In the folder with the price list sits a product cost calculation called costing_pergola_2024.xlsx. Materials, workshop hours, installation, overheads, margin. At the bottom, one figure, which became the price list line "Pergola 4 × 3 m". Nobody has opened it since, because the price list works.
The costing is fine. Whoever did it carefully knows where the price comes from, and the price list stands on solid ground. What is not fine is that customers almost never order a 4 × 3 m pergola. They want 6 × 4 m, a darker frame and two ZIP blinds, and their price comes from a price list derived from a different pergola.
Product cost calculation for made-to-order goods uses the same costing formula as series production: materials, labour, overheads and profit. The difference is that with made-to-order products the quantities change with every configuration. So the formula belongs to every quote. Once per model is not enough.
A sheet that was done once
A price list is a simplified costing. In made-to-order work the simplification shows up in these places:
- The whole price list ages at once. Aluminium or an installation hour gets dearer, and the price list goes up by a few percent across the board. The ratio between a small and a large pergola stays the same, even though materials grow with area and delivery does not.
- Small jobs are underpriced. A rate per m² spreads delivery and the installation day over the area of a typical pergola. On a small pergola it does not cover them.
- Large jobs are overpriced. The same rate charges delivery as many times over as the pergola is larger. The customer does not know that, but a competitor with a different rate does.
- Add-ons without their own costing. Someone once guessed the surcharge for a ZIP blind. Whether it covers the motor, the fitting and a second visit, nobody knows any more.
- A discount off an unknown margin. The salesperson gives the customer a bit off. How much margin is left only shows up in the accounts at year end.
Nobody is doing anything wrong here. A price list is meant to simplify the costing, and it does exactly that. With made-to-order products, though, it drifts away over time from what is actually built and installed.
The costing formula: build-up and retrograde
A costing formula is the way cost items are arranged in a calculation. There are two common forms:
- The build-up formula adds items from the bottom. Direct costs, production overheads and administrative and selling overheads give the full cost. Add profit and you have the price.
- The retrograde formula works from the top. It takes the selling price, subtracts discounts and costs, and shows what the product earns.
A made-to-order manufacturer needs both. The build-up formula tells you what a particular pergola should sell for. The retrograde one tells you whether the discount the customer is asking for still pays.
For a made-to-order product the items usually hold the following:
- Direct materials: profiles, louvres, glass, anchors, fixings.
- Direct labour: workshop hours and installation on site.
- Other direct costs: delivery, a crane or scaffolding if the job needs them.
- Production overheads: the workshop, machines, energy.
- Administrative and selling overheads: the office, sales staff, marketing.
- Profit.
The first three items belong to the specific job. Overheads and profit are added by whatever rule the firm chooses, for example as a percentage of direct costs.
Product cost calculation for made-to-order: what changes with the configuration
The formula stays the same. The figures that go into it change.
Materials grow in steps
The width of a pergola sets the number of louvres, the projection sets their length. Above a certain span, another post or a heavier beam is added. So materials grow in steps.
Labour follows the options
A ZIP blind, a motor or lighting add time in the workshop and on site, while the area stays the same. Two pergolas with the same footprint can take very different amounts of work.
Some costs come once per job
Delivery, the installation day and the site survey cost the same for a small pergola as for a large one. On a small job they make up a bigger share of the price. The same effect on fences is covered in Why per-metre fence calculators lie.
Margin belongs to the configuration
If margin is a percentage of cost, it grows with every option. If you want to earn differently on add-ons than on the base, that has to be written down as a rule. The salesperson's memory is not enough.
Example: three pergolas from one price list
Every figure in this example is illustrative. Say the rate in the price list came from costing a 4 × 3 m pergola, overheads are 20% of direct costs and profit is 15% of full cost:
pergola 4 × 3 m (12 m²), the price list's base
materials €2,900
labour €1,100
delivery, installation day €800
overheads 20% €960
full cost €5,760
profit 15% €864
price €6,624
rate €552/m²
pergola 6 × 4 m (24 m²), extra post and beam
price by costing €11,868
price by price list €13,248
pergola 3 × 2.5 m (7.5 m²)
full cost €4,092
price by costing €4,706
price by price list €4,140
The per-m² price list overprices the large pergola by €1,380 and sells the small one at almost no profit: €614 shrinks to €48. The figures are made up; the mechanism is not. In a rate per m², delivery and the installation day get spread over an area the customer never ordered.
What a configurator does
A configurator does not do your accounts. It does what the costing sheet does: for one specific configuration it adds up the lines from your rules, and it does it again for every quote.
The existing engine supports a price built line by line from the price list, each line on its own unit. For fences that means the base for the type once per job, the infill for each field by its size, fixings per field, the post, cap and anchoring per post, and gates with their add-ons per piece. During implementation we set up the rules from your price list and costing, including add-ons and the costs that come once per job.
Which figures go into the rules, margin included, is your decision. The configurator then applies them the same way to every configuration. You can show the price to the customer, or only the salesperson gets it, together with the specification. How a price list in Excel turns into rules is covered in An Excel price list isn't the problem.
When it isn't worth costing each configuration
Not every firm needs this. In these situations manual costing is enough:
- Every job is a project. One-off structures drawn by a structural engineer or an architect are costed by hand, and a configurator will not replace that.
- You don't know your own costs. A configurator will not fix a bad costing; it only applies it faster. First you need to know what an installation hour costs and how much material goes into a metre.
- You sell a few fixed sizes. Three models in three sizes fit into a price list with nine lines.
If none of these describes you, read on.
A five-minute test: does your costing still hold?
Open your price list and answer four questions:
- When did you last open the costing sheet? If it was before the last change in material prices, the price list rests on old figures.
- Which size did the rate per m² come from? The further a job is from that size, the further its price drifts from its cost.
- Do add-ons have their own costing? Or just a surcharge someone once guessed.
- Can the salesperson see how much margin is left after a discount? If not, discounts are given blind.
The first step takes five minutes: take your most recent smallest and largest jobs and cost them from the bottom up. Compare the result with the price in the quote. The gap shows where the price list lost the costing.
Where costing per configuration pays off most
Where a product is built from sizes and options that change both materials and labour:
- Pergolas and shelters: area, number of posts, roof type, blinds and lighting.
- Fences and gates: fields, posts, height, gates and pedestrian gates.
- Verandas and conservatories: span, roof pitch and glazing.
- Garden buildings and saunas: size, cladding and fittings.
The full list of 305 product types is in the configurator catalogue.
Frequently asked questions
What is a costing formula?
A costing formula is the way cost items are arranged in a calculation. The build-up formula adds them from direct costs up to profit; the retrograde formula subtracts them from the selling price.
What is the difference between costing and pricing?
Costing works out what a product costs the firm. Pricing decides what the firm sells it for. It starts from the costing, but also from the market and from competitors' prices.
How do you include overheads in the price of a made-to-order product?
Most often as a percentage of direct costs or as a rate per labour hour. With made-to-order products it matters that the rule is applied to each configuration separately, because the direct costs change with it.
What now
And the sheet costing_pergola_2024.xlsx? It does not belong in the bin. It is exactly the brief from which a price can be worked out for every pergola, including the ones that are not 4 × 3 m.
See what a configurator costs, or send us your price list with its costing and we will show you the calculation on your own product.
