ESTIMATING: Do you WAG, SWAG or use a Stick?

Originally published by Cast Polymer Connection, Fall 2017.

In so many small businesses goods and services are priced based on guesswork – WAG method (the Wild Ass Guess) or add just a few numbers for SWAG (a Scientific Wild Ass Guess). Perhaps you use the STICK method where every stick and nail is costed out? Why don’t they work – and why do the always result in C minus profits?

WAG is an experience based method for pricing where trial and costly errors have already taken place. The assumption is that if for the past ten years, it has cost $5000 to renovate a bathroom and presumably it will always cost $5000 to renovate a bathroom. Faced with creeping labour costs or perhaps sudden spikes in the price of plumbing fixtures, this method is frequently unable to change. Faced with a new competitor in the market who is willing to undertake the same bathroom renovation for $3500, the WAG method practitioner doesn’t know what to do. There is simply too much information that must be kept in the estimator’s head to stay current and remain competitive yet profitable. Worse yet, estimators are human and tend to respond to the last comment they had from a customer. If that comment was a customer saying the price was too high, then the price on the next job will drop. If the business owner is also the estimator, then the price can reflect not value to the customer or even costs, but the threadbare state of the bank account at the time.  Sound familiar?

SWAG method, as the name implies, has some numbers to back up the experience based approach. “OK, so that job will take 4 men 5 days to complete and I pay them $20 per hour. With labour cost at $3200 I then add $3200 for materials and then $3200 for profit, that should be about it.” This rough and ready method does not take into account travel time, overhead and management costs, payroll taxes nor a fudge factor in case things go wrong. This job might actually lose money.

The STICK method is the name given to the clumsy and time consuming method of working out the costs of each and every nail, foot of strapping, 2” by 4”, pot of paint and labour to the nearest 15 minutes to arrive at a total cost. It is very time consuming. In fact, the typical delay from computer bashing can often be the deciding factor in whether or not your company gets that job.

STICK is, in fact, an adaptation of industrial manufacturing cost accounting methods to service providers and custom builders. I have seen some very elaborate spreadsheets meant to cope with the vast amount of information. The advantage to this method, having gone to the trouble of detailing every aspect of this “virtual build” is that, if and when the customer says “Okay”, you have a bill of materials and a plan for the carpenters.

The disadvantage is that, having committed so much time and effort to the quote, the price is not easily altered to reflect customer expectations. In other words, if the quote is $7000 and the customer’s budget does not extend beyond $5000, you cannot easily   find the savings to meet the value expectation. There is simply too much information on the table to alter the quote quickly. The only line item that can easily be altered is the bottom line and doing so may mean the job makes no money. What a dilemma!

What to do? Estimating Solutions

Estimating software

Increasingly there are industry related packages for estimators. Many of them utilize the power of computers and spreadsheets to manipulate large quantities of information without error. This is the STICK method on amphetamines.

The best place to look for software packages is in trade magazines and other publications. If you choose this approach to estimating systematically and correctly, it is always good practice to have a test run of the software: entering data from an existing quote to see if the numbers work. If the software is truly sophisticated, then it will also create a bill of materials for your purchaser, saving you hours of time.

Estimating books – OEM and industry service providers

Significantly, there are companies that provide estimating in a more packaged form that quickly get to the final number. The one with which I have a working familiarity (Walt Stoeppelwerth  Estimator Books and Software. Home Tech. is focused on the construction trades. They have created formulae into which you plug the square feet, height over normal, number of windows and/or doors and economy, medium or fancy outcome. In a few minutes out pops a number which is then multiplied against a regional factor to arrive at a selling price. They keep track of cost differentials through regional surveys which become a factor number that you plug in to give a final price.

Similarly, the auto body industry gets from the manufacturer, books specifying how long it will take for a fender to be straightened or a side panel to be hammered out. From this it is easy to determine what your costs are going to be and to apply a markup factor. Typically, the auto body people use this information to apply standard rates and then encourage their technicians to improve upon those numbers. If they accomplish in 24 hours what the book says will take 32 hours, the price does not change but the costs do, throughput increases and everyone wins.

