Lesson 15-- Updating Prices

This lesson explains how to keep your estimating and inventory prices up-to-date in Goldenseal construction estimating software.

When to Update Prices

Update prices when you have spare time, when prices change dramatically, or when you need to include something brand new in an Estimate or Sale.

Inflation Adjustments

If you are using prices that are not current, you can add a quick inflation adjustment to your estimates. To do so, follow these steps:

Open an estimate with a item breakdown.
Click in the bottom row, and hit the Return key to add a new row.
Click in the Cost Area cell, and enter Percent of Hard, Percent of Labor or Percent of Materials.
Click in the Cost Item cell, and label the item "inflation" or something similar.
Click in the Quantity cell, and type in a percentage adjustment.

Updating Labor Prices

Most Assemblies include some labor components. When wage rates, employer tax rates or payroll insurance rates change, follow these steps:

Choose Cost Items from the Costs menu.
Locate items that have Labor for a cost area. HINT: You can use the Find command to quickly locate all labor items.
Calculate the net cost of this type of labor.
Enter the new rate into the Purchase Price field.
Hit the Enter key to close the transaction. Goldenseal will automatically update all Assemblies that use this labor rate.
Repeat steps 3 to 5 for each labor cost that has changed.

NOTE: When you change labor prices, Goldenseal will not update estimates that you have already started. If you want to use current prices in an existing estimate, open it and click the Update Prices button.

Net Cost of Labor

When you calculate labor costs, start with an "average" wage rate for an employee or subcontractor who does that type of work. You can use local "prevailing wage" figures, or take an average of your employee wage rates for a particular type of work, or estimate the average wage rate with some other method.

The net cost of labor is the wage rate plus any employer costs that are based on payroll (sometimes known as "burden"). You can calculate that from the actual taxes, insurance and benefits that you pay.

For example, in the US you might use the following calculation:

Start with the average wage rate-- say $10.00 per hour.
Add paid holidays-- 6 days / 180 days worked, or .33
Add paid vacations-- 10 days / 180 days worked, or .56
Add the three numbers above to get the net wage per hour actually worked-- $10.89

Once you have a net wage, add employer taxes and employer benefit expenses to get the total cost of labor. For example:

Add the employer portion of FICA-- currently 7.65%, or $.83
Add state unemployment tax (SUTA)-- 3%, or $.33
Add federal unemployment tax (FUTA)-- .8%, or $.09
Add worker's comp-- 12%, or $1.31
Add disability insurance-- 1/2%, or .$05
Add health insurance-- $350 per month / 150 hours worked per month, or $2.33
Net cost of labor is the net wage plus 'burden' = $15.83

HINT: Your rates will probably be different for SUTA, worker's comp and disability insurance. Tax rates may change with time. Your location may have other employer taxes, and you may need to include other benefits.

You can also include overhead costs per labor hour, to cover supervision or payroll labor. Or you can leave them out of the labor rate and cover those overhead costs via markup or some other method.

HINT: Set up a spreadsheet with your calculations. That way you can check your figures more easily, and it will be less trouble to do the computation again, the next time taxes or wage rates change.

Updating Material Prices

You can update material costs automatically by entering Material Purchases for the materials you buy, and using an Item breakdown for them. Goldenseal will update the price of the listed materials, and also use the figures for accounts payable, inventory tracking and time and materials billing.

You can also enter price quotes, whether you use the full Goldenseal or just the estimating version. To do so, first set up material accounts, as follows:

Choose Material Suppliers from the Accounts menu.
Click the New button.
Enter details for one of your material suppliers.
Repeat steps 2 and 3 for each supplier who gives you price quotes.

Next, enter prices from each supplier, as follows:

Choose Material Purchases from the Costs menu.
Click the New button.
Enter Pricing Only into the Status field on the left side of the window.
Enter Items into the Breakdown field on the left side of the window.
Enter the supplier who is giving you the price quote.
Click in the first row of the breakdown table, and enter prices for one item.
Hit the Return key, and enter additional prices.

NOTE: When you change material prices, Goldenseal will not update estimates that you have already started. If you want to use current prices in an existing estimate, open it and click the Update Prices button.

