The Sign Business

Preface

The sign industry is like no other kind of business. It is a business that creates ideas on paper,
attempts to sell those ideas and then produces that which it sells. Typically, it produces
something for the first and last time and all this in hopes of making a profit. It is not a business
for the faint hearted, or uninformed. While it is true that some of us started in a garage. Many of
us did not make it as a profitable venture, ending up instead working for other sign companies.
This is a tricky business to succeed in and if you are not paying attention, failure is just around
the corner. It is fair to say that most do not make it as a business, but many of us stay in it
anyway, far longer than we should have because we have caught “the bug”. There is something
about creating your ideas on paper and producing a product for all to see that makes this so
appealing. This creativity; perhaps from the frustrated artist with-in us that makes it difficult in
shaking off this bug. Let’s face it; how many people do you know should have quit this business
long ago and yet are still hanging on? Oddly enough, these people seem content in their venture
even when the bills don’t get paid.
If one wishes to get involved in this business they need to ask themselves a question. They
need to ask the correct question and then they need to also know the answer. The question is:
“Why do I want to go into this business”? The correct answer should be: “To make money”. If
you didn’t answer this question correctly, then let me make a suggestion. Run as fast as you can
and don’t look back. There is no answer more important than “to make money”, which should be
the primary reason to go into any kind of business. The primary objective needs to be making
money because all others objectives are secondary. You may enjoy every aspect of this business,
but it is secondary to the primary goal. If you are not making a profit, then everything else is for
not. The bills don’t get paid and your business fails. This is a basic fact of our free market
economy and one that can not be ignored.
This book is an attempt at explaining how one can make money in this rather unique industry.
Yes, it is possible to get the bug and make money at the same time. We’re going to look at this
industry from all aspects and break it down into something that is palatable and easy to
understand. The purpose shall be to identify the objectives and goals in this industry that will
guarantee a profit. We shall review all aspects of this business and see where they fit in the big
picture.
We need to find the market, identify the needs of that market. Design those needs
competitively, price them and sell them. We then need to product that product in a timely manner
that services our customer’s needs and make a profit all at the same time. We’re going to look at
sales and operations, along with the management requirements that support them. These are
ambitious goals, but this is an industry that requires it if one wishes to profit and excel in this
environment.
This book will assume a mid-size company. While it is true that many readers may just be
getting, started or have a small market share. It is also true that most of us want to excel and
become a mid-sized or a large company. What other reasons (besides profits) if not to grow? A

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mid-sized company will offer the same management requirements as a large company and still
be able to identify with our smaller cousins. The dialogue will be primarily about electrical signs.
If you are a commercial shop, then keep reading. The sign business is exactly the same despite
the differences in what we produce. The mark-ups, margins and operations are identical. They
are both unique, yet very much the same.
Lastly, I’d like to explain how a well-run Sign Company uses its departments to support one
another and yet operate in constant conflict. This is important and not unique to the sign
business. If two people agree with one another all the time, then one of them isn’t needed. So is
it with different departments within a company. Management in conflict can be a good thing and
we’ll give examples throughout this book on how this conflict will ultimately support the
company.

Sales

You may have a company with a first class fabricating plant. It may have all the bells and shiny
whistles at your disposal. All the fancy cad cam equipment; computerized and digitized
throughout your facility. You may have ten brand new crane trucks and a fleet of service
vehicles. You can have all this at your finger tips and it means nothing without a sale. If you do
not have a sale, then all this stands idle and will soon gather dust as your balance sheet stands
before you blank. In short; if you do not have a sale, then you might as well pack it in. It is the
sale that gets the ball rolling; without it nothing moves.
A “sale” is a rather peculiar thing. It basically means that a company is producing a product or
service for their customer in hopes of making a profit. Note the word “profit” at the end of my
definition. If a company produces a product or service for their customer and does not make a
profit, then it is not a sale. I like to think of it as a “give” instead. In other words; a “sale” implies
profit and anything else is a “give”. This probably sounds a bit simplistic to some readers, but the
reality is that many people miss this point. The key here is: How do you make a “sale” and stay
away from the “give”? The reality is that many of us find ourselves giving our services away
when we don’t mean to. Worst of all; we do so and have no idea we’ve done it! We need to be
able to recognize this difference.

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 This drawing illustrates the dilemma we face when you don’t know where the profit and loss
meet; in other words, our “break even” point. As shown by the “red” line, this is the point where
your company pays the bills, but makes no profit to show for its efforts. We will refer to as
“break even”. Left of the red line is “loss” and right of the red line is “profit”. Note that the
diagonal line labeled “selling price” right of the red line goes up. Also, note the opposing
diagonal line labeled “probability of sale” goes down at the same rate the selling price goes up.
This means that the probability of making a sale goes down the higher the selling price goes up.
There comes a point where the customer will no longer pay and hence you have no sale. Now
note that on the left-hand side of the red line; the farther the selling price goes down, the
probability of making the sale goes up. In short; if you “give” your product away to the
customer, they will gladly take it. The more you give, the easier the sale.
If one does not know where this “break even” point is in the course of selling their product,
then the customer will help you find it. This influence tends to fall on the left-hand side of this
graphic because it is the path of least resistance. In short; this is what the customer wants and the
best way to prevent this from happening is to know where your break-even point is.
A sale isn’t just about profits. The other portion of the definition is producing a product or
service. We need to design something the customer wants and this can be very tricky.
Additionally, we need to find a customer before we get started. As you can see; “sales” has many
levels of concerns. We need a customer, a design and a price before we actually make a sale, let
alone fabricate anything.
A sign company has three basic parts to it; Administrative, Sales and Operations. In a mid-
sized company the Administrative portion is sometimes blended into the Sales and Operations,
but not all the time. Sales and Operations may even share this administrative staff. “Sales” is
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typically broken down into various departments. The head of all these departments is the Sales
Manager who oversees the departments and they are as follows: administrative, sales staff, art
department and estimating department.
The Administrative Department would staff for order processing and other management
functions related to sales. This may also include people representing accounting. The Sales Staff
would include sales people such as sales representatives, commission sales, etc. The Art
Department would have an Art Director and then several artists depending on the requirements
of the company. You would also have the Estimating Department which typically has a Lead
Estimator who will manage the department and then other Estimators below that person. The
number of Estimators would depend on the Sales needs. It is interesting to note that many
believe (incorrectly) that the estimating department should be in the area of Operations. They
view that estimating belongs with operations because the primary tool for Operations is the
estimate. This is a mistake however and placing estimating in Operations is actually a conflict of
interest that we’ll cover at a later time. Additionally, I’ve seen some companies use sales staff as
estimators. This too is a conflict of interest and one wonders what the company is thinking when
doing so.
It is the sales oriented business that is the most successful. A successful company will surround
themselves with good sales people. In order to find these good sales people, you need to have a
company that will support them. It’s not enough to place an ad in your local newspaper and hope
good sales people stop by. You need to be able to support a sales staff and it is these departments
previously listed that shall do this. Good sales people are very difficult to get and holding on to
them is tantamount.
The Administrative Department that supports the sales will supply sales people with brochures,
educational information, handle the activity of sales via securing permits, order processing and
informing sales staff as to the progress of their projects, etc. They need to offer this kind of
information so that the sales people can make good decisions and stay abreast for their
customers. The Art Department will supply artwork of the projects the Sales Staff are attempting
to sell. This may be for multiple projects and it is up to the Art Department to do so in a timely
manner. Some projects that are being negotiated by sales people may require many levels of
expertise by the Art Department such as a sign criteria or sign program, logos, etc. depending of
the customer’s needs. The Estimating Department also has to produce estimates reflecting the
artwork supplied by the Art Department. They need to also do this in a timely fashion to insure
service to both the Sales Department and their customers.
Supporting the sales staff can become a juggling act. These departments need to be constantly
communicating to one another to insure the best service for their sales people. The estimating
department needs to influence the art department as to the needs of competitive pricing. Keep in
mind the Art Department isn’t cost oriented, hence this influence from the Estimating
Department is important to keep the designs as cost effective as possible. Paying attention to
these details may make or break a sale. It is the Sale Manager’s responsibility to make sure these
departments work closely together in support of one another for the sales people. In short; these
departments combined are a team.
A company with a strong sales oriented back ground will attract good sales people to work for
them. Keep in mind; when interviewing a sale person, they are also interviewing you and your
company. They need to know that you will support them and their customers. A good sales

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person protects their customers and if they feel your Company can’t service them; then you can’t
service their customers.

Sales Meetings

The sales meeting is suppose to be once a week. That is to say, for most companies. The goal
for this meeting is to retrieve information.

What projects are you working on?

What can we expect in sales this week and by the end of the month?
What are the results of the leads given you?
Do you have any issues with any of the departments affecting your service to your customers?
Are any of your customers doing any major projects in the next few months?
Updates may be given to the sales persons regarding existing projects within the system.
Are the sales materials that we are offering working and can they be improved?
Management may offer training in the use of a system or training is financial aspects of sales, etc.

One of the primary objectives of these meetings is to see where the sales people are at closing
sales. Management is attempting to project a monthly sales figure. This figure will then be used
to project and anticipate future profits. Also, Operations would like a head up on what kind of
projects they can be expecting in the next several weeks.
Management is very interested on what possibilities they are working on. Is there something
the Company can do to help them, etc? Management may also use statistics from the Estimating
Department as to the activity of each sales person. How many estimates did that sales person
request in a given period of time? How many of these were sold, etc? Additionally, management
quite often will offer leads to their sales staff in the way of Dodge Reports, etc. These leads are
often listed and need to be followed up. These sales meetings are very important for management
and staying close to the sales staff as to there activity and progress of their customers.
It’s interesting to note however that there always seems to be staff missing at these meetings.
Scheduling conflicts are quite common and in some cases these meetings are cancelled. Some
times you’ll have a project manager stand instead for the sales person as these guys tend to be up
on what sales are about to close and which ones will be coming up in the near future. Sales
meetings can be quite uneventful at times and then other times everything is happening at once;
feast or famine as they say.

Estimating

One of the most important departments in the entire company is the Estimating Department.
This department directly links Sales to Operations and is critical in the day to day running of the
business. Additionally, it plays a very vital part of Sales and has a direct affect on its dynamics.
It is because this department is so important that we need to start here. Everything will surround
this department throughout much of the company.
It is common many people believe that the selling price comes from the Estimating
Department. While it is true that you can not come up with a selling price without the estimate, it
is also true that the Estimating Department does not come up with the selling price. The selling
price is an accounting function and is derived from accounting principles. The Estimating
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Department creates the selling price, but only through the requirements and formulas created by
management.
The selling price has become misunderstood by many in this industry and there is lots of
support out there to help in creating this dilemma. We have many things to confuse us as to the
actual selling price of a product. There is the “suggested list price” offered to you by suppliers in
which they suggest what you should sell their products for. Electrical supply houses offer many
products to this industry and their catalogs are full of these suggested list prices. We also have
“pricing guides”. These are booklets offered to our industry that give you quick little formulas or
spreadsheets and charts giving you a suggested selling price. You can purchase these guides in
industry magazines, etc. Also, we can find computer programs that help us create a selling price.
These are all services that provide you a selling price, but not necessarily “your” selling price.
If the selling price from a pricing guide offers you a “suggested list price” the first thing you
must ask yourself is; “How much profit will I make”? This seems like a reasonable question, but
not one that you will receive a direct answer to. Their answer has more to do with “industry
standards” than profits for “your” company. The same can be said for suggested list prices in
catalogs. Additionally; “Is there a sales commission on this suggested list price; if so, then how
much”? Again; another reasonable question, but no answers are provided; if there was a
commission, then at what percent? You also need to keep in mind that these suppliers offering
you this pricing guide services have arterial motives. They want you to sell their product. What
better way to sell something than to sell it at a low price? I’m not suggesting this is what they do,
but only to suggest that the motive is possible.
The computer estimating programs have come a long way since they first appeared. Years ago,
the selling point to the computer estimating program was that is was faster than doing it by hand.
This was almost true except you had to fill in all the customer information prior to getting any
cost information. The fact was it actually took much longer than doing it by hand and you
weren’t so sure it was all that accurate. There’s something about not knowing how the computer
got to the price that made it a bit uncomfortable. Today the computer programs do offer a much
better system, but they do so at a price. Most computerized estimating programs today are
attached to inventory control and other management systems. This is all well and good, but you
might find yourself married to the program with constant updates, etc. Additionally, many
computer screen layouts don’t lend themselves to the older style when using paper estimates.
Example: Most hand-written estimates had materials and labor on one sheet of paper opposed
left and right to be viewed next to each other. This made it much easier to understand as to what
the estimator was thinking, rather than going back and forth from one screen to another. This can
be especially important when Operations is reviewing the estimate for a project for the first time.
Materials and labor that run parallel to one another on the same piece of paper makes it easier to
understand as to what the labor task was for a particular material. Not so with computer
estimating. They typically aren’t even on the same screen with one another. This can be very
confusing especially when estimating a custom sign with all sorts of items listed.
It is true that computerized estimating systems are much better than they use to be, but it is also
true that you have to completely restructure your company’s accounting and order processing
around them. Most computerized estimating systems today are more than that. They are a
complete computer system for the entire company and estimating is only a small part of that
system. There is nothing wrong with this if your system was poor and the computerized system
improved your company’s information and performance. As previously stated, most of these

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systems require a lot of attention and they tend to offer more information that needs attention
than many companies are willing to give. In short; the computer system is bigger than the
company’s needs.
The real problem with these kinds of services is your company. You can not and should not
depend on pricing guides or suggested list prices from your suppliers. These services can not
know your company’s profit requirements and using concepts with a criterion of what they refer
to as “industry standards”. “Industry standards” doesn’t mean your company; it means what they
believe your company should be. The reality is that all companies are different and assuming that
all companies have the same financial criteria is silly at best. All companies have different
suppliers and these suppliers all offer different prices for your purchases. These prices might be
based on quality, volume, demand, etc. This being the case; it’s not possible for a company to fit
into an industry standard. Additionally, your company’s location in the market place, equipment,
employees all have a direct affect what that price might be. What needs to be done is that your
company needs to find the price that represents your company’s requirements; not someone’s
idea of what they believe your company’s requirements should be.
Cost Estimating

Let us start at the beginning. Cost estimating is probably the easiest to understand and certainly
the most commonly used system today. It provides you with the essential information you need
to determine the cost. It is the cost of the product we are interested in at this time and not the
selling price. To determine the selling price of any item you must first determine its cost, hence
cost estimating. It is the primary responsibility of the Estimating Department to determine the
cost and they do so by listing materials, labor and buyouts in such a way that totals the entire cost
of a project.
This first portion of cost estimating will assume the reader knows nothing of cost estimating.
As we are all at different levels of knowledge, we must first begin at the beginning. To many
readers cost estimating appears obvious, but we can even learn at these obvious levels.
The estimate sheet that we will use for examples will have three basic areas of interest.
Materials at cost, Labor at cost and Buyouts at cost. For the purposes of easy understanding we
shall use a simple computer spreadsheet to illustrate how these three areas are listed on the
estimate. Additionally, they shall all be listed on a single screen, much like that of a single piece
of paper. This way one can attempt to review one area with another without having to go from
one screen to another.