D.I.Y. estimating

You can Do It Yourself. If the industry you serve has no package to offer you, you can create an estimator package to standardize your costs as follows:

  1. First list all of the steps in the information gathering stage. What types of material, size, finish, and availability? List all the extras. What does your customer expect?
  2. Then list how you currently price jobs focusing on the commonly deployed steps that must be taken. Do you always begin with a site visit? Do the raw materials always have to be sandblasted first?
  3. Apply costs to each step.
  4. Apply your markup factor to get to a selling price.
  5. And now the most important step – the virtual trial run. Review using some previous jobs that worked out well and where you made money. Punch in all those numbers


All these steps would be taken by a software developer and can be incorporated into a spreadsheet programme.

With more tinkering and constant upgrades the above can be made into a comprehensive price list that covers the basics and some of the eventualities.


You will have recognized in the above example that you are looking at a variation on cost plus mark-up, pricing. Estimating software can deliver consistent if unexciting profits because the costs are known unlike WAG and SWAG.

But it leaves money on the table.

Why? Because we have lost sight of the customer in this equation by focusing on costs.

Your customer has called you to solve a problem for them. Do they want flashy but inexpensive countertops because they are putting the house on the market? Do they need new countertops because they cook regularly and have scarred the old surfaces? Are you going to build a price for these two types of customers based on cost structure alone? Just like you, all customers are not equal in expectations or ability to pay. If they were, no one would buy Rolex watches or Mercedes cars.

The answer is to value price for your customer. This is a pricing strategy and by working hand in hand with your costing solutions will be the key to improved profits.

By definition 50% of businesses in your industry are below average. The point in having a solid grasp of costs is to get everyone to the baseline. But to soar above that you need a pricing strategy that focuses on value to the buyer.


CHASING DUCKSWhen businessmen tell me that being low priced is the only way to stay in business, I am sceptical. Price is the simplest way for a consumer to compare and is overused as the basis for a decision to buy. Price noise is the screaming toddler in the room- demanding excessive attention relative to importance. And most businessmen pay excessive attention.

In the July 2015 edition of the Business Examiner, the owners of Command Industries admit their shock after quizzing their customers. A mentor had suggested that they speak directly with their top customers and ask them, why do you buy from Command? “I was sure the answers were going to be pricing related and focused on comparing costs with our competitors. “said Rob Woudwijk. “But the results of those conversations shocked me. It was never about the money. Instead they talked about the way we communicated with them, the level of transparency and honesty we have as a company and our problem solving mentality”.

Would price have figured in the equation at any time? Of course, but it looks like price was further down the list than they believed. In a study reported by Right Technologies by Bob Thompson called the Loyalty Connection, price features lowest as the reason that customers stop dealing with a company. In his analysis, customers leave almost 75% of the time due to customer service problems while owners see that as being important in only 22% of the cases. Quality is seen by customers as an issue fully 32% of the time while owners rank quality as the suspect only 18% of the time. It appears that staff indifference is a greater cause of losing customers than doing a bad job.

Similarly, price was ranked by owners as the number one issue at 45% of the time while customers felt price was important only 25% of the time.

And what about employees? Do they value their pay cheque more than a great boss or satisfying work?

Does Money Really Affect Motivation? A Review of the Research

In “Does Money Really Affect Motivation? A Review of the Research” by T. Chamorro-Premuzic published in the Harvard Business Review, the authors reviewed 120 years of research to synthesize the findings from 92 quantitative studies. The combined dataset included over 15,000 individuals and 115 correlation coefficients. In the study there is a weak, almost negligible correlation between pay and happiness and so they conclude that money is a weak motivator.


