How to price a job is a common puzzle for new business owners. Too high and you won’t get the business. Too low and you are doing yourself. So how to get it right? For the services industry a key component is fully understanding your employee costs and adding a decent markup. This is an area where people get it wrong time after time. So let’s get it right starting now!

 What information do we need?

• 1. Employee gross wage, including PAYE and PRSI
• 2. Employer’s PRSI
• 3. Employer’s Pension contribution
• 4. Holidays
• 5. Paid sick days
• 6. Paid training days
• 7. Training costs
• 8. Uniform / Equipment costs

 So now we add up the costs like this:

Gross weekly wage plus employers PRSI plus Employer’s pension contribution

Multiply that by 52 for the base annual cost.

Add in the annual training costs and uniform and equipment costs.

Now we do the days: 

First figure out the number of working days you are paying your employee for. This is generally 52*5=260.

Next, figure out the actual days they will be working. Subtract 20 days statutory holidays and 9 days bank holidays at a minimum. You cannot escape those.

Will you be paying them for training days or sick days? If so, subtract them also.

So now take your annual cost as figured out above, and divide it by the annual working days.

This is now your break even cost for your employee to which you need to add a percentage to in order to make a profit. Got it?

Example:

Single guy Gross wage 573.70 (net wage 500 into his hand) per week.

Employers PRSI = 91.01 per week.

Total weekly cost to employer = 635.37

Annual employer cost 33039.24 for 260 paid days.

Divide 33039.24 by number of actual working days (260-20-9=231) = 143.03

So your actual employee cost is 143.03 per working day. This is what you have to keep in mind when pricing your jobs.

This example is a minimum example with no training days, sick days or employers pension contribution or training costs.

Bad example 

I have seen people say, I am paying the young fella 100 a day into his hand and I will charge him out at 150.

This gives the sum total of 6.97 gross profit per day on young fella assuming he is gainfully employed every day. 

This normally happens when people leave the payroll up to their accountants and do not know until years end what the costs were so they do not have the information to do proper job costing.

Don’t get caught. Figure it out yourself first, before handing over to someone else.

Download an Irish payroll package, from www.collsoft.ie or www.payback.ie , it’s very simple.

This entry was posted on Tuesday, May 6th, 2008 at 4:46 pm and is filed under Financial Control. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.