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Materials

Materials are sometimes referred to as the “easy” part of the estimate. You simply list the
materials you need and what they cost. It sounds simple however it’s easy to become ambiguous
if you aren’t doing things properly. To start with, you need to define every material in four
columns. They are as follows:
Column 1 list the material by name
Column 2 list the quantity of that material
Column 3 list the unit cost of the material
Column 4 list the total cost of the material

Example:

It is always important that you list the materials in the order in which you use them. Example,
you may fabricate a product and the last task you do is to paint that product, hence you show
paint last on your material list. It is not wise to list the material out of order because you are
giving yourself an opportunity to forget an item and it also helps manufacturing to understand
and read the estimate. One of the ways this is done is by reviewing materials and labor in their
proper order. This way; the reader too is building the product inside their mind as the estimator
had envisioned it. Materials out of order only confuse things.
You will also want to show the materials used as they are purchased. Example, you do not
purchase half sheets of plastic. They are purchased in full sheets, hence should be shown that
way on the estimate. Typically, when you purchase a sheet of plastic it is for the intent of a
specific project. You may only use half of that sheet, but you purchased it strictly for the intent
of that one job. Additionally, there are materials that you purchase all the time for multiple jobs.
In short you have an inventory of some materials that are not purchased for one job only.
Example: Rolls of vinyl are purchased for an inventory. When you are out of a common “red”,
you then re-order to maintain your inventory. When you show materials on an inventory item,
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you typically list that material with the amount you are going to use. A standard color of vinyl
for example can be figured out by the linear foot. Example: A ten-yard roll of common red vinyl
might cost $135 or $4.50 per linear foot. When determining how much materials you wish to use
on a standard “in stock” item, you may wish to list it under a linear foot. This of course would
not be suggested if you had to purchase “special” vinyl that you would not normally keep in
stock. Special vinyl you would want to show the entire roll as the material item purchased for a
specific project. As you can see, there are many things one needs to determine when coming up
with a material cost on an estimate. While it is true that the material list can be direct and easy to
figure out, it is also true that not paying attention can get you in trouble. So be careful and think
projects through when determining your materials.
Freight is another example when computing materials. Many items you purchase are delivered
by a frequent supplier. This supplier may do deliveries a couple of times a week. These
deliveries are typically not charged freight, so freight is not a consideration when determining
cost. However; there are those items that may be shipped common carrier. These items must be
identified so that freight can be added to the material cost. If freight is not added to the cost of
those materials, then your material cost is not accurate. Example: if you purchased material such
as aluminum extrusion. You purchased several lengths and it was delivered common carrier at a
cost of $200. The aluminum cost would then be computed per linier foot by adding the total cost
of material, plus the cost of freight. This would give you a more accurate cost of that extrusion.
The other thing that must also be considered is waist. Waist is the material left over that can
not be used for any job. The aluminum extrusion for example is purchased in say 26 foot lengths.
If you are fabricating 25 foot long sign cabinets, then it stands to reason that you are going to
have 1 foot of waist. It is waist because you will never use the remaining foot of that extrusion
on another project. So as an estimator you need to compute waist as a factor of a particular
material. You either estimate for the entire length of extrusion or you come up with a waist
percentage that can be added to the linier cost. The point here is that waist too must be
considered when estimating a project.

Indeterminate Expenses

Indeterminate expenses are a cost directly related to the materials you purchase for
manufacturing. They are those items that you purchase that are simply not feasible to count or
add to your estimate separately. These are items such as masking tape, wire nuts, masking paper,
and weld rod, welding gases, etc. Items that you use everyday in fabrication all the time that
simply isn’t on your estimate. If one were to actually recognize and list these items in an
inventory process. You would find that approximately 7% of all materials purchased for
manufacturing would fall under this “indeterminate cost”. It is also interesting to note, that many
companies do not recognize or list these indeterminate items separately when doing inventory,
hence don’t know what percentage of indeterminate cost are for their manufacturing. This being
the case, you can automatically assume that indeterminate costs are higher than it should be.
When management does not stop to recognize these kinds of items, one can assume that these
kinds of expenses are purchased without discipline. We list indeterminate as a specific code in so
as to recognize these items during the process of inventory. This way when we total up all
materials used, we can identify indeterminate items and figure out the percentage of
indeterminate items compared to the rest of the materials purchased. It is a general rule of thumb

10
that in manufacturing the indeterminate expenses should be approximately 7%. In short; 7% of
all materials used are indeterminate. This is for all kinds of manufacturing and not just
fabricating signs. A company that manufactures widgets will also use this rule of thumb.
On the estimating spreadsheet located on the bottom portion of the materials list, you will find
that indeterminate costs are automatically computed into the materials.

Example:

Here the example shows a subtotal of materials at $795.31. The 7% indeterminate costs are then
added to that sub total thus creating a grand total of $850.98. Now the indeterminate costs have
been added to this estimate, hence making it more accurate and reflective of the company’s true
costs.

Buyouts

A buyout is the purchase of a product or service. A company using a subcontractor is an

example of a buyout. Buyouts are used when your company does not wish or is incapable of
producing a product or service. Example: Your Company is fabricating a custom display. The
print calls out dry-vit surface as a pole cover. Perhaps your company isn’t capable of doing this
kind of service, so you subcontract this service out. Suppose you don’t have a neon plant, then
perhaps you “buyout” this service from the neon wholesaler. There are all kinds of buyouts.
Buyouts are listed in the same way as materials. They have 4 columns to help identify the
buyout. Example:
Column #1 list the name of contractor or company used.
Column #2 list how many items contractor will use
Column #3 list the cost of the item or service performed
Column #4 list the total cost by the contractor
Many times, a buyout will have freight expenses. It is a good idea to list the freight separately.
This way there is no confusion as to its actual cost. A buyout is separated from the materials list
because it is not a material. Because it is not a material, there is no need to compute a 7%
indeterminate cost to it.
There are advantages to a buyout when viewed by management. The first advantage is that
manufacturing isn’t going to produce it, hence isn’t directly responsible for scheduling, etc. Also,
overruns are not an issue because there isn’t any manufacturing. Management views buyouts

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more positively as to its cost because the costs are fixed. Any overrun incurred by the
subcontractor is their problem. You can see some obvious advantages to buyouts and we shall
use this concept to help leverage some selling prices later on when we are discussing pricing.

Let’s view an example of a material list for a simple sign cabinet. This sign shall be a 4’x 8’
single face illuminated wall sign. The estimate will show the materials used for this sign.
Additionally, the extrusion for this sign shall be purchased by a supplied already cut to size;
sometimes referred to as a kit. We will also include on this estimate another buyout for a molded
embossed face.

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 The total material cost (including indeterminate) is $ 296.69. The buyouts totaled $ 931.00 for
a grand total of $ 1,227.69 as seen in the lower right hand corner of the estimate sheet. Note that
the right-hand side of the estimate has no labor hours to reflect this estimate at this time.
Additionally, keep in mind that this is “cost”, not a selling price.

Labor

Production Labor
Labor is always an interesting part of the estimate. They’re lots of people scratching their
heads when it comes to labor. How do you figure out how many hours it takes to do something?
This is an interesting question and leaves many feeling a bit uncomfortable. The problem with
labor is that it is abstract. How do you estimate a project when people work at different rates?
The same person may also have different rates from one day to the next. Let’s face it; we all have
good and bad days. Another thing that can affect the labor time is tools. From the kind of tool,
you use to the quality of tool. Even where tables and tools are located in the shop make a
difference. They both affect the time it takes, hence makes things even more difficult to
understand when judging labor hours. Materials too can have a direct affect on how long it takes
to do a project. Purchasing plastic with a paper finish means you have to peel the paper off after
you have cut it as opposed to plastic without a paper finish. Purchasing pre-painted material can
also have a direct affect on the labor hours. It seems that everywhere you look affects the labor
hours.
We will look at some ideas the estimator can use to compute how many hours it will take to do
a project. We will also look how information is managed by the estimator that will also make
estimating hours more accurate. Additionally, we will consider just how much money per hour
we shall have to compute for labor. It’s not enough to just know how long it will take to do a
project, but the amount of money per hour is going to be very important.
Let’s review the estimate sheet again and see where the labor hours are located. Note that the
drawing (above) shows the labor hours on the right-hand side of the drawing. Also, note that this
estimate has multiple colors separating each department as your eye follows down the estimate.
This estimate example shows four departments within the shop. Sheet Metal, Electrical, Plastic
& Paint; it is then followed by Buyouts on the lower left and Install Labor on the lower right.
Below the Install Labor you will find the collection of totals. This lower right hand section will
give you the total cost of the estimate as shown.
The Sheet Metal Department located on the top left color coded yellow in this example shows
structural material on top, followed by lighter materials such as sheeting material as you go
farther down the Sheet Metal Department list. In short; it generally lists materials in the order
that they would be used. Directly to the right of the Material list for the Sheet Metal Department
is the Labor. It too is marked in yellow and shall represent the labor hours for this department.
When showing labor hours, it is best to give a brief description on the same line(s) that the
material would be shown and in the order of construction. Example: If the shop were to build a
custom illuminated pole sign it would begin with structural steel such as pipe and angle iron, etc.

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and then finish with sheet metal. By doing so the estimator makes it easier to understand. All
labor hours are represented in their respective departments and in the order of construction.
Labor hours are listed in four columns

Column 1 shown as labor indicates the task. The task would be a description of the kind of
labor is being performed. Column 2 listed as hours would show how many hours it would take to
perform the describe labor. Typically, these hours would be shown in a numeric value. Example:
One hour and fifteen minute to do a task would be shown as 1.25. Column 3 shows the rate per
hour it will cost the company for the employee to perform that task. This rate would represent the
hourly rate plus burden rate. This labor/burden rate may fluctuate from one department to
another. For the sake of simplicity; the labor/burden rates during the course of this book will be
the same in all departments. Additionally, equipment may be listed on the labor/burden rate. This
will be explained shortly. Lastly in column 4 is the total cost of the task described on that line.
The hourly rate indicated on an estimate implies the rate in which the company pays a
production employee. A production employee is a person who by definition produces something
for the company in which the company can charge their customer. This person may produce
something in the shop or they may produce or service in the field. There are other employees
throughout the company that may not be considered production employees and still produce
something. Example: An artist from the Art Department may produce artwork, but this artwork
isn’t charged to the customer. It is instead a service in which the company provides the customer
at no charge (indirectly speaking); hence the artist isn’t considered a production employee.
Production employees typically come from Operations however; there are some companies that
will charge for services such as permits, etc. This is where an employee will secure permits for a
project. Securing permits may require multiple trips to municipalities during the permit process
and the company might charge their customer for this service; however this is not considered a
production employee as noted on the estimate.

16
 As previously mentioned column 3 is the rate per hour it will cost the company. This rate is
referred to as labor/burden. Labor is the amount the company pays the production employee per
hour and burden is the amount of money the company will spend on that employee during the
course of that employee’s employment. Example: The Company will pay for: SSI, Holiday pay,
Vacation pay, Workman’s comp, Health Insurance, perhaps a 401k. So, when we refer to labor
hours regarding the estimate, we are really talking about labor/burden hours together as this is
the true cost to the company for a production employee.
Let us assume the production employee is paid $16.50 per hour. You then identify how much
that production employee will cost you in burden per hour. During the course of a month, a
production employee should work 160 hours (average) without overtime. Let us now assume that
the total burden cost of a production employee for one month was a total of $1,500. Divide
$1,500 into 160 (hours per month) and your total will be $9.38 per hour.

Employee’s hourly labor rate is $ 16.50 per hour

Employee’s hourly burden rate is 9.38 per hour

Employee’s hourly labor/burden rate is $ 25.88 per hour

Now the estimate needs to reflect this hourly rate created for this employee. This is an example
of what that estimate might look like showing different tasks carried out by this employee.

Many estimates will also compute equipment expenses and ad them to the labor/burden rate.
Some will even add different equipment rates to different departments to better represent a true
17
cost. Example: Let us assume that a department has a very expensive piece of equipment. This
equipment was leased by the Company and has a maintenance contract. The Company chose to
lease the equipment because they could take advantage of the right off, additionally they went
with a maintenance agreement to assure this expensive equipment would be operating at the
same cost every month without worrying about breakdowns or added expenses for repairs. This
equipment was leased out at $1,500 per month. Now let’s assume that this department has three
employees and the average labor/burden rate of $25.88. We take the monthly lease cost of
$1,500 divide that into 3 to reflect the number of employees and then divide that into 160 to
represent one month’s labor.

Example:

$1,500 divided into 3 equals …………………. $ 500.00

$500 divided into 160 (hours in a month)……. $ 3.13

Now the labor/burden rate would change from $ 25.88 to $ 29.01 per hour. This would cover
the added expenses of that special piece of equipment. The added $ 3.13 per hour will then better
represent this company’s hourly rate.
Another way you could compute equipment to your labor/burden rate would be to take all the
equipment in the entire shop and calculate it to the number of employees and then divide that
into 160 hours. The best way to represent your equipment cost would be to have depreciation
schedules on the equipment and then create the equipment rate from there. This is probably the
most common way to work our equipment rates when adding them to your labor/burden.
Typically, high priced equipment for a given department isn’t being used 8 hours a day,
everyday for a month. Additionally, it is common that many production employees will work in
more than one department; depending on scheduling and some departments are busier than
others. Most expensive equipment such as cad cam or digital is not being used all the time, but is
purchased anyway because of the time this equipment saves employee hours. It is sometimes
best to have the entire shop absorb the equipment overhead when working out labor/burden rates
on the estimate.
It is also quite common to have all of the shop expenses computed into the labor/burden rates.
You simply consider all Operational overhead and equipment expenses and then compute them
as previously shown.

Installation labor/burden

You will notice that on the estimate located towards the bottom right portion you will find
Installation Labor. This estimate example shows it directly across from Buy Outs. Installation
labor has been separated from shop labor. This is done so because the hourly rates on a crane
truck operator typically is paid more money on average than the shop employees. Additionally,
the crane truck operator has a helper with him along with a crane truck and its expenses. When
estimating Installation labor, you typically are estimating a crew with equipment at an hourly
rate, as oppose to you one production employee in the shop. This being the case, you will see
that the rates are considerably higher than typical shop rates. Let’s review a typical Installation
labor/burden rate.

18
Example:

Assume for purposes of this example the Install employee is paid $25.50 per hour. Also,
assume that the installer’s burden rate is $1,750 per month and when you divide by 160 (hours)
you get a total of $10.94 per hour. (Let’s assume his helper is paid the same as the shop rates.)
The install department has a crane truck and two men as a crew to operate. The crane truck is
leased and when you add insurance on the truck plus maintenance the average monthly expense
is $ 2,350 per month. This computes to $14.69 per hour when you divide it into 160 per month.
Now let’s compute how much it will “cost” the company for a crane truck and two men per hour.

Employee hourly rate ……………… $ 25.50 (Crane operator)

Employee hourly burden rate………. 10.94

Employee hourly rate ……………… $ 16.50 (helper)

Employee hourly burden rate……… 9.38

Equipment overhead ……………… 14.69

Total Installation hourly rate …….. $ 77.01 (cost)

Keep in mind; this is what it will “cost” the Company and not the selling price. Additionally,
this one figure represents two employees with equipment. Remember; during the course of
installation there are many variables. The estimate could also be required to represent three or
more employees, or multiple pieces of equipment thus the estimator must make sure the
Installation labor/burden rate represents the needs of the project. In short; the shop rates tend to
be stable, but installation rates will vary as the need is required.

19
 Here is an example of hours used on the estimate showing install hours. Note that the Total
shop hours and Total install hours are separate.

Computing labor hours

When you are estimating a project, it can be difficult to picture inside your head how many
hours it will take to do the whole job. Let us assume that we have a project that takes 150 hours
to complete. If you estimate the entire job at once the reality is you could easily be off probably
by 15% or more. This would compute to 22 ½ hours. Now, when we say “off”, this means you
could be off 15% too high or 15% too low. The reality is you would have as much as a 30%
range from your lowest to your highest guess. This of course is no way to estimate a job. Fifteen
percent (either way) is way too much. If you sell the project and estimated it 15% too low, then
your losses would consume any profit you might have computed. Additionally, if you estimated
it 15% too high, then you lose the job all together because you were not competitive. Either way,
this is not acceptable. The best way to get a perspective on this project is to break it down into a
series of smaller tasks. Smaller tasks are much easier to conceive in your head. The smaller the
task, the easier it is. Example: A task as small as getting up and getting a glass of water you can
figure out without too much trouble and expect to be reasonably accurate. Additionally, if you
are wrong, then you won’t be wrong by much and logic tells you that you’re going to be either
too high or too low. With small tasks, you are too high or too low at a much smaller scale.
20
 Let us assume that we have broken down this big 150-hour project into 50 tasks. All of these
tasks are about the same amount of time…. (plus, or minus) This would imply that each task
took 3 hours (on average) to do. If you estimated approximately 3 hours for each task plus or
minus, the question is: “Are my 50 tasks too high or are they too low”? The answer is “yes”; they
are both too high and too low. Let us now assume that you are still off by each task
approximately 15%. Out of 50 tasks approximately ½ (plus or minus) will be too high and the
other half would be approximately 15% too low. Logic then dictates that the low estimates
neutralize the high estimates. The conclusion is that you have estimated the project with a much
smaller chance of error. Will your estimate be wrong? Of course, it will, but the real question is:
How wrong was it? The more tasks you bare on a project the more chances you have of getting
closer to right. You in all likelihood will never be exactly correct, but that’s why they call it
“estimating”.
Think of it as a guided missile; when the missile leaves the ground, it will make a series of
mistakes and then adjust accordingly as it is in flight. For every under estimate it does, there will
be an over estimate to compensate. The end results is the missile hits its target. We can always
expect to be off, but the trick is: be off as little as possible. Giving yourself as many small tasks
as possible by a project will help you achieve your goal.