So, where does this leave the average business owner? To focus exclusively on price differentiators is evidently NOT the answer. My dog swims with determination after ducks, but she never catches one. Being cheapest in the market place leads in only one direction – the dumbest competitor will win. And after the ducks have flown, those left standing.. er, swimming.. will have the best employees, happiest bankers, most motivated bosses and HIGHER prices. Where do you want to be?

What I learned in China #2

snakes and ladders

As per my previous article on my visit to China, we have much to learn about and from their people. It is potentially the largest market on earth with 1.3 billion people in one country but much will depend upon the growth of a large and wealthy middle class. Wealth is not evenly distributed in China. Its economy is still only 20% the size of the United States. Our newspapers report a slowdown in China’s economy but it is just decelerating and not growing as fast. Wages and prices are rising fast in China and the smart ones are looking for better business models. The people I met are concerned about the slowdown and perhaps an opportunity for Canada has presented itself.

But first, we as Canadians must know how we can fit in.  I discovered that they have an interesting viewpoint on Canada. The Chinese people I met know little about our huge country. Many were astonished when I told them our entire population was smaller than some of their cities. I took a map of BC with me and they all pored over it, expressing surprise that the population was so small, so thinly distributed and empty in the North Country.

And they like Canadians. They think Canada is boring, lazy but safe; a stable supplier and a people to be trusted. Above all, we are not Americans.

Much of what we have, the Chinese would like to have for themselves. Food safety is an issue in China. Our food quality is highly is regarded. One visitor to Kelowna told me that there is bakery in Hong Kong that proudly announces that all their goods are baked with Canadian flour.

But what the Chinese people do not understand yet is that we can be a conduit to the US and Europe for their goods. The two largest markets today are Europe and the US. Canada has good trading relations and a free trade arrangement with both. We understand the business climate in both our trading partners. We speak the language and share a culture. The Chinese do not.

Can we use this knowledge to build businesses in Canada? We can become the conduit to both markets, working our magic as a multicultural country, encouraging immigrants and wanting to rely less upon America. We have systems in place that work and guarantee the quality of the end product whether it is animals or crops, intellectual property or machined goods. Our federal government is working to improve our trade relations and Mr. Harper’s last trip was to establish a  framework for Canada to become one of the few places on the planet (London and Singapore are among them) where Chinese yuan can be converted without using US dollars as the standard.

We are at the starting square in a game of snakes and ladders. Put on your thinking caps and start learning about China. The path can be a slippery slope or just a missed opportunity. The better way is up. The next few years are going to be truly interesting for those who embrace the opportunity.


china 1I will never be an expert on China. It is just too big, too complex and too old with layers of history and meaning that would take several lifetimes to unravel. As I said to my hosts, China, driven by it huge population builds big – Big airports, Big train terminals. Big road systems. Big apartment blocks. And yet you drink tea from cups the size of thimbles.

Because of the gigantic size of their market, many companies can specialise. I drove down 15 miles of road entirely devoted to furniture stores. We crossed over to the shoe district and then to the leather district. We visited a factory producing water based ink on his 10 acre site and a factory devoted only to embossing paper. On my last day, I found myself in a square mile of narrow alleyways devoted to wedding dresses and tuxedos in a quest for that right little number for my wife. In driving around, however, I was most shocked by the sight of a small shop of perhaps 500 sq. feet that sold only electric drills. In our micro market, where everyone has to be everything, all the time, it was refreshing to see a different and profitable business approach.

It reminded me of research on the US I did years ago where I found an obscure town in Nevada, I think, that produced most of the rubber pipe used in the US. The United States has a gigantic market and efficient distribution system (read road, rail and air) whereby it is possible to dominate a market and yet not be at the centre of it. Think of what we could do better with NAFTA which is in explicably underexploited by us.

How could we emulate the success of China? We have cheap power, high labour costs and some cheap raw materials. We are shipping raw goods to China. The successful Chinese manufacturers in turn buy German and Japanese equipment to operate lights out facilities and then ship back to us.  Is there a model there? Do we need ore entrepreneurs and highly skilled labour?

