Quote a fixed price when you can see the whole job, you have done it many times, and the customer can describe the finish they want. Quote by the hour, with an estimate and a point where you stop and ask, when the size of the job depends on what you find once you start. Most real jobs are a mix, and the best quote is often fixed for the part you can see and hourly for the part you cannot. Underneath the choice is one question: who carries the risk of the job taking longer than expected? With a fixed price you do. With an hourly rate the customer does. Either is fine, as long as you choose on purpose and price the risk you take on.
The three-question test
Before you price anything, ask three things about the job.
- Can I see all of it? Work behind a wall, under a floor, inside a switchboard or below the ground fails this test.
- Have I done this exact job often enough to know how long it takes? Ten times is a reasonable bar. Twice is not.
- Can the customer tell me what finished looks like? "Hang five doors with the hardware supplied" passes. "Make the verandah safe" does not.
Three yeses: quote a fixed price. A no to the first question: quote fixed for what you can see and hourly for the rest, or put the unknown part in as a provisional sum. A no to the second: quote fixed if you must, but with a bigger allowance for the unknown, and start timing yourself. A no to the third: pin the finish down before you price, because no rate saves a job with no definition of done.
Turning an hourly estimate into a fixed price
A fixed price is an hourly estimate with the risk priced in. Build it in four steps.
- Estimate the hours honestly, from how long the job took you last time, not how long it should take. Include set-up, the trip to the supplier and the clean-up, which are the hours most often left out.
- Add an allowance for the unexpected, sized to how well you know the job. Something you do every week might need 5 to 10 per cent. Something with a few unknowns might need 15 to 20. If you find yourself wanting more than about 25 per cent, the job is telling you it should not be fixed.
- Price the hours at your normal rate, and add materials with your usual markup as their own lines.
- Round the total to a figure that reads cleanly.
The allowance is not padding. On the jobs that go well, it is margin. On the jobs that go badly, it is what stops you working for free.
Quoting by the hour without frightening the customer
An hourly rate on its own makes customers nervous, because they cannot see the bottom of it. Four things fix that. Give a range of hours you expect, and the dollar range that goes with it. Say what increment you charge in, such as the quarter or half hour. Show materials separately, at cost plus a stated markup. And name a ceiling: "we will stop and call you before the labour passes $600". The ceiling is the single most reassuring sentence you can put on an hourly quote, and it costs you nothing, because you would want to call at that point anyway.
A worked example
Thornbill Carpentry is a fictional sole trader charging $98 an hour. Two enquiries arrive in the same week.
The first is five internal doors to hang in a new extension, with the builder supplying the doors and hardware. Thornbill has hung hundreds. Over the last few jobs it has averaged an hour and a quarter per door, plus an hour to set up and clean up, which is 7.25 hours. Adding a 10 per cent allowance makes it 7.975 hours, and at $98 an hour that is $781.55. The quote goes out at a fixed $790. If the doors go in quickly, the extra is margin; if one frame is out of square, the allowance covers it.
The second is a verandah with soft boards. Twelve boards are visibly rotten, but nobody can say what the joists underneath look like until the boards are up. So the quote is split.
- Remove and replace 12 decking boards, labour, fixed: 5 hours at $98, $490
- Decking timber, 12 lengths at $31: $372
- Joist repair if needed: charged at $98 an hour, estimated 3 to 6 hours, $294 to $588, plus timber at cost plus 15 per cent
The fixed part is $862. With the joists, the job will land between $1,156 and $1,450 plus any joist timber, and the note says Thornbill will stop and ring the owner before the joist labour passes 6 hours. The owner knows the floor and the ceiling of the job before saying yes, and Thornbill is not gambling on what is under the boards.
If you build quotes in Quote Desk, quantities are whole numbers, so put a half-hour labour item on your price list at $49 for the odd half hour; the help article on quantities shows how.
Check your estimates against the clock
Fixed pricing only pays if your estimates are right on average, and the only way to know is to record the hours each fixed job actually took. A notebook in the ute is enough: job, hours quoted, hours worked.
Say that over a month Thornbill quotes ten fixed-price jobs totalling 62 hours and works 71. That is 9 hours over, about 14.5 per cent, or $882 of labour at $98 that nobody paid for. Either the estimates are light for those kinds of job, or the allowance is too small, or both. The fix is in the price list, not in working faster: lift the hours for the jobs that ran over, and leave alone the ones that came in on time. Two or three months of this and your fixed prices stop being guesses. The guide on pricing a job so the quote is accepted covers the hourly rate itself.
Mistakes to avoid
- Fixing a price on work you cannot see because the customer wants a firm number. Give them a firm number for what you can see and a firm rate for the rest.
- Leaving the travel, set-up and clean-up out of the estimate. Those hours are real, and on small jobs they can be half the time.
- Quoting hourly with no range and no ceiling. The customer imagines the worst, and some will choose a dearer fixed price just to avoid the uncertainty.
- Absorbing overruns quietly, job after job, without changing the price list. One bad job is bad luck; the same overrun three times is a pricing error.
- Mixing the two without saying which is which. Label the fixed lines and the hourly lines clearly, so the customer knows which numbers can move.
What to do this week
- Run the three-question test on the next five enquiries before you price them.
- Write a ceiling sentence for your hourly quotes and use it every time.
- Start recording hours quoted against hours worked on every fixed-price job.
- Pick the job you quote most often and work out your real average time from the last few you did.
- Add a half-hour labour item to your price list so odd times are never rounded in the customer's favour.