History

This is what separates the real estimators from those that wish they were. History has a habit of
repeating itself; from Napoleon invading Russia and having his army destroyed by the winter’s
snow, to Hitler doing the exact same thing and experiencing the same results; perhaps if Hitler
had read his history he wouldn’t have made that mistake.
We too make the same mistakes all the time but on a much smaller scale. Most of us don’t
make history into a science; hence don’t take advantage of it when it repeats itself. A good
estimating department however does. Estimating departments typically retrieve information from
Operations through cost accounting. Operations will gather all the cost information for each
project as it closes and compare it to the estimate. They do so to make sure they are on budget.
The Estimating Department also wishes to have this information. They too want to know how
long it actually took to do individual projects. If the project ran into overtime, then you can be
sure Operations will be looking for someone to blame. That blame more often than not will be
towards the Estimating Department. There’s no point in placing the blame within your own
departments, when you can blame somebody else. There is nothing wrong with this and pointing
fingers between departments can be a healthy exercise.
Many years ago, when my son was a child he would walk to school. It was about a twenty-
minute walk or so and he did this everyday. It was the same routine; he picked up his best friend
along the way and they walked together. They use to always walk behind these two girls and I
presumed they liked each other. About half way to school there was a small corner grocery store.
They always stopped by with the girls in tow and purchased candy and other what knots. When
my son finally arrived at school the bell would ring and he would enter class about ten seconds
late. He did this day in and day out for months. Apparently, his teacher finally got fed up with his
behavior and requested a parent teacher conference. As I sat down patiently listening to the
teacher explain to me how my son needed to get a handle on his time management skills and that
being late was being irresponsible it occurred to me that a twenty-minute walk was 1,200

21
seconds long and that if he was late by 10 seconds it computed to less than .01 percent of an
overrun. It suddenly occurred to me that this 8-year-old child is a better estimator than I am! I
tried to explain that to the teacher, but apparently, she wasn’t interested.
I suppose the point of this story is to suggest to you that we are all good estimators by nature.
My son simply used repeated history to know exactly what time he needed leave so he could be
ten seconds late everyday. This is a perfect example of how history repeats itself.
Let’s take that 4’x 8’ sign we estimated the materials on earlier. Let us assume it takes 8 hours
to fabricate. Operations has now made a record of that time. They then refer that information to
the Estimating Department. The Estimating Department now knows it took 8 hours to fabricate
and they place it in history. Now, the estimating department gets a request to estimate a 5’x 7’
sign. The material list is slightly different than the 4x8, but not that much. It is interesting to note
that the 4x8 sign which took 8 hours to fabricate was 32 overall sq. ft. This 5x7 is slightly higher
in square feet, but lets be honest. It’s not all that much different. There are extra lamp sockets to
install and there is going to be a seam on the back of the cabinet because the sheet metal comes
in 4ft. widths. If we estimate 9 hours to fabricate this sign, how far off will we be?
If the Company sold this 5’x 7’ sign and Operations experienced a 50% overrun in
manufacturing do you think estimating made a mistake? The answer would be a resounding
“no”. Operations wouldn’t have a leg to stand on due to passed history. The Estimating
Department would refer to the history of the previous 4’x 8’ sign and argue from this position.
History is not only great to use for estimating; it is also something that needs to be used to
confirm jobs that recently closed.
If a sign company had years of history on how much time it took to fabricate different signs,
its fair to say it would have a wonderful tool in their estimating department. With years of history
to go on, there would be few projects you encounter where you didn’t have a good idea what the
labor hours would be. Keeping track of history is reasonably easy to do and it helps if you are
organized. It is a good idea to categorize sign types so that you can retrieve them quickly.
Example: separate wall signs from pole signs, channel letters and then channel letters on
raceways, etc. You could even separate custom fabricated displays from extrusions, illuminated
from non-illuminated, etc. Having a file full of history and all categorized is a great way to make
your estimating department very competent.
Let’s look at our estimate sheet and complete the labor portion of the estimate 4’x 8’ sign
cabinet

22
23
The three steps come together

Using the example of the 4’x8’ estimate, we can see how all three portions of the estimate
come together at the bottom right corner of the page. We not only see the total cost to the
company, but it is also itemized out to give us a better perspective. At a glance, we can see that
this example showed that the buyout portion of the estimate had the majority of the cost. If we
had decided to fabricate the sign face as opposed to subcontracting it out, then we would have
seen a different result. The cost of material and labor would have risen accordingly and the
buyout portion would have been reduced. As a manufacturer, you might have reasoned that
producing the sign face in house could have lowered the cost to the company. Then again,
perhaps your facility was too busy and could not meet the deadline or perhaps it was a custom
display out of your area of your company’s expertise. The point is that showing the cost broken
down gives the Company a better perspective of its cost.

The very bottom right hand corner of the estimate brings all three totals together to give you a
total cost of the product which as indicated is $ 1,407.69. This is what it will cost the Company
to produce the 4’x 8’ sign and this is the figure that will be used to create a selling price.

Example:

24
Heading

The top portion of the estimate is for general information. You have the name and location of
the customer. Some estimates have the name of the customer and the location separately. This is
because many customers have multiple locations of businesses. Also, notice the date listed. This
is the date the estimate was created. There is also a place for a drawing number. This is important
because you want to make sure that an estimate is for a specific drawing. Some estimates have a
code for the estimator to show who did the estimate. This is also done with sales staff, but
typically it is shown on the front end of the estimate and not the heading. The description of the
estimate is very important. It’s nice to see lots of room for typing when it comes to the
description. There have been many occasions when the sales person assumed he/she was getting
more than what was called out on the estimate. This description is also called out on the front
side of the estimate for the sales person to view. This makes for good insurance. The estimate
number is also important. We need to keep track of the estimates and there needs to be a way of

25
identifying each and every estimate. Some estimate headings have a code for the type of sign that
is being estimated. This is typically used for identifying via through history.

A completed estimate is a document and needs to be treated as such. There are two parts to an
estimate. The spreadsheet portion that we have recently been reviewing and the front side of the
estimate for those in sales to view. This portion will not show the cost of the estimate, but will
have a detailed description of what is covered. Additionally, it will have the selling price for the
sales person. The spreadsheet portion of the estimate is typically out of view from the sales staff.
The sales manager is privy to this because of their management position. Having the sales people
review the spreadsheet portion of an estimate allows them the opportunity to pass judgment on
the estimator’s decisions. This is of course a bad idea as sales staffs are not estimators and have a
bias view as to the outcome. If sales disagree with the “selling price” portion of the estimate,
then they can take it up with management. It is management’s responsibility to review and have
dialogue with the estimating department if there is conflict.
When an estimate is complete, it is printed with a package to the sales department. The original
estimate is then under lock and key. No other persons shall be allowed to enter into the area of
the estimates except of course management directly over the estimating department. This
security system is to protect the integrity of the estimate. Under no circumstances does another
department enter into the estimating department’s computer program to retrieve a copy of an
estimate.
If a revised drawing and project comes back to the Estimating Department, then a revised
estimate is created, but the old estimate shall remain as is. If a sale is made and a package needs
to be processed for order processing, then a copy of the estimate is made by the estimating
department

Lead Estimator
The lead estimator has the responsibility of keeping track of all these estimates. They also need
to keep a very extensive list of history to refer to. This person will also stay in constant contact
with the Art Department. The Art Department creates these concept drawings and they are not
26
always forth coming. Materials are not always called out along with paint colors and finishes.
We can’t have the artist drawing one thing while the estimator estimates something different.
Additionally, the lead estimator needs to communicate designs that create higher costs. We don’t
want to destroy the artist’s creative process, but we don’t want designs with unneeded expenses.
The lead estimator will also represent the Sales Department in relationship to Operations. After
a sale, Operations may have questions as to what materials were used and why. It is the lead
estimator that makes sure these needs are fulfilled. Additionally, it is the lead estimator that will
come to the defense of Sales if needed. We shall see in the future how this might work.

Art Department
The Art Department is the creative part of the Company. It’s within the realm of Sales and is
directly influenced by the sales staff. The sales staff will put a package together for the Art
Department in hopes of giving enough information that the artist can create something that is
representative of the needs of the customer. This package will be things such as photos of the
site; perhaps measurements within these photos to give a sense of scale. There will also be thumb
nail sketches and ideas from the sales person or customer. A company logo perhaps or maybe
they need a logo designed as part of the package. Sometimes the customer may have existing
signage that need to be refaced and painted. These will also need to be measured and photos
taken. A plot plan is always good information to an artist. It helps them get a sense of signage
placement, etc. Color samples are many times needed to match existing materials.
It is the Art Director that helps create a package for the sales staff to use. These typically are
forms to help organize the survey and they list the requirements or sometimes draw a generic
sign with empty areas for measurements, etc.
Little tricks will be learned by sales staff that will help the Art Department in retrieving
information. Example: Perhaps a piece of tape on an existing pole sign marking off 6 feet to
grade. The sales person can not get up to reach the sign to measure, so they provide a “mark”
indicating a measurement within the photo.

This will allow the artist to create a scale in order to get the information needed in the photo. It
won’t be an exact measurement, but it will be close enough to draw and estimate. If the project
sells, then a service vehicle can be scheduled to stop by for exact measurements.
27
 Here is an example of how an artist might retrieve information from a photo.

Take a piece of paper and place it along the photo. Mark on the edge of the paper the reference
points as shown.

28
 Then draw a 90-degree line up one edge of the reference point. Now, take a scale ruler and use
one of the smaller scale settings and mark off 6 ft. This example shows that we have used a 3/16”
scale and marked off 6 feet with that scale. Now draw a diagonal line from the other reference
point to the new 6 ft. mark you have created with the scale. Now use the scale ruler to mark each
foot along the diagonal line, then draw parallel lines back to the original piece of paper between
the reference points as shown. You now have a custom-made scale for that photograph. You can
now use it to determine what the sizes are on the photo. Keep in mind that photos are distorted
and that this system is a good guess, but when fabricating is required, then so is a full survey of
the site.
There are also computer exercises that do much the same thing. The point is that the Art
Department needs to supply the sales staff with every tool at its disposal. The more information
supplied to sales by the Art Department, the easier it will be for both parties.
The Art Director needs to be someone who is very organized and also have some management
skills. Many sign companies make the mistake of putting their best artist in charge. The best
artist isn’t necessarily the best person for the job. In many occasions, you will find the best artists
want the position, yet are the least qualified in the sense of their management skills. Artist can
sometimes be a touchy lot and egos may get in the way of better judgment. I can say this as I too
am an artist and have experienced this first hand.
Many times, after a sale, the concept drawing isn’t enough for production. Most concept
drawings don’t have side elevations of the signs, hence leaving out all sorts of information.
Additionally, colors and materials may not be called out. Paint finishes and or brand names are
also important. The Art Department needs to come up with some basic construction drawings.
While it is true that structural information can’t always be supplied; at least the general
information can. The Estimating Department may also get involved as to what materials
(structural, etc.) they estimated on the project so that it is reflected on the drawings.
It is without a doubt that any good Operations department can and do throw back packages as
being inadequate. This is typical behavior for all parties and should be considered as part of the
process. The point here is; that Art Departments should be expected to do some construction
drawings after a sale has been made.

29
Sales Management

This will be the most extensive portion of the book and certainly the most interesting. The
Sales Manager will be responsible for much of what’s to come in this portion.
We covered the estimating process earlier and now need to come up with a selling price. We
will not come up with just a price, as there is much more to pricing than one price. What else is
there than the selling price? What more can we need? As previously mentioned; the most
successful business is the sales oriented business. So, let’s orient sales as dynamically as possible
to offer as much opportunity to making money as can possibly be done. We will do so by
showing you all kinds of pricing.

First, we begin by showing you a simple Profit & Loss Statement.

Revenue $ 100,000 100 %

______________________________________________________

Expenses - 90,000 90 %
____________
Profit/Loss $ 10,000 10 %

This Profit & Loss Statement doesn’t get much easier than this. We have revenue at $100,000
and we subtract the expenses of $90.000 from the revenue leaving a balance (profit) of $10,000.
As simple as this Profit & Loss Statement is, it is offering us some good information. The most
important information on this P&L is the percentages shown on the right-hand side of the
formula. We have a profit of 10% which offers us more information than just a profit of $10,000.
If two people are talking business and one of them says; “I made $10,000 last month” sounds
great given the little information he stated. To put this in a better perspective you need only ask
how much revenue it took to make that kind of money. If his reply is $ 1,000,000, then you can
see that he only made 1% of the total revenue which is a pittance. It is the percentage in this
simply formula that is the most important information, because it gives you a perspective of
performance. It is performance that we are really interested in. I like to think of these as P&L
models.
The revenue of this P&L implies sales. This would-be signs sold, and or perhaps services done
for various customers. It may also include lease and maintenance revenue, etc. Expenses imply
what it cost the Company to produce this revenue. These expenses will be: cost to produce
product (the estimate), equipment overhead, general administrative expenses (G&A), sale
commissions and expenses and operational expenses. We shall introduce these expenses as we
go along with future P&L models to better understand a company’s performance and how they
can help us to better understand pricing concepts.
How a P&L Statement is laid out depends on “you”. Most people believe that the Accounting
Department offers you a P&L Statement based on the Accounting Department’s needs. This isn’t
correct. The fact is; Accounting doesn’t really care about a P&L Statement. They can manage
just fine without one. The only reason Accounting formulates a P&L Statement is because
management needs it to better understand the Company. The problem is that Accounting
formulates it based on what they “think” you want, rather than what you actually need. Many

30
P&L Statements are formatted for accounting rather than management. It typically has too much
information and laid out in such a way that makes it a bit ambiguous for many department heads.
The problem is most department managers are not accountants and reading some of these P&L
Statements can be a bit maddening.
The Profit & Loss Statement is supposed to be a tool for management. I like to think of it as
my favorite wrench. The best P&L Statements are the ones with “only” the information I’m
looking for. All this other information is simply a smoke screen I need to process through to find
what I actually want. The nice thing about computers is that it is easy to formulate all sorts of
P&L formats you may wish to use throughout a month. We don’t necessarily need one huge
P&L Statement printed out and sent to all departments to be consumed. Accounting can easily
create customized P&L Statements for each department accordingly thus providing the necessary
information that particular manager needs.
We’re going to forgo most of this smoke screen in our P&L examples and get down to the
information “we” need. Perhaps by viewing these simplified versions you might come up with
some ideas that will best represent your needs and relate them to your Accounting Department.
The Profit & Loss Statement is typically read by department heads to see their department’s
performance. They view it to see if they met the standards they were expecting and study it
further to see if they can do things better. A P&L model is something a bit different. It takes the
performance of you company’s P&L Statement based on the percentages to help determine your
company’s break even point. You can also use it determine when is the best time to purchase
equipment or how much you need to mark-up something to make a specific percentage of profit.
This is why I refer to it as my favorite wrench.
Let’s now use an example of a P&L with a little more information to it. We will separate out
from expenses the cost to produce (the estimate) and also General Administrative (G&A).