Updating Cost Items

To set the way a Cost Item updates, follow these steps:

Choose Cost Items from the Costs menu.
Find the desired Cost Item.
Enter a method into the Pricing Method field. You can use the most recent price, or an average price. You can also type a price in directly, and not use purchases at all.

Calibrating Unit Prices

If your business depends on cost estimates, then you probably want them to be accurate. Here are some ways you can make that happen, both when you first start out with Goldenseal, and as you use the program over the years.

Trial Estimates

If you've never used Goldenseal before, start out by making a 'trial' estimate on a project that you've completed that has accurate job cost data. If you don't have good job cost data for any projects, you might want to pick one or two of them, and enter expenses for them into Goldenseal so you know what the actual costs were.

When you make a trial estimate, the goal is to get it to hit actual costs 'on the nose'. You can do that be adjusting unit costs, or by figuring a 'fudge factor' that you enter as a quick adjustment percentage.

You may even want to make several trial estimates. It's a good way to get familiar with Goldenseal, and also get familiar with the unit costs.

If you haven't completed any projects or don't have accurate job cost data, you can still calibrate prices by comparing a Goldenseal estimate with an estimate that you prepare by hand. Use whatever method you've used for past estimates, and take extra time to make sure it is complete and accurate, so Goldenseal will start out more accurate too.

Job Cost Feedback

It's a very good idea to track expenses on all of your projects, so you can see how accurate each estimate turns out to be. The Job Costs command compare 'estimated versus actual', so it is easy to get that feedback.

When each project is complete, take a look at each general cost category, and check how actual costs compared to the original estimate.

For those categories that are significantly off, it's a good idea to double-check the actual expense records, to make sure there wasn't a mistake. If the data is good, then adjust the Cost Items and Assemblies that you used for the project so they are closer to the correct amount.

Individual projects sometimes have 'quirks', so it's a good idea to track costs on every project you do. That way over time you can perfect your costs and get very accurate estimates. Turtle Creek Construction was able to consistently bid within 2% of actual costs after we computerized, and many users of our software have reported similar accuracy. Bidding is more fun when it's not a gamble!

Changing Assemblies

If an assembly is not giving you accurate estimates, you can adjust it in several different ways:

If the overall quantity is off, change the Suggested Quantity for the item, or change the way the dimension is calculated.
If material costs are off, change the waste factor for some components, change the quantities of the material components, or change the specific components that are included in the Assembly.
If labor costs are off, change the number of person-hours.
If you are using an Assembly to estimate work done by a subcontractor, you can adjust either the labor components, the material components, or both. You don't need to know exact details of what the subcontractor uses-- just get the cost of the 'trial estimate' to match what the subcontractor actually charged you.

Adding Assemblies

Sometimes an estimate is off because you didn't include the correct items in the original estimate. The best way to fix that is to set up templates for your most common types of work (see Lesson 24).

As you finish each project, check the actual expenses against the original estimate. If you need to change items in the estimate to make it more accurate, also change them in the template. That way your future estimates will include the correct items.

Templates are a good way to store the 'business smarts' of your business. That way you won't have to think so hard when you make estimates, and you'll be more likely to include just what you need.

Adjusting Overhead

The full version of Goldenseal lets you track overhead expenses. You can recoup those expenses via markup, or you can add an overhead line item to estimates.

Updating Estimates

When you change prices, Goldenseal does not update estimates that you have already started.

To update prices in an existing estimate, follow these steps:

Choose Estimates from the Income menu.
Find the desired estimate.
Click the Update Prices button.

Finishing Up

You now know how to keep prices accurate in the Goldenseal inventory management software.

Have you ever considered using the futures markets to hedge your pricing on upcoming purchases?

The Chicago Ornamentals Exchange allows you to 'lock in' prices for future deliveries of lawn flamingos, gargoyles, gnomes and other landscaping essentials. With luck, your investment in 1000 brass gargoyles for December delivery may appreciate handsomely, and allow you to sell out at a profit. If not, you can probably swap them for 1000 pork bellies, and at least have a barbecue.