But China has entered a sluggish period and that is forcing a change that will have long term benefits. The old style entrepreneurs sold on price alone. Many have not found a way to break that mould. But a few have gone to the quality end of the spectrum. This is especially valuable in meeting the demands from BC over the next 10 years for the rapid development of the energy and minerals sector. I visited 2 vocational schools there that churn out 3000 CNC machine operators a year, that train 300 baristas a year – for the skyrocketing coffee culture in China. And the emphasis was on a quality product, customer service and cleanliness that would put to shame huge swathes of business in British Columbia.

China has lessons and opportunities for us. We need just to listen and pay attention – then act.

How to Borrow Money and Build Your Business

borrowing cash to save your business.

Turn your business around with the right borrowing strategy

The bank manager just phoned and asked for full and immediate repayment of the line of credit because the latest, (and they were late!), financial statements showed continuing losses and falling sales. The company’s assets are eroding fast and the bank wants its money back while it can.

Now you need to find money. How will you do that?

The following 5 points illustrate what a potential lender sees and how to improve your chances.

You are one of thousands lining up at his door to ask for money for your faltering business. So you must stand out. Lenders do not share your enthusiasm for your business. Every borrower makes unbelievable promises just to get that much needed cheque. The business owner has doubtful credibility because the business is in trouble and the owner is always to blame.

  1. You need a plan.  A written business plan, in order to be believable. You will need a business plan of at least 25 pages detailing your entire idea of how you will make the business work again. No false promises please – no lender will be interested in profit or sales claims that cannot be proven.

Lenders have no interest in a plan that merely returns a business to “normal”. Normal led to trouble once and now a radical change is needed.

The best radical change will be to illustrate a way to improve the business by a multiple (2 times or 3 times) and not a percentage.

  1. Business Turnaround – If you can turnaround your business, what is the big upside that shows a substantial increase in profits?  Will it result in more cash, more assets, no debt? How long will it take?

If the lender hands over a cheque:

  • How will you spend it?
  •  Will you take the cash and run?
  • Will you repay your mother-in-law’s loan?
  • Will the money be spent on things that will have an immediate return on the investment?
  • Or are you asking the lender to share in the risk and debt?
  1. Detail the use of the funds. Are you buying newer machinery? Investing in a new product line? Lenders have no interest in buying other people’s debt, so the debt will remain.

Handing over a cheque is not the problem for a lender. After all, their purpose is to get money out and working.

  • But how will they get the money back?
  •  Have you ever given credit (or made a cash loan) to someone and had load of trouble getting it back, writing off the interest in the end and feeling thankful that you got the original money back?
  1. Detail the exit for your lender. Give short time lines of under 3 years for return of capital. If you expect your lender to act like a bank and stay with you with lines of credit for the next 48 years, then go to a bank. Other lenders need to know how and when they will get their money back.
  • The lender wants to know what you are offering in return for the loan.
  • How is it secured?
  • Your home?
  • Shares in a stumbling  company?
  • Are you willing to give up control for a period of time?
  1. Be prepared and realistic in your offer to lenders.   Detail the security offered and what the asset is worth today and will be worth in 3 years.

There are no guarantees in the lending world that your request will meet with success. If you have by luck chosen a lender who understands your industry and you have a believable plan, you might just leave with a cheque.

At Floodlight Business Solutions we understand what it takes to convince a lender. Have you got a decent business that is in temporary trouble?

Give us a call to discuss your business turnaround strategies and we can help you Build Your Business.

Article written by Andrew Gregson and Donald Robichaud

What is The Big Decision for your Business?

CBC has recently launched a brand new show The Big Decision which is a spinoff of  The Dragon’s Den.

What we like about the show is the substantive business acumen that can be derived from the show.