Revenue …………………………….. $ 100,000

____________________________________________________

Expenses
Cost………….................... $ 64,000 64%
G&A …………………….. + 26,000__ 26%

Total …………………….. $ - 90,000 __________

Profit/Loss………………. $ 10,000 10%

Notice that the performance is still the same. Cost at 64% and G&A at 26% giving a total of
90% in total expenses. The Company still has the 10% profit, but this time expenses have been
broken down into two categories.
The “cost” represents all of the Company’s estimates that were sold into projects during the
course of a month and the G&A represents all other expenses. This would cover all the overhead
for both Sales and Operations. It would also cover equipment and sales expenses such as
commissions, etc. Anything else that isn’t from the cost estimates would fall under this blanket

31
of G&A. It’s still a very simple P&L Statement and the only difference is that “cost to produce”
has been separated out of all the other expenses and “cost to produce” means the estimates that
were sold into projects.
Now let’s look at “revenue”. This Company’s performance formula suggests that 64% of the
revenue is the cost to produce (the estimates).

Example:

The selling price = cost divided by 64%_______________$___100,000___________

Expenses
Cost………….................................................... $ 64,000 64%
G&A …………………….. + 26,000__ 26%

Total …………………….. $ - 90,000 ___________

Profit/Loss………………. $ 10,000 10%

In short if we take the $ 64,000 and divide that by .64 we would get a total of $ 100,000. Now
let’s take this a bit further. As I’ve previously mentioned, the “cost” on this P&L represents
many estimates during the course of a month. In short; all of the estimates sold into projects
when added together for this month totaled $64,000.
Let us examine one estimate out of this monthly total. Let’s assume for the sake of this
exercise that we retrieved an estimate with a total cost of $ 12,309.18. This is the amount shown
on the bottom right portion of the estimate. It represents total Materials at cost, total Buyouts at
cost and total Labor at cost. Now; based on this Company’s P&L performance for this given
month, what should the selling price be for this particular estimate?
If the selling price = cost divided by .64 and the cost for this estimate is $ 12,309.18 then this
would mean that the selling price for this particular product would be $ 19,233.09. The best way
to understand this is to create a performance model of the Company and zero it out of the dollar
values leaving only the percentages.

Example: (Now we only know the percentages.)

The selling price = cost divided by 64%_______________$___000,000___________

Expenses
Cost………….................................................... $ 00,000 64%
G&A …………………….. + 00,000__ 26%

Total …………………….. $ - 00,000 ___________

Profit/Loss………………. $ 00,000 10%

32
 If we replace the zeros in the “cost” line for the amount of $12,309.18 which represents this
estimate, then we need only to complete this performance formula.

Example:

The selling price = ($12,309.18 divided by .64)_____________$____19,233.09___________

Expenses
Cost…….....(the estimate)………….....................$ 12,309.18 64%
G&A……...(26% x $19,233.09)……..…………… + _5,000.60__ 26%

Total……....(cost + G&A)……….........................$ - 17,309.78 ___________

Profit/Loss..(selling price less total cost)…………. $ 1,923.31 10%

We now have a selling price of $19,233.09. Additionally, we have the “cost” of $12,309.18
which represents 64% of the selling price as per our performance model. Now we can easily
retrieve the G&A expenses because we have a selling price. So, 26% as shown on your
performance model X’s the selling price equals the G&A of $5000.60. If we total the Cost plus
the G&A we now have a total expense of $17,309.78. If you subtract the total expenses from the
selling price you have a profit of $1,923.31 which is 10% of the selling price and all of this
matches the performance model of the Company.
We can now take any estimate from this Company and compute the selling price based on the
P&L performance model. It is presumed that based on this Company’s performance, we can now
take any future estimate to come up with a selling price. We know that using this formula we can
be assured that the Company will make a 10% profit based on this information. We need only to
review the Company’s P&L Statement from time to time to make sure the performance model is
still accurate.
Lastly I’d like to suggest that we use a multiplier to come up with a selling price as opposed to
dividing. Most industries use a multiplier and the sign industry is no different. It seems easier to
comprehend when seeing the formula and it is definitely much more commonly used.
This performance model used the selling price by dividing cost by .64. To change this into a
multiplier, you divide 100 into .64. This will give you a value of 156.25 as a multiplier. If you
multiply this value times the cost you will get the same selling price however; I prefer to shorten
this multiplier to make it easier to remember and use. We could either shorten it to 1.56 or
change it to 1.57. Either value will change the selling price slightly. This multiplier is sometimes
referred to as “mark-up”.

Example:

Cost x 1.56 = selling price or $ 12,309.18 x 1.56 = $ 19,202.32 (slightly less than original value)
Cost x 1.57 = selling price or $ 12,309.18 x 1.57 = $ 19,325.42 (slightly more than original value)

As you can see these are very small differences from the original selling price using the divide
system however; the 1.56 is the closest value that will maintain the 10% profit; so we will use

33
this value as our mark-up. Let’s now see how this multiplier looks when using the same P&L
performance model.

The selling price = ($12,309.18 x 1.56 =)_________________$____19,202.32__________

Expenses
Cost…….....(the estimate)………….....................$ 12,309.18 64%
G&A……...(26% x $19,202.32)……..…………… + _4,992.61__ 26%

Total……....(cost + G&A)……….........................$ - 17,301.79 ___________

Profit/Loss..(selling price less total cost)…………. $ 1,900.53 10%

You will note the selling price has changed slightly. The amount of G&A also changed to
reflect 26% of the new selling price. The end result is that the Company still secured a 10%
profit, thus still maintaining the Company’s performance P&L.
Now that we got all comfortable and understand the principle of how to create a selling price
and using the mark-up; let’s throw a wrench in the gears. Let’s add a sales representative to this
formula. All of the Company’s sales have been by the owner. The owner now decides that he has
many customers and he wishes to make most of them into “house accounts”. He wants to hire a
sales representative for these accounts and wishes to pay this person a monthly salary. As you
recall the Company grosses $100,000 a month and secures a 10% profit. The owner realizes that
he will have to forgo some of his profits in order to pay his new employee. This new sales
representative will have a lot of responsibilities and keeping up with these house accounts will
keep him very busy. The owner of the Company decided he will pay this new employee $30,000
annually. This means that he will be paid $ 2,500 a month, so let’s see what happens to the P&L
Statement now that a new employee has been added to the system.

Revenue …………………………….. $ 100,000

____________________________________________________

Expenses
Cost………….................... $ 64,000 64%
G&A …………………….. + 26,000 26%
Sale Representative ……… 2,500 3%

Total …………………….. $ - 92,500 __________

Profit/Loss………………. $ 7,500 8%

As we can see; the P&L performance has gone from 10% profit to 8% profit. The owner after
reviewing this has decided that this is an acceptable figure. The relief he will receive from this

34
new sales representative will allow him to spend more time selling other projects, hence
increasing sales and perhaps future profits.
Now that we have this new employee and new changes in the P&L Statement; what will the
multiplier have to be to receive a 10% profit? Based on his new P&L he now has only 8%. To
bring it up to 10% he will need to decrease his expenses by 2% to make up the difference. He
can either change his G&A by cutting those expenses by 2% or he can change his estimate from
64% to 62%, thus changing his multiplier. It’s either that or he has to increase sales using the
same multiplier and keep the same G&A expenses at bay.
Because the owner is a realist and knows his expenses are already very low, he decides to
change the multiplier to reflect his new demand on profit percentage. Let us adjust the multiplier
on the cost of a product from 64% to 62%.

Example:

62% = 100 x .62 = 161.29 or 1.61 as the mark-up

Revenue (cost x 1.61)……….……….. $ 103,040.00

____________________________________________________

Expenses
Cost………….................... $ 64,000.00 62%
G&A …………………….. + 26,790.40 26%
Sale Representative ……… 2,500.00 3%

Total …………………….. $ - 93,290.40 __________

Profit/Loss………………. $ 9,749.60 10%

The owner has now changed his multiplier which increased sales to bring his profit back to
10%. This of course increased the selling price by 3% to his customers. The other option would
be to maintain the same multiplier and simply sell more during the same time frame. This would
also drop your cost percentage accordingly, thus increasing profits. The nice thing about using a
P&L model like this is that you can create (in your head) scenarios and put them into a P&L
model and see what happens.

A Feeble Disclaimer:

Before we go much farther, it’s best to review this G&A expense thing. As previously
mentioned; it has been used as a catch all in these formulas to keep things simple. We will stay
with these kinds of examples throughout so as to maintain this simplicity. The examples used in
these previous formulas have always been at 26%. This figure is not representative of what
“your” G&A might be.

35
 These G&A expenses can be broken down into the three categories we used when describing a
sign company. These are Administrative, Sales and Operations.

Example:

Administrative Expenses

Mortgage……………
Building maintenance……

Utilities
Phone…..
Gas…..
Electric….

Taxes
Property tax
Corporate tax
Sales tax
Etc etc.

Insurance

Accounting
Staff
General overhead
Computer expenses
Printing
Etc etc.

Operations Expenses

Cost to produce product

Vender list etc etc
Freight expenses.
Equipment cost
Equipment list and dep. Sched.
Equipment maintenance
Shop maintenance
Production employees
Burden
401k
Insurance
Etc etc
Vehicle expenses
Truck lease
Maintenance
Fuel expense
Vehicle registrations
License expenses
Insurance

Sales

36
 Sales representative salaries
General sales expenses
Brochures
Education
Etc.
Sales secretary
Health bens
401k
Insurance
Commission sales
Health bens
Insurance
Etc etc

This list could easily go on for pages and could also be categorized accordingly or simply be
placed all under G&A in a P&L Statement much as we have already done. The point is that
portions of this “catch all” G&A we use as an example can be applied to things such as
mentioned earlier. Operations typically attempts to place everything it can into the Labor/Burden
Rates shown on the estimate. This is good as it attempts to represent the true cost of production
and do it on an hourly base.
The point is, that G&A has a wide range of meanings and that no range is absolute. I’ve seen
G&A as low as 4% and as high as 30%+ and neither one was wrong. There was a contractor that
once touted his G&A was a low 4%, but he forgot to mention that his labor/burden rate was
almost a $100 + per hour (cost), thus hiding most of his G&A expenses into labor. It’s not wrong
to do so; it’s just another way of saying the same thing. You can do a lot with a sheet of paper if
you get it to hold real still and so it is with G&A.
We will use G&A frequently and it will be in the 20% + range as this is quite common.
Remember; it’s not the range of your G&A that is important. What is important is that all your
expenses have been accounted. Where you put, them is up to you and your accountant.

Commission Sales

The electrical sign industry uses commission sales quite often. It sometimes is accompanied
with a small salary with commissions or just straight commissions. Either way, we need to see
how this might look on a P&L Statement. Typically, a commission sale is 10% of the selling
price. Let’s use this example and we will also ad an additional 1½ % to cover for sales expenses.
Sales expenses might cover for vehicle mileage, etc. Let us also decide that the Company wishes
to make a 12% profit on this commission sale. This time we’ll have a G&A of 22% to be used
for this model.
We first begin by creating a P&L performance model with zeros, using the percentages we
called out to be shown on the right side as the model.

Example:

37
 If the performance model shows a profit of 12%, then this would suggest that we need 88% in
total expenses, because 88 + 12 equals 100% which is what the revenue must represent. By
looking at this model we can see we already have 33½ % of our expenses which we listed earlier.
This 33½% covers the G&A, Sales Commission and Sale Expenses; leaving only the Cost at 0%.
This means we will need an additional 54½ % to complete the total expenses of 88%. This
54½% is then shown in the remaining Expenses portion of the performance estimate located on
the “cost” line.
We then take this 54½ % of cost and divide it by 100 to come up with a multiplier.

Example:

100 divided by 54.5 = 1.84 (mark-up)

We now know that cost (the estimate) Xs 1.84 will give us the proper selling price based on
this performance model. Let’s suggest that the estimator has done an estimate for the sales
person and that the cost of this estimate totaled $ 7,655.08. Let us now use what the performance
model has shown us.

38
Example:

Revenue (cost x 1.84)……….……….. $ 14,085.35

________________________________________________________

Expenses
Cost………….................... $ 7,655.08 54½ %
G&A …………………….. + 3,098.78 22 %
Sales Commission.. ……… 1,408.54 10 %
Sales Expenses …………... 211.28 1½ %

Total …………………….. $ - 12,373.68 ____________

Profit/Loss………………. $ 1,711.67 12 %

You can see how easy it is to create a mark-up to compute a sales person’s commission. Note
that in this particular case the Company chose a 12% profit. The Company’s position it that if it
is financing the project and taking all the risk; hence they should receive more money than the
sales person. This is quite typical in light of all the risks involved during the course of business.
A Company needs to come up with a policy regarding a minimal margin of profit it will not drop
below. There can be many factors that will guide the Company in making this kind of decision.
Is this a house account or a commission sale? Is this account a national company that will create
multiple projects or just one sale? The list reasons can go on and competition may be the biggest
influence. What is important here is the sign company’s flexibility to react. Flexibility in its
ability to come up with multiple selling prices based on the Company’s needs and profits.
Let’s use this same performance P&L, but this time lets show a 0% profit. We want to see just
how far down the mark-up has to go before we “break even”. As you may recall; knowing where
the break even point is can be very important when a sale is being influenced by the customer
and competition. This time we wish to remove the commission sales and sales expense. If the
Company is going to break even on a project, we sure don’t want a sales person to be rewarded
for such a sale. This will be just an exercise to see how far the mark-up drops to break even.

39
 To show a 0% profit we need to put 100% of all the money into the expenses. If the G&A is to
be 22%, then the remaining must be 78% to get to our 100% total expenses.

Example: 100 divided by .78 = 128.21 or a 1.29 mark-up.

Notice how we raised the mark-up to the next round number. If we chose 1.28 instead, then we
would actually be losing money as the 5 digit multiplier would suggest. If we use the exact same
estimate as previous ($ 7,655.08) and revise it with this new mark-up. We shall see what the
lowest price the Company could go without losing money.

Example:

Revenue (cost x 1.29)……….…………………………….. $ 9,875.06

_________________________________________________________

Expenses
Cost………….................... $ 7,655.08 78 %
G&A …………………….. + 2,172.52 22 %
Total …………………….. $ - 9,827.60 ____________

Profit/Loss………………. $ 47.46 0 %

We make a $ 47.46 profit which falls below 1% and should be considered your break even
point. Based on this formula’s G&A. This Company has a low of 1.29 mark-up for a break even,
40
all the way to a 1.84 mark-up for a Company’s profit of 12%, plus a sales person’s commission
of 10%. Thus, making the selling price as low as $ 9,875.06 up to $ 14,085.35 allowing for more
than $ 4,000 in flexibility.
This exercise isn’t to suggest you should sell your product and make no profit, but rather it
attempts to suggest that there is more than one price when selling a sign. The Company has
needs throughout the year and requires income accordingly. When times are good and their more
sales than there is time to build them, then it’s obvious the selling price will be at the high end of
the scale. The reality is; that times aren’t always good and that competition becomes fierce to
scramble around for what little sales there might be. We all want to make 12% plus on every
sale, but reality dictates that there are times when things get slim. These are the times you might
not be making much money, but at least your bills get paid; hence the purpose of this exercise is
to show you just how much flexibility your Company can have. A Company that does not sell
stands idle and you must sell at all cost to be successful.

Sliding scale commissions

We’ve just shown you how flexible a Company can be regarding its selling price. It can sell to
a point of break even, all the way up to where the customer finally says; “no”. These
percentages could easily be 15% + depending on demand.
What about the sales person? The problem with most sign companies is that their commission
sales people have no flexibility. When you talk to some of these sign companies and sales
people, they don’t think they need that flexibility. It’s odd how this flat commission system
created itself in this industry. Most commission sales industries don’t work like this. How can a
sign company that is willing to be as flexible as it needs to be to survive, then offer no flexibility
to their own sales staff; aren’t they suppose to survive? Many of these sales people are so
accepting to this system and they don’t see the need or that perhaps that a problem might exist.
They prefer to sell at 10% and let sleeping dogs lie.
The problem with this is that this isn’t what happens. While everyone accepts the status quo,
they are constantly nudging on the fringes of the very system they accept. Example: A sales
person receives their artwork and price (at 10% commission) for a project their customer is
wanting done. They see their customer and go over the artwork and then the selling price. The
customer likes what he sees, but asks: “Can you drop this price down another $500”? “I have
another sign company that quoted this project for $500 less, but I like your drawing better”. This
is a very common question to anyone in sales. The customer is simply looking to negotiate and
they expect the sales person to respond. The problem is how the sales person actually does
respond. The sales person inevitably goes back to the Company and asks the Sales Manager to
have the price dropped by $500. The real problem is; by dropping the selling price and
maintaining the same cost that the customer likes from the artwork. The sales person can no
longer get 10% without it costing the sign company. The real interesting part of this scenario is:
Who is the sales person negotiating with? By creating this flat commission structure the sales
person inevitably ends up negotiating with their own company! The Sales Manager has placed
himself into an adversarial role with his own sales person! In the mean time; the customer buys
from the competition because the sales person can’t make a simple decision without having to go
back to the Company for their approval.

