Residential Pricing Methods - Gross Profit, Man Day, & Cookbook
Residential add-on or change out is likely the contractor’s most profitable segment. Pricing the installation and sale to consumers is often considered the easiest and the most challenging at the same time based on applications, and areas such as duct modifications or exceptions. We have traditionally used cookbook pricing, based on some method of markup or divisor to create 1-day prices. This method is flawed in many ways though it has some strengths. The improved or better method is to identify your true costs, and assign a gross profit target to cover those overhead costs, and then market price the value of your installation by establishing those tiered gross profit targets by product class. In this manner, all extra labor days or exceptions won’t matter to a salesperson; the company will have the assigned GP target set like a building block to simply add-on. This tool structures that process in an easy to understand and usable tool to create a price book — and the break-even so a contractor knows their costs for certain. We present all methods here but recommend the gross profit per man or crew day system.