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Elemental Pricing – Benefits and Pitfalls

Hey I was checking a builders work the other day and I realized something – HEAPS of you price elementally when you are working on jobs yourself and you don’t even know it!

That being the case, I thought I’d give you some info about what pricing elementally actually means, when it should be used, and equally when it shouldn’t be used!

Here's a scenario

So basically elemental pricing is when we use built up rates to price a job quickly, and these built up rates might be something along the lines of this;

Brick 90 series external cladding with building paper, H3 90*45 timber framing, R2.8 wall insulation, 10mm plasterboard with level 4 plaster finish and paint to walls.

That’s a pretty hefty description right? So the idea behind that, is you can measure up all the m2 of the external walls and apply whatever number relates to that description and BOOM, you have the $ for that work. Its quick, its not too painful, and it gives you a pretty reasonable value for the work to be completed.

YES. Its awesome. HOWEVER, there are risks you need to be really clear about.

If you happen to miss out an element within your description, and this could happen if you do the calc manually or you use a software (infact softwares can be even more dangerous), then you aren’t just out by a m2 of an item, you are out by an entire job lot. So if you are not 150% confident that you have everything covered, then I’d suggest you at least have someone check it for you. There could be a mistake in that something has been missed entirely, which is really easy to do when pricing this way. Alternatively, all your descriptions may show you have coverage, but the calculation you have used to come up with the rate to begin with is incorrect. So above all else, be careful and utilize peer checking… either internally within your own team, or farm it out to us.

Elemental Pricing traps

The one thing I see builders do with elemental pricing, is they can get caught out using the elemental price value for a fixed price contract. DON’T DO THAT. Elemental pricing is designed to give someone an estimate of cost for works, its usually used at concept stage prior to drawings being fully complete. The margin of error for elemental pricing is GREATER than that of a detailed pricing exercise, so if you are being asked to provide a fixed price, do the work, and count every single nut and bolt, because if you don’t then you are running the risk of having undercooked the dollars.

The other thing an elemental pricing exercise cannot do for you, is provide you with the roadmap I talk about so often….. it’s no good to you to have a document to use onsite that is full of built up rates when you are trying to figure out what your time budget is for putting up the skirting boards. You should know by now your road map is your path to profit, so make sure that you have it!

The only way to get a road map is to have a detailed pricing exercise done… and your clients should be STOKED, because it will make you more efficient on site and more accurate with any variations if you have one.

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