41
 This scenario happens day in and day out in this industry everyday and no one seems to think
there is a problem. By limiting the sales commission to only one price the sales person literally
has nothing to negotiate with. How does one negotiate with one price? Additionally; how do we
empower the sales person to make these decisions without having to go back to the Company
every time the customer asks a question? If you’re interested in increasing sales then it is
suggested you figure out a way to do this, because an empowered sales person gets things done,
hence increases sales.
Let’s create a sliding scale commission system that will enable the sales person to receive more
than one selling price. This sliding scale system needs to offer a 10% commission, but also needs
to offer commissions above and below this percentage. We know how to do this by creating
P&L performance models for each commission percentage. Before we get started perhaps it’s a
good idea to layout what we want. There are basically two demands you will need for each
performance model. These are; what percent commission we want for the sales staff and what is
the percentage of profit for that commission.
If the Company creates a sliding scale for the sales person to reap great benefits from. It is also
true that the sliding scale will also create commission below 10% that will require the sales
person to receive less income. The Company needs to consider what percentage of profit it will
accept based on that commission. In short, is the Company willing to take less money if the sales
person is; if so then how much? The Company needs to decide what its bottom line percentage
profit will be when the sales person also sacrifices commissions. Additionally, what shall the
ceiling be? Keep in mind; the Company can be non-negotiable if it chooses and simply stay with
one percentage of profit.
First lets us determine what percentage scale we will allow for the sales person. Let’s assume a
low of 2% and a high of 15%. They will be as follows:

2%, 3%, 4%, 5%, 6%, 7%, 8%, 9%, 10%, 12%, 15%

This sliding scale will allow the sales person to sell as low as 2% commission and as high as
15%. Notice that the sales percent rate above 10% isn’t as defined as it is below 10%. We are
only going to allow for 12% and 15% respectively. It is seldom that sales staff sells above 10%
and offering something hirer is done typically because sales people want to be able to negotiate a
higher price down to 10%; hence we will offer them these two options.
It has been determined that this Company will only accept an 8% bottom line. The Company
feels that taking all the risk doesn’t allow for them to go any lower. This of course is a policy
decision by this hypothetical Company and shouldn’t reflect on any choices you might make in
the future. Additionally, the Company has also decided that if a Sales person can sell at a 15%
commission, then they too should be able to receive this same percentage. Here is how the scale
will be laid out:

42
 Sales Commission Company Profit

2% 8%
3% 8%
4% 8%
5% 9%
6% 9%
7% 10 %
8% 10 %
9% 10 %
10 % 12 %
12 % 12 %
15 % 15 %

We will also compute a 1½ % for sales expense with these formulas and a G&A of 22%. For
the sake of consistency, we will use this criterion throughout the remaining book. There is a disk
in the back of this book of the estimating spread sheet for you to use and make examples. It is for
all intent and purpose a computerized estimating system for you to use independently. It is
suggested that when using this computer spread sheet that you make independent copies on your
computer screen so that they may be saved and used separately. While this computer estimating,
spread sheet is formatted for these exercises, it can also be re-formatted to reflect your particular
Company’s performance P&L.
Let us begin with the lowest commission rate of 2% using a performance P&L model that has
been zeroed out leaving only the percentages.

Example:

43
 The P&L performance model indicates all the percentage values that we are aware of. The total
expenses equal 25½ % and the percentage of profit is 8% for a total of 33½ %. This will suggest
that the remaining empty percentage located on the cost line will need to be 66½ % for it to total
100%

100 divided by 66.5 = 1.5038 or rounded off to the nearest whole number of 1.5 mark-up

For this Company to have a sales person sell a sign at a 2% commission and receive an 8%
profit the P&L performance model will need to have a 1.5 mark-up. We have taken the liberty of
computing all the mark-ups using this performance model and they are as follows:

Sales Commission Company Profit Mark-up Multipliers

2% 8% 1.5
3% 8% 1.6
4% 8% 1.62
5% 9% 1.67
6% 9% 1.7
7% 10 % 1.77
8% 10 % 1.8
9% 10 % 1.85
10 % 12 % 1.95
12 % 12 % 2.0
15 % 15 % 2.3

These eleven options will now be available to the sales person when he/she is given a sales
package for their customer. Let us use the computer estimating spread sheet and compute a pole
sign that the sales person wishes to sell to one of his customers. The total cost on the estimate
will be $ 10,651.96. We will now view what the sales person will receive as their pricing sheet. It
is sometimes referred to as a “mark-up analysis.

44
 Go to the computer estimating screen. “Click” the tab on the bottom left portion of your screen
labeled “Mark-up. A new screen will appear called the Mark-up Analysis. We are only interested
in the top section of the first three columns.

45
Example:

Column one shows the sliding scale percentages, column two shows the selling prices as they
relate to the percentages in column one and column three shown with “red” copy lists the
commission amounts. The selling prices in each row on column two are dictated by the
multiplier (mark-up). As you recall; the estimate amount was $ 10,651.96. The mark-up for a 2%
commission is 1.5. If we take the estimate amount X’s the mark-up, you will get the selling
price.

Example:

$ 10,651.96 x 1.5 = $ 15,977.94 as indicated on the bottom row shown on the mark-up analysis.
You can now use the list of mark-ups and go up the scale accordingly. Note that based on this
example of the sliding scale the sales person has a selling range of $ 15,977.94 up to $
24,499.51. This is a range of over $ 8,500. This sales person now has a lot to negotiate from.
Now that we have provided a sliding scale mark-up analysis for the sales person we can expect
more sales. They have been empowered to make decisions regarding the selling price while
negotiating with their customer. The customer becomes more confident in the sales person when
decisions are made on the spot. Additionally, the Sales Manager is no longer finding himself in
an adversarial roll with his own sales staff.
It’s interesting to note that many sales people introduced to this system tend to be a bit
cautious. They don’t like the idea of selling something at a lower commission. This of course
isn’t what typically happens. Typically, the sales person quotes a higher percentage and then
46
goes down to his/her 10% comfort level. The real point is that not all buyers are the same. Some
customers do a one-time purchase and have little bargaining power, while other customers
represent many stores. These kinds of buyers are much more adept at getting lower prices and
use their multiple purchases to their advantage. Any sales person worth their salt can see the
difference in these kinds of buyers and it’s a system like this that will help them satisfy these
customers. It is sometimes better to take a lesser percentage of a sale and get all the stores for
doing so. Let’s face it; 2% of a million dollars is better than 10% of nothing.
Some years back I had a couple of friends that partnered together to sell a large project for a
casino. They decided to go together on this project because each had their own expertise. One of
them had a very strong operational back ground and knew all the technical aspects of the project.
The other one was just plain a darn good salesman. They closed with a twelve-million-dollar
lease sharing a 2 percent commission. We all celebrated that night and I don’t recall seeing any
sad faces. This sale was several months in the making and they couldn’t have done it without
using a sliding scale.

Pricing Dynamics

The sliding scale system has allowed flexibility and range in the selling price; however there
are also other pricing strategies you can employ. Previously mentioned while discussing
estimating; is the area known as “buyouts” which are typically favored by management. It is
because the costs are fixed management can have a more confident outlook in this section of the
estimate. Unlike labor, where you can experience overruns; buyouts take the direct responsibility
off the company’s back. Time lines, dates, and overruns are non-existent because those
responsibilities have been subcontracted to another company. If they have overruns, then the
problem is theirs. We negotiated a price and time frame from the subcontractor and any overruns
experienced by the subcontractor will have no affect on our bottom line. This is a rather
comfortable position for a company to be in.
Here is a scenario where a buyout can be leveraged to make the company more competitive
and still allow a sales person to collect a good commission on the sale. Sometimes, it’s all how
you look at things.

Example:

Your sales person comes in with a nice lead. They have sat down with an architect and have
gone over what appears to be a very nice project. It’s a large plaza with two pylon-displays. The
main entrance pylon has a message center incorporated with it. Additionally, there will be
several large sets of channel letters displays and wall displays throughout the plaza. The architect
will provide specific drawings as the architectural firm has designed the project and all
contractors will be bidding the same thing. This project will run into hundreds of thousands of
dollars.
Now, as a Sales Manager it is a good idea to recognize advantages when they come along. On
a project this size the sales person will need to be somewhat negotiable. In short, they will not be
selling a project this size at a10% commission with all this competition. They can try if they like,
but reality dictates they will not make the sale without some concessions. Many other sign
companies will be pounding the doors on this one too. The prestige of selling a project like this

47
will go a long way and you can bet that many other companies are working on strategies to make
this sale.
As a Sales Manager interested in our sales people to make a sale like this, what can we do to
support him? A clue has already been given to us in the description of the project. It’s that main
pylon sign with a message center. This sign is different than the rest of the project. This sign will
have a very large portion of the cost in the buyout section of the estimate. That’s the part of the
estimate management is comfortable with.
Here are the costs given to us by our estimating department.

1 main ID pylon display with message center display at a cost of …….. $ 75,318.22
1 ID pylon display located in a secondary entrance at a cost of ……….. 33,211.88
3 sets of channel letters reading Plaza name at a cost of ………………. 9,211.01 ea.
3 wall displays reading Plaza name at a cost of ………………………… 5,721.13 ea.

The total cost to the company for this project is over $ 150,000. We of course will need to put
these costs through the computerized mark-up analysis that has been previously shown, so we
can come up with itemized selling prices. We shall use the same commission rate chart already
on the computerized spreadsheet system.
The sales person has decided to be as competitive as he can be by accepting a lower
commission rate of 4%. Here is a list of the selling prices using the computer spreadsheet at the
4% commission rate.

Sale Price 4% commission

1 main ID pylon display with message center ………. $ 122,015.52 $4,880.62

1 ID pylon display located in a secondary entrance….. 53,803.25 2,152.13
3 sets of channel letters reading Plaza name…………. 14,921.84 596.87
14,921.84 596.87
14,921.84 596.87
3 wall display reading Plaza name…………………… 9,268.23 370.73
9,268.23 370.73
9,268.23 370.73
Grand Total Selling Price……………………………..$ 248,388.98 $9,935.55

One can see that the selling price has come in just under a quarter million dollars and is
competitive. The sales person has taken a substantial cut on much of the commissions in an
attempt to make this sale. As previously mentioned the main pylon display has a message center
and it has a cost of $34,221.25 plus freight of $977, totaling $35,198.25 which is 47% of the total
cost of the pylon sign. The remaining balance of $40,119.97 will cover the cost to fabricate and
install the remaining portion of the display. This also includes the installation of the message
center.
We are very confident in the ability of the subcontractor to fabricate this message center as we
have worked with them many times in the past and we know they will deliver it on time and on
budget. Additionally, if they do experience overruns, it is not an issue to our company as there

48
was a quote that the subcontractor has previously agreed to. In short, our costs are fixed. This
being the case let us consider selling the unit to our customer at cost. The company is
theoretically out nothing. If the customer agrees to pay for the message center unit plus freight in
advanced, then what is our risk? We will have spent no time on this at all, let alone any money.
We have removed all the risk, so let’s take it completely out of the formula. Let us review the
selling price of this pylon sign with the idea of selling the unit at cost. Keep in mind; we will not
be removing any of the expenses regarding the materials and labor that it will take to install this
message center. Those items will still be in the estimate and marked up accordingly.
The only thing we have to do now is sell this idea to the sales person. Remember; they’ve
already shown a competitive spirit by reducing their commissions to 4%. Giving the unit away
will mean no commission at all for this portion of the sale. So let’s us suggest to the sales person
to raise the commission for the remaining portion of the sale to 6% (except the message center).

Example:

Sale Price 6% commission

1 main ID pylon display with message center

pylon sign w/o the message center …… $ 68,203.95 $ 4,092.24
message center (at cost) ……………… 34,321.25 0

Grand Total of Pylon Sign ……………………….. $102,525.20 $ 4,092.24

The selling price of the main pylon sign with the message center display has been reduced
substantially; however, the sales person’s commission has been only lowered slightly because
they are now receiving a higher percentage on this remaining selling price. Now that we have
disregarded the message center as a profit-making potential, we can now concentrate on bringing
the rest of the project into something more palatable for management and sales. Let’s review the
estimates again, but this time we will compute all of the selling prices with a 6% commission.

Example:

Sale Price 6% commission

1 main ID pylon display (with message center @ cost) $ 102,525.20 4,092.24

1 ID pylon display located in a secondary entrance….. 56,460.20 3,387.61
3 sets of channel letters reading Plaza name…………. 15,658.74 939.52
15,658.74 939.52
15,658.74 939.52
3 wall display reading Plaza name…………………… 9,725.92 583.56
9,725.92 583.56
9,725.92 583.56

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Grand Total Selling Price……………………………..$ 235,139.38 $ 12,049.09

By removing the cost of the message center out of the estimating system then adding it back
into the selling price, the main pylon sign with the message center at cost has been reduced by
over $13,000. Additionally, the commission on the sale of the remaining portion of the main
pylon sign and the rest of the project was increased to 6% which has increased the overall
commission over $2,000 and the selling price of the project is still below the original sales price
when it was computed at 4% commission. By leveraging the buyout, we have managed to reduce
the selling price by more than 5% and increased the commissions by 22%. The results are a win-
win situation. Your Company makes the sale at a higher percentage of profit (from 8% to 9%),
the customer gets a great price and the sales person makes more money. Everyone wins!
This is one of those pricing concepts that sometimes leave you scratching your head. There is
just something about giving away something at cost that leaves people nervous. When leveraging
a Buy-out like this, you will find many people disagreeing, but as long as you get your money up
front for this then you are out nothing. You have nothing left to do but benefit from the
remaining portion of the project. As an added incentive, your message center supplier in all
likelihood will offer you 2% back when paid in full and up front. This would amount to $
686.43. Sometimes getting down and dirty requires some creativity.

Leasing and Maintenance

Leasing signs is an opportunity that the majority of the sign industry largely ignores. Many
companies assume sign leasing is just another financing option, but apparently, they don’t think
it benefits them. There are only a small handful of sign companies that offer this option to their
customers. The sign industry has had little interest in this area of sales.
Why would a sign company have any interest in leasing signs? To start with; leases look great
in your company’s portfolio. Leases create an asset of deferred income over the life of the lease
agreement. Enough of this deferred income stabilizes cash flow. A lease can generate
approximately twice the income than an outright sale of a sign, and most important, leasing
keeps the sign company in contact with their customer over the length of the lease. Any future
signs required by that customer would allow this sign company based on its established
relationship by the lease agreement, a better chance to make additional future sales.

Why should you consider leasing?

Follow the money:
Let’s review two different sign companies. Company “A” sells one million dollars worth of
signs annually. It will do so for a period of 5 years without any increases or decreases in sales.
This would mean that Company “A” sells $83,333.33 monthly. All sales are outright. Company
“B” also sells a million dollars a year. However, 10% of its sales are 5 year leases. There will be
no increases or decreases in sales for a period of 5 years. This would also mean that company
“B” sells $83,333.33 per month, but 10% of those sales are 5 year leases at 16%.

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 Annual Revenue Annual Revenue

If both Companies were to stop selling after ten years; the Company that leased its signs will
now receive an additional $ 1,806,260 for another five years after this ten-year example!!!

