Wednesday, February 11, 2009

How to Quote a Side Gig

In life, opportunities will arise to make a few bucks outside of your regular job. Knowing when to jump on these opportunities, and when to pass them up, is an acquired skill like playing cards. Even when you think you have the best hand, you can still lose your shirt if the numbers don't jive.

If you decide to jump on an opportunity, it is essential to at least cover the risk. There is nothing worse than putting in time and effort on a project, and coming out worse than you started. If you need to make a quote on the fly, sometimes I will estimate a price to do a job and then double it. This has worked for me a few time on various jobs, but can also come back to bite you. If you have more time, the following formula is a simple way to provide a quote for a side gig:

|Cost| + Profit = Quote

Anytime you draw up numbers for a potential deal, the very first thing is to estimate how much it is going to cost you. Cost is much more inclusive than most people realize. It is not only the materials like price of paint, brushes and masking tape, when painting a house. It is the gas to get to the job, the opportunity cost of giving up a day at work/weekend, the potential hazard of falling off a ladder, the chance of ruining your clothes, the unforeseen costly problems, and the risk that the person will actually pay you at the end of the job. When I estimate cost I usually add an extra 50% buffer to cover these things. If I think a job will cost $100, I will probably add another $50 just to be safe. (Cost= Materials + Opportunity Cost + Risk + Buffer)

Profit is a term that many people take lightly. They think just by making a large profit margin, it will absorb any over budget expenses. This type of thinking is subliminally ripping yourself off. If the job is more expensive than originally assumed, it should come out of the extra buffer money you set aside in the previous paragraph. The amount of profit should be a static number and should not diminish as the job gets more difficult, that is ridiculous. Deciding on a profit margin is as simple: If you are picking someone up at the airport then the hourly wage is low. If you are Lifting giant stones to construct a large perimeter rock wall, the wage should be high. Leverage is another factor that most people don't take into consideration. If someone is desperately trying to catch a flight and nobody else is around you can charge what ever you like. If you know that people are willing to pay more, you can charge more. Be careful though, If you charge to much, people will take their business elsewhere. In some situations you are helping out friends or doing someone a favor, in which case you may want to discount your price, or not charge them at all. (Profit = Hourly Wage + Leverage - discount)

After you figure out how much to quote for a job, ask your self is this reasonable price? Will the person be offended? What is the lowest I would go in negotiation? Is it even worth my time? If you believe that the price is good, and a deal can be made then present it.

Don't be afraid to negotiate, there is nothing wrong with making money, but there is something wrong with shorting yourself.

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