, especially small and growing businesses—you can quickly go out of business.”
Swanson found, over and over, that being fair and raising the price can be a positive. As long as the owner communicates the reason for the increase, the client will typically understand or even become more invested.
“I don’t know if it’s a psychology or what,” he adds, “but if you raise prices on that person, there’s more value there, and you can actually get a better client relationship.”
SIDEBAR: Common reasons for underbidding
Low estimates happen for several reasons, but the issue generally comes down to the bidder inaccurately calculating the cost into the job, including:
• Work requiring more labor hours than expected
• Shipping and transportation logistics not going as planned
• Raw materials going up in price
• Changes in regulations or laws
• Profit margins being inadequate
• Small business owners not paying themselves for the other jobs they do that aren’t directly related to the job on which they bid