Leases provide a monthly income thus helping stabilized a company’s finances. A company
that lease may earn tax credits comparable to their taxable profit. Additionally, commissions
used in leasing can also create steady income for a sales person and can benefit the sign company
in relation to its sales staff. Leasing can create a situation that helps keep sale people from
leaving the company, because sales staff knows they will lose future leasing commissions if they
choose to leave the sign company prior to the end of the lease agreement. This creates a stronger
position for the sign company in relationship to its sales staff.
Why would your customer want to lease? Cash flow might be one reason; a customer may not
be able to afford a lump sum payment for a sign. The money used to purchase a sign could be
used for goods and services instead. This money loss reduces earnings on equity capital. And any
customer would prefer not to take equity capital out of the business, thus creating a long-term
capital asset; if he doesn’t have to. Additionally, leasing falls under an “advertising expense”,
51
which is 100% deductible and would not be deleted from the working capital. The actual net cost
of advertising is reduced by whatever tax bracket the customer is in. Finally; it makes little sense
to prepay for years of on-premise advertising, which is how signs should be viewed.
Leasing is basically a method of financing that allows a customer to benefit from the use of a
sign company’s property (the sign). In short; it is a rental agreement where the sign company
retains ownership of the sign during the length of the lease. This agreement has benefits for both
the customer and the sign company. Terms are drawn up for this agreement and a lease rate is set
up based on the amortization schedule with maintenance, taxes and insurance added. The
payments are then determined over the life of the agreement.
Leasing signs is often overlooked by many sign companies because many companies look at
leasing as just another financing option to selling signs. The reality is you are no longer selling
signs; rather you are selling advertising which is a completely different endeavor than selling
signs; requiring a different approach. Selling advertising allows the customer to have a different
perspective. Instead of buying a product, customers can approach leasing as something that can
be included in their monthly advertising budgets.
Here is a scenario that shows the difference when leasing a sign over an outright purchase. This
scenario best illustrates the purchasing of advertising. To start with, a sign is a tool used to
advertise. Its primary function is to identify a business. Keeping that in mind, this scenario has a
customer that owns a company; it’s a clothing store. A sales person enters the clothing store
identifying his business as selling advertising for a local radio station. The clothing store owner
invites the sales person in, allowing him to explain his services. The sales person explains the
services regarding the radio station’s advertising program in great detail. The sales person then
shows a five-year advertising program customized for his company. The customer is very
interested and is excited about such an advertising opportunity that will help make him money.
The salesman then closes his pitch by saying that the customer must purchase this advertising all
in advanced. In short; the customer pays for advertising up front for service he won’t receive for
the next five years. When the sales person is done, the customer politely chooses not to purchase
any radio advertising. The primary reason was that the customer does not wish to purchase in
advance for service not yet received.
Now after reading this scenario, what kind of company would sell advertising to their customer
in and require they pay in advance? Can you blame the store owner? Of course-not, yet this is
what the sign industry does everyday when they attempt to sell signs to their customers. We are
basically asking our customers to purchase advertising up front, years in advanced of their
advertising benefits. On top of that; they receive no benefits from doing so. The sign takes years
to depreciate; the customer has to add a rider to his insurance, and will also pay additional
property taxes. Last but not least, the customer has to pay to maintain his signage for its life time
use.
Compare selling signs with this scenario and you can see the relationship between the two.
When introducing leasing to a prospective customer, explaining a scenario much like this, it soon
becomes apparent to the customer that leasing signs does make very good sense.
We use the term “Lease”, we (the sign industry) really mean “Lease/Maintenance”. The sign
company will manufacture a custom display for its client and will also maintain this sign.
Because this sign is custom made, you do not want your client to have just anyone service, or
maintain it. To ensure that this doesn’t happen, you incorporate a maintenance program for the
life of the lease agreement. This way the customer will have the benefit of not having to worry

52
about the sign’s maintenance and upkeep and you won’t have to worry if someone is not
maintaining your sign properly. If the sign is not maintained by you, it will fall in disrepair
hence; loses its advertising value and the customer may lose interest in paying for something that
does not do its job.
A custom sign made for your customer has no value to your company if the customer no longer
wishes to pay. Removing it will only hurt you by putting your customer in a stronger position not
to pay, so maintaining it is prudent in the long run. And of course, your company can profit from
selling a maintenance agreement along with the lease.
When applying maintenance to a lease agreement, you must first understand what the
responsibilities are to maintain the display. Maintenance can fall into many responsibilities, such
as: maintaining the sign to light, cleaning the sign annually, and other details, such as painting
the sign every two years, etc. The maintenance specifics need to be determined along with
determining the cost of the lease. It’s a good idea that the maintenance you offer your customer
for the lease covers all aspects. The sign should look its best throughout the life of the lease
agreement. Annual clean, painting, general maintenance, etc. should be included. It benefits you,
as well as the customer to have the sign looking its best. A sign looking its best not only keeps
the customer satisfied about his advertising, it also advertises your company’s quality to other
prospective customers.

Pricing a lease/maintenance agreement

The pricing of a lease starts with the selling price of the sign. As we have previously seen;
pricing can be very dynamic. We now offer a sliding scale pricing system, which gives us
multiple prices. The computerized sliding scale that we use offers you eleven selling prices to
choose from; hence this will imply that you will have eleven prices to give for each lease you
might offer your customer. In any case, we begin at the selling price.
Use the amortization table to determine what the portion of the monthly payment will be. Note
that the table uses multipliers to determine the monthly payment. To determine which multiplier
to use, decide how long you want the life of the lease agreement to be and what percentage rate
you wish to use. Example: It is very common for the sign lease to be 36 months or 60 months
long; however, you can determine any length of lease you wish. The length of the lease is one of
the things that can be negotiated between you and the customer. Another area of negotiating may
be the “buyout” of the sign by the customer at the end of the lease. Don’t confuse this with the
buyout portion of an estimate. A lease buyout means how much money the customer needs to
spend to satisfy the lease and own the sign outright.

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Amortization Table

Calculate the multiplying factor times the selling price of the sign for monthly payments.

Months 8% 9% 10% 11% 12% 13%

12 .08699 .08745 .08792 .08838 .08885 .08932

24 .04523 .04568 .04614 .04661 .04707 .04754
36 .03134 .03180 .03227 .03274 .03321 .03369
48 .02441 .02489 .02536 .02585 .02633 .02683
60 .02028 .02076 .02125 .02174 .02224 .02275

14% 15% 16% 17% 18% 19%

12 .08979 .09026 .09073 .09120 .09168 .09216

24 .04801 .04849 .04896 .04944 .04992 .05041
36 .03418 .03467 .03516 .03565 .03615 .03666
48 .02733 .02783 .02834 .02886 .02937 .02990
60 .02327 .02379 .02432 .02485 .02539 .02594

All leases must have a buyout clause in order to be recognized as a lease and to take
advantages what the leases have to offer. The buyout is simply the customer’s cost to purchase
the sign during the course of the lease or after the lease has expired. This buyout should reflect
the perceived value of the sign during the term of the lease. Typically, the sign industry offers a
buyout around 50% of the original selling price at the end of the lease. The percentage can vary
depending on the term.
Here is an example of an 84-month lease where the customer might pay if they choose to
buyout before the lease term is up.

84-month lease buyout value

1 through 12 months ………… 100% of total selling price

13 through 36 month ………… 80% of total selling price
37 through 60 month ………… 60% of total selling price
61 through 72 month ………… 40% of total selling price
73 through 84 month ………… 30% of total selling price
End of lease ……………………. 20% of total selling price

54
 Keep in mind that “reasonable value” doesn’t have to suggest the value schedule as shown
above. Reasonable value is a term that can be somewhat subjective because the value of
something is in the eye of the beholder. It should be remembered that a “custom” product that
you have manufactured for your customer may have little or no value to anyone else once the
lease period is over. The value schedule above could be easily being argued by the sign company
based on these points.
A good example of this could be a leasing company selling “equipment leases”. The end of the
lease could have a one dollar buyout. The lease’s perspective is that the equipment has no value
to him if he takes it back. This is because the equipment is custom made for the business that
lease the equipment and is likely impossible to sell or re-lease.
On the other hand; some leasing companies will determine that the product at the end of the
lease will have value. An example is an auto lease. The buyout of the auto lease may be valued
on the blue book cost. The point is that the buyout is “perceived” value from the leaser and or
lessee. The leaser knows that the value is real to the lessee, so a buyout price will reflect that
accordingly. Unlike an automobile; a custom set of channel letters will likely only have value to
the customer and any possibility of re-selling it to someone else is impossible and this must be
kept in mind.
The buyout of a high-rise sign on the other hand may be viewed differently by the leaser
because a sign cabinet is reasonably easier to re-sell; hence viewed as an asset worth recovering,
as might the steel structure. The buyout could be higher priced due to the higher perceived value
of the product compared to the custom channel letters after the life of the lease.
It is also worth noting that not all customers will want to purchase their signs at the end of the
lease agreement. Additionally; leasing a sign carries the risk that at some point before the sign
company has recovered the cost of the sign and began to make a profit, the customer could stop
making payments for whatever reason (example: going out of business). In this case the sign
company could be stuck with having incurred the cost of a custom sign with little or no re-sale
value. This is the trade-off to selling signs outright. The higher risk position creates the potential
for higher profits, but also greater losses if the Company isn’t careful as to who they lease to. For
this reason, you should only lease to a customer in whom you have good confidence of making
all the payments for the life of the lease.
Some may wish to take advantage of renewing the lease for additional years. This renewed
lease typically is based on the buyout price at the end of the original lease agreement, as opposed
to its original selling price. Other customers may wish to end the lease agreement and choose not
to purchase the sign. In this case, the sign company will have to remove the sign at its own
expense, unless the lease contract states otherwise.

Let us now review how to formulate a lease. We shall use the same cost of $10,651.96 that was
given by the estimating department in the earlier example. This time, let us compute the lease at
a selling price using a 10% commission which works out to a 1.95 mark-up which will secure a
12% profit for the company. This will be a 36-month Standard Lease/Maintenance agreement
financed at 15% which is what the computer estimating sheet is preprogrammed to. This
computer program mark-up analysis offers a total of nine leases: Three Standard Leases and six
Paydown Leases. The Paydown leases will be explained shortly. Additionally, it uses a
multiplier of .004 times the selling price to create a monthly maintenance price. Multipliers for

55
maintenance are typically .004 to .005 of the selling price; however, this may change if
maintenance programs require specifics responsibilities or if the unit is somehow special.
Example: A message center display may require special considerations when pricing out
maintenance.

This is how you formulate a Standard Lease/Maintenance using the description previously
described.

Example:
Sales Price =_$ 10,651.96 x 1.95 = ………………………….… $ 20,771.32

Multiplier = (using the amortization table) .03467 x $ 20,771.32 = $ 720.15 (per

month)
Maintenance = .004 x $ 20,771.32 = …………………………. + 83.09 (per
month)
Insurance ( 2%/yr divided by 12 mons) = (optional)
Taxes ( 2% yr divided by 12 mons) = (optional)

Monthly lease/maintenance …………………………………… $ 803.24 (+ tax)

NOTE: This formula removes the monthly Insurance and Taxes from the lease. Many States
have not caught on to taxing and requiring insurance on leased signs; hence we have dropped this
from the computer system to best represent the majority of the States. It is suggested how-
ever that the lease agreement cover the insurance responsibility by the customer as they pay
much less due to already paying insurance on the premises.

Typically, when a customer purchases a Standard Lease/Maintenance agreement they pay

money up front for a down payment. This money usually represents several months of payments.
Example: They may pay first two month and last three months of a 36-month lease as a down
payment, plus tax. This would be a total of five months down. Another example would be the
first month and then the last four months of the lease agreement. It could also be fewer months
down, or additional months down; however, five months down is typical.

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Paydown Leasing/Maintenance

Another creative way of coming up with a down payment would be to go back to the original
selling price from which you retrieved your leasing figures from. Example: The past computer
estimate system we used a selling price of $ 20,771.32. Have the customer pay 20% of the
selling price as a down payment. This would be $ 4,154.27. Now subtract the down payment
from the original selling price. This would leave you with a balance of $ 16,557.05. You then
take this revised price and compute a new lease. The monthly lease payment amount comes out
to be $ 659.20. This is a considerable amount less than the Standard Lease/Maintenance. The
advantage is that the customer pays less per month even though they paid approximately the
same amount of down payment. The difference is, is that we are now refinancing at the entire
length of the 36 lease, rather than 5 months down and the remaining 31 months to be paid. You
can have a Pay Down to be any percentage you like; 20% and 35% are used in this computer
estimating system. This is a great way to lease and easiest on the customer. We will use this
concept in the near future as an example.

Here is an example of the mark-up analysis when computed with the 20% Paydown as stated
above:

57
 Column “R” represents the monthly lease payment for the 36-month lease. All of the 36-
month lease prices are computed at a 15% amortization multiplier. To the right of that is column
“S” which represents the commission due the sales person for the sale of the lease. Note that the
commission amount for the lease is approximately 30% more than an outright sale. In short; it is
very profitable for the sale person to sell leases. Additionally, you will notice that columns “P &
Q” represent a sliding scale for 24 month leases using a 14% amortization multiplier and
columns “T & U” represent 60 month leases using an 18% amortization multiplier respectively.

Maintenance Agreements

The remaining part of the lease agreement is the maintenance. Pricing maintenance can be
flexible and is a very important part for pricing leases. Let’s examine maintenance agreements;
how they are sold, drawn up and priced.
The selling of a maintenance agreement can be applied to leases, sold outright to a single
location (or many locations), it can even be added to the selling of a sign. A maintenance
agreement added to the selling of a lease is without a doubt the easiest way to sell maintenance.
By selling the lease, you have also sold a maintenance agreement.
Most signs that are sold outright have no maintenance agreement with them. Instead the sign
company offers a warranty period. This warranty period may last anywhere from a couple of
months to a year, or sometimes even more. A warranty could be perceived as a free maintenance
agreement. In fact, it is suggested that they be named such; offering it as a free service for the
same period of time as you would have the warranty. In the eyes of the customer; they believe

58
they are getting a free service rather than a warranty. Because this concept has been introduced
to them, they grow use to this perceived service during the course of the time it is afforded them.
Towards the end of the free maintenance program, the sign company can offer this service
extended for a monthly fee. The customer being use to having the service may be more receptive
to the sale. Typically, the sign company sends out a letter to the customer telling them the
maintenance program will be ending at a specific date. This is then followed up with some sales
call a week or so later. It’s a much easier way to sell a maintenance agreement than doing cold
calls.
There are probably as many ways to estimate a maintenance agreement as there are ways to
estimate. Many of the larger companies will price them on a “per piece” basis. Example: $3.50
per bulb, 22 cents per sq. ft, minimum charge of $50, etc. Other companies will estimate what
they anticipate it will cost per year and then price out a monthly rate accordingly. Many things
can dictate what the cost will be, including size, height, distance, construction, type of
illumination, etc.
Here are some examples of pricing “per piece” or by the sq. ft. These prices are intended as an
example of what a sign company might charge per month to its customer when estimating a
maintenance agreement. Keep in mind that these are NOT actual figures, rather just an example.
Costs like these vary from place to place and year to year.

Monthly Maintenance Charges Clean & Inspect Repaint

Single face wall sign per sq. ft. .18 .45

Double face wall sign per sq. ft. .24 .52
Illuminated awning per sq. ft. .11 .00
Channel letters per upright inch. .06 .15

Lamps & ballast Price per month Extra long lamps

2 lamp ballast (24” thru 96”) 3.25 6.00

3 lamp ballast (24” thru 96”) 4.75 8.50
4 lamp ballast (24” thru 96”) 6.45 11.20
5 lamp ballast (24” thru 96”) 7.85 13.75
6 lamp ballast (24” thru 96”) 9.50 15.75

Pricing by the piece, or sq. ft. is fast and easy, but has its drawbacks. There are several pricing
guides in the market that use this pricing system when estimating for maintenance agreements.
This pricing system works pretty well when you have a lot of maintenance contracts, but not if
you only have a handful of contracts. A company that only has 25 or so contracts may not make
as much profit if it were to price in this fashion. The problem is; if one or two of these estimates
go into cost overruns, it can affect bottom line because you didn’t have that many contracts to
begin with. For this reason, in most cases, except for those larger companies with many
maintenance contracts it would be a good idea to price them individually.
The computerized mark-up analysis system uses a multiplier of .004 times the selling price to
come up with a maintenance price. It is then computed on the sliding scale. This seems to work
pretty good in most cases; however, a project that may have a lot of money in the “Buyout”
portion of the estimate, like a message center. You might wish to increase the multiplier or

59
estimate it individually. This multiplier of .004 is not in stone and can be changed. I have seen
this technique use up to .005 or better as a multiplier. The thing to remember regarding this is
that the probability of sale diminishes the higher the maintenance price. My personal experience
is that a multiplier of .004 on new signs we fabricate and sell as leases make us money and that
all others should be viewed with caution.

