Last month I received a phone call from a very worried contractor. His sales are down more than 30% from this same time last year, he doesn't think that's going to get better soon, and he thinks he's losing work because many of his bids are priced high. "What do I do," he asked, "just cut my prices to get work?"

My answer was, "Maybe!" After talking with him about his overall pricing strategies, it didn't take long for me to realize he had no strategy about pricing. He had made an Executive Decision last winter that he wasn't making enough money, so this year he would price his work not at a 1.4 Mark-up Value but a 1.9 factor.

Now, I have no earthly idea why he jumped from a 1.4 to 1.9 factor, but his move nonetheless was proving disastrous. Unfortunately, this strategy to increase Mark-up Value is all too common among U.S. contractors, and many contractors, including some successful in spite of themselves, have no strategy! Here are some thoughts to help you avoid what my contractor friend all too clearly experienced: a pricing disaster!

First of all, a Mark-up Value represents what we basically add to estimated costs, including overhead, to complete a job. And if we want to make a particular profit for each project this too must be considered and added to the estimate.

If a contractor's overhead represents 30% of annual expenses then a ".3" must be added to the Mark-up Value. Therefore a Mark-up Value of "1.3" would represent what a contractor would need to make in order to cover overhead of about 30%.