Case Study - Pricing Strategy

Housing Business  

The Problem 

This business had a new product offering in the housing industry and quoting systems had been developed in a gradual manner as new projects were taken on. These systems focused primarily around direct material costs, estimates of labour costs and adding expected profit margins. 

The Action 

A new quoting system was established to look at all the costs involved in providing the finished product. This involved:- 

• Reviewing the overhead structure of the business to identify and apportion the costs that were required to support the housing activities. This included facilities, administration support, and equipment. 

• Reviewing labour costs to work out the total cost per 'productive' labour hour. This included allowance for non-productive time, leave and oncosts.  

• Implementing a time tracking system to capture data on building activities and refine rates. 

• Centralising the input of all cost rates into one location to allow consistency across quotes, ease of updating over time and scenario planning.  

The Results 

The new system uncovered that original cost estimates were not sufficient to allow for the full costs of building, and that actual profit margins were not as high as expected. 

By undertaking this exercise early in the process, the owners were able to correct their pricing before too many projects had been undertaken. 

Quotes are now being prepared with confidence, and with the ability to make informed decisions on profit margins and pricing.