This graphic shows where on the computerized mark-up analysis the maintenance information
is. Column “N” list the maintenance prices on a sliding scale and column “O” lists in “red” the
commission amounts for the selling of maintenance on a sliding scale.
Commission payments

In the computerized mark-up analysis provided, all of the commission amounts are shown in
“red”. Column “M” marked in “red” show the commission amount received on a sliding scale.
Column “O” show commission amounts for a maintenance agreement, Columns “Q,S,U” shows
commission amounts for the leases. All of these commission amounts are total amounts due the
60
sales person “after” the Company gets paid by the customer. This can create some financial
issues for sales as they need to be paid for their services. The problem is, that a sales person
might sell a project in July and the project may not be completed until late August and the
customer not pay until late September. Typically, the Company offers draws against commission
sales and this does help.
What about Lease sales? Leasing requires the customer pay a handful of months ahead or uses
the pay down system. In either event the sales person can receive their portion of the commission
based on that percentage received. Sales people can then expect to receive monthly or annual
checks for the remaining length of the lease agreement. If a sales person has many leases, then
commissions are paid throughout the year depending on the commission schedule for each lease
agreement.
Some companies have stipulated in their contract with sales staff that commissions are lost to
them if they are no longer employed by the company. Thus, insuring the sales person doesn’t
look for greener pastures. There position is that if a customer doesn’t pay, then no funds are due
to the sales person. Additionally, they rely on the sales person to be their collection agency when
the customer hasn’t made payments; arguing instead that revenue is lost by using in-house staff
or outside contract when collecting lease payment from their customers. At any event; leasing
tends to put a tighter hold on sales people. The more leases they sell, the less likely they will
leave.

The Mark-up Analysis has now given us eleven selling prices to sell a sign from a 2%
commission up to a 15% commission with varying percentages of profit for the company. It also
gives you eleven prices for maintenance and eleven prices for 24, 36 and 60-month lease
agreements. This one screen which can be printed on an 8 ½ x 11 piece of paper for the sales
person will give him/her fifty-five different prices to negotiate with.
The sales person need only to type out on the top left portion of the mark-up analysis the
selling price in which he/she wishes to use. This will identify which figure the sales person
wishes to use or the sale.

Example:

61
 If the sales person wishes to sell this sign at a 10% commission, then they would indicate so
on screen “M-1” as shown. They then would have to indicate what the tax percent is in the State
which they are selling on the screen “N-3”. The computer mark-up analysis is automatically set
at 8% at this time, but can be changed by deleting the box, then inputting another value.
If a sale has been made, then this would be printed out as show above for order processing.

Buy VS Lease

Some years back I was visiting sign companies on the west coast. Several of these companies
had leasing programs and they were doing pretty good. The majority of these companies were
using the “Buy VS Lease” forms. What it basically is, is a form that compared what expenses
you would incur with a “buyout” verses those expenses with a “lease”.
The left hand side of the form shows the results of what will happen financially if the sign was
purchased. The financial scenario shown give the results of the income tax effect at the end of
the period shown. This scenario includes maintenance during this period, taxes, insurance,
depreciation, etc. The net cost after taxes is shown on the bottom left side of the form.
The right hand side of the form shows the customer what financial benefits will result when
leasing the sign. The financial scenario also shows the results of the income tax effect at the end

62
of the period. The scenario includes all of the maintenance, taxes, etc, showing the net cost after
taxes on the bottom right hand side of the form.
This form illustrated perfectly what would happen and what advantages you would have with
leasing signs over an outright sale. I’m not sure who came up with this idea, but it really became
a great tool in selling leasing.
Let us go back to our computerized estimating system again. We’ll maintain with the same cost
the estimator gave us some pages back of $ 10,651.96. We’ll even use the same selling price at a
10% commission of $ 20,771.32.

Put the selling price of $ 20,771.32 into the indicated “Price Quoted” box as shown. Let’s
assume the tax rate is at 8% as indicated. Now on the lower portion of your computerized
estimating screen you will see four (11) tabs. Let’s click on the tab labeled “20%36”. (see above)

63
64
 You will now observe a computerized Buy VS Lease form. This form takes the selling price
and converts it into a 36-month lease with a 20% Paydown.
Note that the form is split into two sections left and right; the left labeled “Buy” and right
labeled “Lease”. Also, note that that this form is split into two sections top to bottom. The top
section shows the “outlay before income tax” and the bottom shows the “net after tax cost”, both
indicated in
“yellow”. The “red” box on the lower right hand section of the form indicates how much money
the customer would save by leasing the sign and the very bottom shows that savings in
percentage.
This computerized Buy VS Lease form is listed on your estimate in nine versions: Three of
which are: 24, 36 and 60 Standard Leases. And three of which are 20% Paydowns and three of
35% Paydowns. They are all laid out the same way and can be printed in an 8 ½” x 11” piece of
paper. The sales person needs only to input the selling amount listed on the mark-up analysis and
the Buy VS Lease will automatically be created based on that amount.
If you take your time and go over each section of the Buy VS Lease you will better understand
how the financing works. It’s a great tool for your customer and also a wonderful tool for the
sales person. They too can learn from this form and truly understand the financial benefits of
leasing over an outright sale.

Mark-up Analysis Dynamics.

As you can see this mark-up analysis really has a lot to offer your sales department. The
flexibility in the selling price is stretched to its optimum. As sales people get use to this system
they will learn to use it to help leverage their sales position. There is the obvious benefit of
adjusting your selling price as you speak to the customer in order to help close the sale. However
there are also some added advantages not as obvious when you first start using this kind of
system. The flexibility of being able to offer different multiple leasing options as you speak to
your customer really shows the customer that the sales person is in charge and that they will not
be going back to the office to get any approvals.
Many customers will also quickly back into the finance numbers during the process of
negotiations. This is quite common and they are interested on how competitive you are compared
to bank financing, etc. A very common technique we use quite often is to offer a higher selling
price and then a leasing number from the lower selling price. This not only looks very
competitive to the customer, but it also helps retain some of the commission lost on the lower
price because leases offer more income per sale.

In the back of this book we offer some 20+ pages of “how to” operate this computerized spread
sheet estimating system. Some of it you will find repetitive to these past pages, but much of it
will explain how to adjust all the values in this system for “YOUR” company. You will be able
to change the multipliers and re-format how you want your cost estimate sheet to look like. You
will also be able to customize different computer estimates with different types of signs you
fabricate. Additionally, we will give some examples of a lease and maintenance agreements for
you to examine. These are just examples and it is best to start from there and then see what legal
issues you might have for your State and Company.

65
Lease/Maintenance Contract Sample

66
 Electrical Advertising Display Agreement

Owner________________________________________________________________________

Address_____________________________________ City_________________ State_________

User _________________________________________________________________________

Billing Address _______________________________________ Contract Number _________

City_____________________________ State _______________

THIS AGREEMENT , made this ________ day of _____________, 20____, between

Herein called Owner and ________________________________________________
of ___________________________________________________________________
Herein called User.

DISPLAY TO BE INSTALLED _________________________________________________

WITNESSETH:

(A) OWNER agrees, subject to the condition and provisions herein contained to construct, install
and furnish for User a special Advertising Display, herein called “Display”, all according to the
specifications and descriptions set forth below:

SPECIFICATIONS

(b) The Owner, in further consideration of the payment of the rental, as hereinafter set forth,
agrees to service and maintain the above described display, for the entire lease period as follows:

MAINTENANCE SPECIFICATIONS

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Owner agrees to maintain and service the Display at its own expense, in accordance with specifi-
cations as set forth in paragraph (b). If Display fails to operate for any reason, except through
fault of User, or its agents, Owner shall repair Display within 72 hours of receipt of notice from
User. If Owner fails to do so, excess of the 72-hour period. Such credit shall be added to the term
of this agreement, at the end of its present term, and the User shall be entitled to no other claim
damages.

(c) RENTAL: User agrees to pay to Owner, upon the execution of this agreement, as rent, an
initial rental payment of $_____.__ , plus sales tax of $_____.__ and thereafter a monthly rental
of $_____.__ plus sales tax of $_____.__ for each and every calendar month throughout the term
of this agreement.

(d) TERM: This agreement shall continue in effect for a term of _____ months. All rentals shall
be due and payable on the first day of each and every month at the office of the Owner,
beginning on the first day of the month following delivery of Display. Should Owner have
Display ready for installation, and the term of lease shall so start whether or not this Display
shall be used by the User except as herein otherwise provided. Upon the termination of the
period of this lease, unless either party shall have notified the other in writing thirty days prior to
the termination of this agreement that it does not desire the terms of this renewal to become
effective, it shall be automatically renewed for a period of _______ months under the same terms
and conditions except that there shall be an adjustment of rental as follows: There shall be no
“initial rental payment” for the renewal term. The amount of the monthly rental shall be set at
60% of the then current monthly rental rate as set forth under the terms and conditions in
Paragraph “c”. Sales tax on the monthly rental during the initial term.

(e) BUYOUT OPTION: Owner shall provide the User the option of buying out the display
during the life of the term of the agreement. The buyout shall be determined by the percentage of
the original selling price of the display. The buyout table shall be as follows:

(f) INSURANCE AND TAXES: Owner shall maintain products liability insurance indemnifying
Owner in limits of $100,000 against claims on account of bodily injuries or death alleged to be
due to Owner’s negligence in connection with the use of Display; and Owner agrees that the
coverage of such insurance policy or policies shall be extended, subject to the conditions
specified therein, to include User as an additional insured in respect to any such injury alleged to
be due to joint negligence of Owner and User, but not against any claims attributable solely to
User’s won negligence. Owner agrees to pay all personal property taxes and User agrees to pay
all other taxes that may be levied upon or with respect to Display or the use thereof and /or upon
this agreement or the rentals to be paid hereunder, including, without limitation, all sales, rental
or use taxes levied by the United States or by any State, County, City or political subdivision.

68
(g) DAMAGE OR DESTRUCTION OF DISPLAY: In the event of damage to or destruction of
Display, Owner shall have the right at its option either to repair, or rebuild the same, extending
the term of this agreement for such period of time as Display may be unavailable for use by
User, or Owner may terminate this agreement, in which event, User shall not be obligated to
make any further rental payments hereunder and shall be entitled to the return of any portion of
the deposit not applied to payment of rentals prior to such termination: provided , however, that
User shall be responsible for damage to or destruction of Display caused by or resulting from any
act or negligence of User, its agents or employees.

(h) REMOVAL OF DISPLAY: Display shall at all times be deemed personal property, and shall
not by reason of attachment or connection to any realty become or be deemed a fixture, or
appurtenance to such realty and shall at all times be severable therefrom, and shall be and remain
at all times the property of Owner, free from any claim or right of User, except as herein
provided. Upon termination of this agreement or any extension thereof for any cause, Owner
shall have the right, in addition to any other rights Owner may have hereunder or at law, to
remove Display from the premises, take possession of the Display and declare the balance of the
rental herein provided for to be forthwith due and payable, and User agrees to surrender and
deliver possession thereof.

(i)TERMINATION: A material inducement to Owner in undertaking the design, construction

and installation of Display and also in fixing the amount of the rentals is Owner’s reliance upon
this agreement remaining in force during its full term. Because Display is designed and
constructed for the special purposes of User it would be practically impossible, in the event of
prior termination, for Owner to find a new user for the Display; and Display would have no
material value to Owner. It is therefore recognized that in such event owner would be damaged
in an amount equal to the total rental then to accrue less the cost of future performance by Owner
of its obligations hereunder and any salvage upon repossession. It is further recognized that such
cost of future performance by Owner, and the Salvage, is subject to variation and is impossible
of exact ascertainment. In order to avoid uncertainty and delay, it is agreed that such cost of
performance by Owner and possible salvage shall be fixed at 20% of such rentals, which is
agreed upon as a fair evaluation thereof, and that in the event of such termination by either User
or Owner, User shall forthwith pay to Owner, in addition to all accrued rentals, an amount equal
to the then present value, computed on a 6% interest basis, of 80% of tall rentals then to accrue,
as liquidated damages and compensation to Owner for its loss arising from said agreement not
having continued in effect during its full term.

Owner may terminate this agreement in any of the following events (1) Failure of User to pay
any of the rentals herein provided within 10 days of the time herein provided; (2) Discontinuance
of business by User in the premises; (3) Transfer of User’s interest in the business operated in the
premises, or receipt by Owner of a notice of proposed transfer, or the filing of a notice of
proposed sale in bulk of User’s goods as described in the Bulk Sales Law; (4) Institution of
bankruptcy or insolvency proceedings by or against User, or proceedings for the appointment of
a Receiver for User’s business or property, or an assignment by User for the benefit of his
creditor; (5) Prohibition of the continued use of Display by any public authority.

69
 Termination by Owner shall be deemed accomplished when Owner shall mail to User, at the
premises where Display is installed, a notice of its election so to terminate this agreement upon
the terms here and above stated. User may terminate this agreement by notice to Owner that he
no longer wishes to use Display.
Upon termination, Owner shall have the right to apply any deposit made User hereunder, or
any then unused portion thereof, upon the amount which has so become due hereunder. If Owner
shall institute any suit or action for the enforcement of any obligation of User hereunder, User
agrees to pay, in addition to all sums found due from User, a reasonable attorney’s fee. In the
event any action or suit shall be brought to enforce any of the terms of this agreement, the venue
of said suit or action may at the option of Owner be laid in (your county and state) and the right
to object to venue is expressly waived by User. All overdue payments shall bear interest at the
rate of 6% per annum.

(j) DELIVERY AND PERFORMANCE: Owner shall commence the construction of Display
and prosecute the work thereon with due diligence until completion. All obligations to be
performed by Owner hereunder shall be subject to delay of failure resulting from war, fire, labor
disputes, unforeseen commercial delays, acts of God, regulations or restrictions of the
Government of public authorities, or other accidents, forces, conditions or circumstances beyond
its control.

(k) WAIVER OF BREACH: Time and the punctual performance of each and all of the terms,
provisions and agreements hereof are of the essence of this agreement, except as herein
otherwise expressly provided; no waiver by either party hereto of the nonperformance or breach
of any term, provision, condition or agreement hereof, or of any default hereunder shall be
construed to be, or operate as, a waiver of any subsequent nonperformance, breach or default.

(l) TRANSFER OF AGREEMENT: All of the terms and conditions hereof shall be binding upon
the successors, assigns or legal representatives of the respective parties; but the interest of User
shall be transferable only with the written consent of Owner.

(m) PERMITS AND LICENSES: Owner shall be responsible for obtaining all necessary
installation permits. User shall be responsible for maintaining all necessary permits or variances
from public authorities. User shall obtain any other permission for the installation and
maintenance of the display system on the building or premises including , if applicable,
permission from the owner of the premises on which display is to be installed.

(n) SERVICE WIRING; COST OF ELECTRICITY; REINFORCEMENT OF BUILDING: User

shall bring feed wires of suitable capacity and approved type to the Display, and shall pay for all
electrical energy used by Display and shall be responsible for the supply thereof, unless
specifically stated in writing to the contrary. User shall provide all necessary reinforcements to
the building on which Display is installed. In the event that excess rocks or other unforeseeable
foundation conditions are encountered in the installation of the Display, owner may revise the
rental payments to reflect the increased cost of such installation conditions.

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(o) DISCLAIMER OF WARRANTIES: This agreement is made on the express understanding that
there are no express or implied warranties other than those contained in this agreement and that there
are no warranties of any kind, express or implied, that the goods shall be merchantable or fit for any
particular use of purpose, nor are there any warranties which extend beyond those set for herein.
In any event, the User or any third person shall not be entitled to any damages, including but not
limited to consequential damages, arising out of or in connection with the use of or performance of the
display system.

