This past month I received a phone call from a very worried contractor. His sales were down by over 30 percent from this same time last year, and he doesn't seem to think that it is going to get any better in the near future. He also shared that he thinks he is losing so many bids because he is higher in price than area competitors. His plea for help was, "What do I do? Just cut my prices to get work?"

My answer in a word was, "Maybe!"

After he picked himself up off the floor of his truck, he composed himself and allowed me to probe about his overall strategies regarding the way he priced his work. It didn't take very long for me to realize that he had no strategy about pricing. He had made an "executive decision" this past winter that he wasn't making enough money so he would immediately begin to price his work not at a 1.4 mark-up value but a 1.9 factor.

I have no idea why he jumped from a 1.4 to 1.9 factor, but his move nonetheless was proving disastrous. This contractor's strategy to increase his mark-up value is unfortunately all too common for many contractors across the United States. Many contractors, and some that are very successful in spite of themselves, have no strategy! Let me share some thoughts that might help you to avoid what my latest contractor friend has all too clearly experienced - a pricing disaster!

First of all, a "mark-up value" (MV) represents what we basically add to our estimated costs to complete a job. If we have determined that we need a particular amount of money to cover our overhead, then this amount must be figured into and added to each job estimate. Additionally, if we want to make a particular amount of profit for each project, this too must be considered and added to the estimate.

Most strategic-minded contractors look at their costs, overhead and desired profit in terms of percentages. If a contractor's overhead represents 30 percent of his or her annual expenses, then a 0.3 MV must be added to the estimate. Therefore, an MV of 1.3 would represent what a contractor would need to make in order to cover his or her overhead of about 30 percent.