Canadian business owner’s can actually learn something about the running of a business and get a handle on how business investors think without the theatrics of The Dragons Den. (I am sure some businesses are chosen on the Dragons Den because it makes good television and not necessarily a good business idea)

The candidate’s on CBC’s The Big Decision program have to date; been well vetted and weekly they bring the different struggles of running a business in Canada to the forefront.

The present format has Arlene Dickerson and Jim Treliving alternate weekly, with both having the opportunity to invest in the companies that they are examining. All companies are given specific direction and have approximately 2 to 3 weeks to accomplish the tasks.

The format of the show is as follows:

Each 1-hour episode of The Big Decision documents two Canadian businesses desperately in need of expert advice and a cash injection. With the banks calling in their loans and financiers tightening their wallets, Jim and Arlene are their last hope.

If the companies can rise to the challenge of changing their ways, they could be given a life-changing investment from two of the most revered business leaders in the country. At the conclusion of each episode, Jim and Arlene have to decide whether they’ll invest in one, neither or both of the companies vying for their cash. 

So let’s examine week 3 episode:

Jim Treliving has very considerable business skills,   and an ability to get to the heart of business problem in very short order. On CBC’s Big Decision, Treliving met with a brewery in Aldergrove BC., and a manufacturer of screws and bolts in Winnipeg, Manitoba.

Overview: Dead Frog Brewery – Independent Brewery

Jim chose to invest in the brewery because he could roll in some financial controls very easily and the owners still had a passion for the business.

They needed sales help – the NEW campaign they designed was innovative but amateurish. They responded well to Jim asking for reduction in the number of labels they manufactured from 10 to 6 (Like a sample 6 pack …no charge for the marketing idea!!!).

Their 10 lines of beer surely contributed to the quality control problems that bedeviled the small brewery and quickly they made an effort to make their production line more efficient by eliminating unnecessary product movement and by making the line flow naturally and smoothly from vat to door.

The absence of good financial information and a business plan were exactly the things that Treliving could bring to the table and make the company perform well so he decided to invest.

Overview: Westland Steel – manufactures screws and bolts

The fastener company on the other hand could have been salvaged but only by an injection of very hard work. After Treliving asked his questions and poked around the plant, the plant managers tinkered with the sales incentives. But the sales people had just gone on record as saying they had nothing to sell. They didn’t have the cash or credit to buy the raw materials for their orders.

Jim sensed the company’s lack of direction. The complete absence of leadership from anyone in the plant, the deadness behind the eyes of management and the energy to find to find a solution was missing. Jim knew that. To save the company he would have to drop in tons of cash and parachute a new General Manager into the building with a remit to overhaul the company from top to bottom. That would have taken months and perhaps years.

Further, the state of the company’s finances would have meant a partial receivership (a Chapter 11 in US speak) in order to buy time to re-arrange the finances and seek accommodation with suppliers and landlords. . At the very least Jim’s money would have had to finance the purchase of raw material.

What intrigued me about the fastener company is that in spite of the huge slowdown, nothing for the salespeople to sell, and no plan, they still had revenues of $200,000 per month. With that kind of revenue most companies are salvageable. With that kind of revenue, jobs could have been saved. It would have been a long turnaround project with some pain all around but do-able.


At the fastener plant, there could have been the satisfaction of seeing the back end of delivery truck shipping to a customer. At the brewery, you could always crack open a beer on a bad day!!!

What is evident so far in the first three episodes this season of The Big Decision is the lack of direction by management for any business plan, sales plan, marketing plan and company direction.

It is very interesting to watch the reaction of business owners when they are asked to do specific tasks by Arlene and Jim.  Some of them cannot take direction and due to their inflated view of themselves lose the opportunity to get investment money and put their whole livelihood at risk.

Jim and Arlene are very successful business people who know how to run successful businesses and they are not willing to put up with people who are not keen to change and grow. A solid business turnaround begins with asking for help.

I highly recommend this show for any business that is looking to expand their knowledge and get great incite to what will help you Build Your Business.

All episodes can be viewed on line – Click here

Article written by Andrew Gregson and Donald Robichaud


In the 1970’s, a Swedish manufacturer of mining equipment, sold worldwide, could not supply a much needed rubber grommet for its hard rock drills. When the situation became desperate, one resourceful area manager went off in search of an adequate replacement, in order to keep the customers’ drills working. After a few enquiries, the area manager was directed to a rubber component manufacturer in Vancouver. When he produced a much worn example of the grommet and asked if they could make this for him, he was astounded to be told that they had, in fact, made the original he had in his hand. He was even more astonished to learn that the over-the-counter retail price to him was less than 10% of the price he would normally have paid the mother company. Based on cost to manufacture, this small item warranted a low price. But in a drilling equipment application the replacement grommet was costly simply because it was a microscopic portion of the total machine price and an even tinier percentage of the dollars per hour lost when the grommet failed and the machine stopped producing. Therefore, the price reflected not a cost to make, but need in that market segment.

A common mistake made by business owners is to assume that their purpose is to set a price for a product rather than for the customer segment. Identical products or services can be sold at many different price and profit levels.

In a current example (2012), the price of rare earth metals has risen as China restricts exports. Niobium is essential in every cell phone on the planet but the sharp rise in price has not had any impact on the price of cell phones. This is because only a ¼ of one cent’s worth of niobium is used in each phone. Sellers of niobium, whose customers manufacture cell phones, have vastly increased prices and profits but the price of cell phones has not risen.

Purchasers can and do evaluate your product or service in terms of reputation, durability, reliability, after-market service, freight costs, installation, inconvenience, and payment terms. Your business and your sales offering, need to address important factors like these, in a way that means something to the customer.  Otherwise price becomes the sole, only and determining factor that makes a customer buy from you instead of the competition.

The following three steps, with accompanying examples, illustrate how to do MISSION IMPOSSIBLE. Every businessman’s dilemma can be overcome using innovative solutions and will result in increased sales, increased profits and more customers.

Analyze your customer and press the hot button

In 1954, DuPont introduced a new polyethylene resin used in pipe manufacture. Until that time, all polyethylene pipes had been made from a by-product of off-grade resin.  While the new pipe   looked exactly like pipe made from off-grade resin, it had a longer life than competitive pipe material and could withstand greater pressure.

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Price, choice and buyer psychology: how understanding these factors can increase your sales.

Price, choice and buyer psychology: how understanding these factors can increase your sales.

In a Ted talk ( a few years ago (, Tipping Point author Malcolm Gladwell spoke about the role of choice in buying decisions. When discussing pasta sauce, the manufacturer wanted originally to know what the customer wanted. From that information they would craft a product to fit customer taste. Was the customer demanding chunky, spicy or smooth pasta sauce? Market research came back with a carefully crafted statistical analysis showing that most people wanted smooth. Gladwell disagreed with the conclusion.

By offering only smooth pasta sauce, they would have missed market niches looking for chunky and spicy with a consequent loss of market share in pasta sauces. So the statistical answer was correct but insufficient for a business decision.

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just fizzy white wine at a price

A business owner must see his business as a daily battle to create differences between his bakery and Billy’s bakery across the street. A victory in this battle means that customers will pay your price for quality, convenience or selection. Defeat means that your customers will reduce everything to the simplest comparable state – apples to apples, loaves to loaves – and dollars per unit. This is how customers will make a buying decision, by boiling choices down to the simplest common denominator- a situation what will certainly occur if you do not strive to offer value and which will result in you dropping your prices to compete.

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Assigning a price to a product is always tricky. But what if the product is illegal and the value subjective? Setting Allison Schrager discusses the matter with a happily self-employed prostitute. “I’ve always wanted my own business,” says Andrea …

Andrea, an attractive, petite red-head, with a warm smile and a degree from a top Canadian university, sits across from me, sipping an herbal tea. She has been working as an independent, high-end prostitute for the last four months.

I ask her how she decided to set her fee, now at $500 per hour.

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