(p) ACCEPTANCE OF AGREEMENT; This agreement shall not be considered as executed until
signed by or on behalf of User and approved by an executive officer of Owner and signed by him on
Owner’s behalf; and it is hereby further declared, agreed and understood that there are no prior
writings, verbal negotiations, understandings, representations, or agreements between the parties not
herein expressed. This agreement can not be changed, or altered during its terms except in writing.

(q) DESIGN: Any design and/or art work supplied by the Owner remains the property of the Owner
and the use of the design or art work or any facsimile is prohibited without the written consent of the
Owner.

USER: OWNER:

____________________________(seal) By ___________________________________
(individual) (Salesman)
____________________________
(partnership) (corporation) ___________________________________
(Executive Officer) (Seal)
By__________________________
(president)
ACCEPTED:_______________________, 20___
_____________________________ (Date)

Attest:____________________ (Seal)
(secretary)

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Maintenance Contract Sample

72
 MAINTENANCE AGREEMENT

______________________________, of _____________________(city)__________________(state),

hereinafter called “Vender” and ______________________, a sole proprietorship (or partnership or

corporation) of __________________________ (city) ______________________(state), hereinafter

called “Customer”, mutually agree as follows:

1. For a period of ______ months beginning of the first day of _______________ 20__, Vendor will

maintain the items listed on the reverse side of hereof (hereinafter called the “Sign”) located at

_________________________ by furnishing the maintenance service checked below:

□ Make prompt inspection of Sign at customer’s request

□ Repair or replace defective neon tubes
□ Replace burned out incandescent or fluorescent lamps
□ Replace defective wiring in Sign
□ Replace inoperative transformers, ballasts and or motors
□ Replace broke or inoperative housing, sockets, insulators
□ Replace or repair inoperative electronic components
□ Replace broken track for changeable letters
□ Clean sign at intervals of ____ months
□ Paint sign at interval of ____ months

2. For said services Customer will pay Vendor or its assigns, at the address set forth, the sum of

$___________ per month, in advance, on the first day of each calendar month throughout the term of

this agreement. The sum of $_____________ is paid to Vendor by Customer at the time of the signing

of this agreement as a prepayment of the maintenance charge for the last _____ months of the

agreement.

3. In the event the Customer shall be in default in the payment of any charges when due, or shall fail to

perform any other of his/her obligations hereunder, he/she shall thereupon be indebted to and hereby

agrees to pay Vendor, in addition to all delinquent payments, liquidated damages for his/her breach

73
hereunder in an amount to 60% of the payments for the balance of the term of this agreement. The

parties hereto agree that said 60% is and will be fair and reasonable compensation for the damage to

Vendor arising from such breach by Customer. The agreement to pay such liquidated damages shall be

in addition to any other remedy given Vendor herein or by law. In the event this agreement is placed

by Vendor in the hands of an attorney after default for enforcement of collection, Customer will pay

reasonable attorney’s fee.

4. Customer shall be responsible for supplying electrical current, fuses switches and electrical feed

Wiring to Sign; radio or television interference, if any caused by Sign; and the obtaining of al

necessary permits from public authorities.

5. Title of all parts installed and all additions made to the Sign by Vendor hereunder shall remain in

possession of Vendor until all payments provided herein have been made by Customer and the Sign

may be repossessed by Vendor at any time Customer is in default hereunder.

6. Vendor has no obligation to repair damage occasioned by war, riot, strike, insurrection, fire, acts of

God, casualty of willful or negligent acts of persons other than employees of Vendor. Vendor’s

obligation is limited to ordinary maintenance and Customer should cover casualty and extraordinary

damage possibilities either in person or by insurance.

7. In the event of destruction of the Sign, Customer may be released from this contract by payment of

sum equal to the regular piece work charges of Vendor for all services performed or goods theretofore

furnished hereunder, less payments therefore accrued or paid hereunder. In no event shall this

provision entitle Customer to a rebate of or set off against payments already made or already due

hereunder.

8. Time of the essence of this agreement and all overdue payments shall bear interest at the maximum

legal rate. Acceptance of any payment after due date thereof or waiver of any other breach thereof

74
shall not be construed as a waiver of any succeeding breach of the same of any other of the terms of

this agreement.

9. Mercury neon lights do not retain a perfect color during extremely cold weather at such times

turning to different color or dimming. This is inherent in the sign and cannot be prevented.

10. Venue of any action under this agreement brought in the State of ______________________ shall

bin in ______________________ County.

11. It is expressly understood that this written agreement contains all the terms and conditions between

the parties hereto and that there are no oral understandings whatsoever. This agreement shall become

binding on the parties hereto when signed by Customer and approved by an executive officer of

Vendor. No sales representative or agent, unless authorized in writing by such executive officer, as

any power or authority to add to, waive, abridge, modify, alter or amend this agreement in any respect

whatsoever.

Salesperson________________________________ Customer_______________________________

Accepted for ______________________________ By_____________________________________

The undersigned, without releasing Customer or creating a novation thereby, assumes all of the duties

and obligations of Customer under the foregoing agreement.

_____________________.

Performance by Customer is personally guaranteed by the undersigned.

_____________________.

Dated________________

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Project Management

If you go through your trade magazine’s want ads you will notice that the Project Manager is a very
common request. This is a person who needs to have very good organizational skills and it sure helps
if they also have an operational back ground. A project manager is given the responsibility to manage
a particular project. This may be a large sign project for one location or it may be projects regarding
multiple locations for one customer. In any event, the project manager carries a lot of responsibility
and answers to sales management.
More often than not a project manager will be in charge of one or more customers and perhaps
represent multiple sales people. A sales person might sell to a regional or national customer and this
customer would have projects spanning into several States. Typically, the sales person sells a program
to this kind of customer. Example: The customer may have freestanding buildings that will require
wall signs. Now these buildings might be all architecturally the same in which one sign fits all, or as in
most cases; several options could be used. In either event the sign company creates a “sign program”
for the customer in which to choose from. These might be three different sizes and versions of channel
letters, or perhaps several versions of wall signs. They may also include several options of pylon signs.
Much of this depends on local codes and ordinances. The Sales person and Company comes up with a
program that includes all the prices for each sign type. These prices typically offer a selling price,
freight and installation. Permits may also be included separately depending on the customer’s
requirements. The customer then contacts the sign company when a location has been determined.
Drawings might be sent of the building for the sign company to apply its sign program or these
drawings might already have the sign indicated by the customer.
The project manager receives these drawings and assembles a package. Venders are contacted for
permits to be secured. After this has been achieved the project manager may request a price to install
or offer a price to the vender for approval. Additionally, the project manager will activate a work order
and work out a completion date for shipping. The project manager will monitor this project every step
of the way until the project has been installed. Completion photos are assembled with signed customer
approval as part of the process for closing the order and invoicing the customer. This is a typical
format in which a project manager is used for the company. This kind of project manager almost never
has to leave the office, but instead works on the computer and phone to get things done.
Another kind of project manager may require some operational back ground. This is typically where
a large project has been sold by a sales person. It usually is one location and the project may take
several months. This kind of project is usually done in stages and may require a rudimentary critical
path schedule. This is basically a tool (schedule) in which you create the project on paper and identify
each stage and the tasks that need to be done to complete the project. Once you have identified those
tasks via the estimates, you then work backwards from the completion date. In other words; you have a
completion date and you fit all those tasks and time tables behind that date until the schedule is
complete. This tool will allow you to know when specific parts of the job need to be complete during
the course of the project. The larger the project; the more involved your critical path needs to be. This
is not a job for the faint hearted as you need to be in constant contact with manufacturing,
subcontractors, your installation department and the General Contractor (if any). An operational back
ground for this kind of a project is really a must.

Who pays the project manager?

The project manager works for Sales. The money may come from the G&A expenses if most of your
sales force requires project managers. It also might come directly out of a sales person’s commissions,
which is probably the most common. This would then be called “project management fees”. Many
companies have a specific level of sale where the project management fees are introduced. This might
be any sale that exceeds $250,000 or $ 500,000. A level is chosen as a policy and it is a good idea that
this policy be stated prior to the hiring of a sales person. Introducing a policy like this is typically not a
76
problem and easy to accept prior to any sale; however, you do not wish to introduce this kind of policy
after the sale has been made.

Short story regarding project management fees

Many years ago, I worked with this salesman. I’m not going to say his name, but I will say he was an
elephant hunter. That is to say; he was only interested in large sales. This sales person got a
government lead which entailed the purchase of many message centers throughout the State. These
projects were all exactly the same. They had the same foundation, same pole structure and same
message center details. The only difference was location.
The sales person’s client wanted approximately fifty plus locations done within a year. After pricing,
them out, he found out that one sign alone ran anywhere from $200,000 to $ 350,000 depending on
how he used his mark-up analysis. Additionally, the customer wanted to purchase them all at once.
Now there is no doubt about it; this is a big sale. The salesman then talked the customer into
purchasing only two at a time. This of course would be twenty-five contracts during the course of a
year. He reasoned to the customer that this be better accepted in the Company and that they had an
entire year to complete the project.
The first thing you are probably asking yourself is; “Why not sell the entire job using one contract”?
It turns out, the sales person could sell two signs for just under $500,000 and he did so at 8%
commission! Additionally, the Company’s policy on project management fees was oddly enough
$500,000. The sales person ended up selling less than twenty signs, but he made $ 40,000 a crack and
there were no project management fees on any of it. Wow, what a smart guy!

There are times when a sale is worth contracting out. If a sales person sells a big project and this
project is going to require them to put a lot of their time into it, then they may wish to give up some of
their commissions so that a project manager can take over their account. Example: The sales person
sells a bank chain new signs for fifty of their locations. The project goes for around $ 25,000 per
location. This would mean that the entire sale is 1¼ million dollars. Now if the sales person sold it at
5%, then they would receive $ 62,500 in commissions. If the project took six months from start to
finish then it would require this sales person to baby-sit their customer during the course of the project.
The sales person doesn’t have that much time to give. He has others customers that require his service
and the fact is he could sell another larger project making him even more money during that six month
period.
It becomes a priority issue to the sales person. Let’s assume that the project manager is paid $60k a
year. This would mean that the sales person pay $30k out of his commissions for this service. It’s
better to make $32,500 in a few sales transactions that took a couple of weeks, than to make $62,500
and take all six months. In the mean time the project manager could be sending weekly updates to
Sales and making your customer happy. Now I know what you are thinking… You’re thinking; “I’m
not giving up $30k like that”. Then perhaps you aren’t a good commission sales person.

Order Processing

Order processing is the department in which the documents needed after a sale has been brought
together to make a “complete order”. A complete order will require a contract, a down payment check,
customer signed drawings, information regarding the sales person such as: who the sales person is,
how much commission the sales person will receive, etc. Prior to order processing assembling a
package for Operations and Accounting, it will first need authorization from the Sales Manager that
this sale has been approved. Example: The Sales Manager will need to review the drawings and
estimates to make sure the estimates and drawings reflect each other. Many times, the estimate needs
77
to be signed off by the estimator that this estimate does in fact reflect a particular drawing number and
that no other estimates were revised after this one. When the Sales Manager accepts the package,
he/she will then sign the contract. Typically, a signed contract will have the customer’s signature, the
sales person and the Sales Manager’s signature. This Contract is then copied and mailed to the
customer for their files. Additionally, many contract agreements will have terms that include a
completion date. This date needs to be reasonable and within the criteria of time pre-set via Company
policy time frame. This may be typically 6 to 12 weeks. If the time allotted for this project breaks the
time criteria, then the Sales Manager may contact Operations and review the order with them. There
are many reasons for a Sales Manager to kick back the package and it is typical they do so during the
course of these events.
Order Processing designates the type of order this package represents. Example: An outright sale, a
T&M order, a special work order, a lease contract, a maintenance contract, a service call, etc. After
this is complete it finally becomes a complete package and it will go to accounting and be processed,
but it still does not go to manufacturing. This order in all likelihood will require permits. The permit
process may be weeks before the job becomes active. In the mean time, the job is considered in-active
and is listed with all the other jobs in the computer as such. The person handling permits has the
responsibility of getting this project active. If the permits take longer than expected it may affect the
completion date; hence the order gets kicked back until the sales person and customer resolve this
issue. As you can see, it takes a lot to finally get an order listed active and to move on to Operations.
As previously mentioned; Order processing identifies the type of work order. This is done so by the
work order number or code within the number. Example: an outright sale might start with the number
10. A time & material order for a service call might start with the number 50, etc. then the remaining
numbers will relate to the order in which the work order was created. Example, a time and material
number might look like this: 50-0002345. The “50” identifies this order as a T&M. The remaining
numbers identify the order in which the work order was created. Here is an example of what it might
look like if Order Processing processed several orders using the first two digits to identify the type of
order.

Service call for a customer……………………..……50-0004578

An outright sale …………………………………..…10-0004579
Another service call to a different customer………...50-0004580
A lease sale ………………………………………….70-0004581
Special work order …………………………………..90-0004582
Another outright sale ………………………………..10-0004583

Here you can see the example of using the first two numbers of the work order to identify what type
of order it is and the last seven digits in the order in which they were created. The nice thing about this
kind of system is that you can identify the type of work order without having to look at the complete
order. The work order number can now be separated (if necessary) into different categories.
Additionally, you could further elaborate on this system by attaching purchase orders numbers after
the work order number. This way one could identify the job by reading the work order number into the
purchase order number and to carry this further; cost accounting could use this in tallying those
purchase orders to the specific work orders just by using the numbers.

Closing

The Sales Manager really has his hands full with the juggling of all the departments under him/her
and we can now see the basic principles of how these departments are managed by this person and
how everything in sales is surrounded by the sales staff and their needs. All of these systems
mentioned must work closely together to best insure that sales have what they need to make the sale.
Remember; if you don’t have a sale, then you’re dead in the water.
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Operations

This is probably my favorite part of the Company at which I relate to the best. It is where I started in
this industry and I suppose this is where my roots will always be. Operations, is by far the whiniest
part of the business. They complain they don’t have enough work, they complain they have too much
work, they complain they don’t have the right equipment to do the job, they complain they don’t have
enough money to do the job. They complain about the order as it enters their domain and they
complain about it after it leaves. These are the guys that sometimes do the impossible and happily
dance around with smiles on their faces after doing so. Operations can be very stressful at times and
very rewarding when things go their way.
The Operations Manager is the protector of his domain. He has many departments to worry about
and is probably the most cost conscious person in the Company. He has to be because he gets blamed
for everything. And when things go wrong, they usually cost money.
Sales and Operations view each other with suspicion. They have completely different outlooks when
it comes to the Company and they often run into conflict with one another. These conflicts are
typically time tables and money and everyone knows; time is money. Sales thinks in the abstract and
Operations deal with real time and numbers. Don’t misunderstand; Sales is very number oriented, but
you can see their view of numbers are very flexible. They need to be in order to sell. Operations on the
other hand aren’t really flexible at all. It is because of these differences and attitudes that conflict
sometimes results.
This opposition goes from the Sales all the way out to the shop. If a sales person is found walking
through manufacturing, he is viewed as a suit and little more. It kind of reminds me of Rome and the
Barbarians. They look different, they talk different they ever smell different. The fact is; they have so
little in common with one another the best they can do is exchange smiles and then talk about one
another with their fellow employees after they leave. Employees in Operations view sales people as
pre-Madonna and this is especially true if you have a sales oriented Company. Sales come first, as well
as it should.
With all this conflict, you’d think nothing could get done. Fact is; lots get done in spite of all this. It
shouldn’t be viewed that conflicts are bad. Quite the opposite; conflict is good for a Company. Let’s
see how this conflict begins when an active work order hits the shop.

Accepting an Order

When Sales finally gets the okay that the work order has become active, it is given to Operations.
The Operations Manager may review the package, but he then gives it to the construction design
people and those who review estimates for Operations. The design person will review the drawings
with the estimate and see what the estimator was thinking. This person wants to make sure that what
was estimated will be structurally sound based on what the cost estimate says. Additionally, another
person might review the labor and material on the estimate and make sure everything is accounted for
and at the correct cost of material and labor. If there are any issues with either one, then they may wish
to contact the Estimating Department. If the questions are resolved between the departments, then it
will go back to the Operations Manager. A person in construction design might draw construction
prints reflecting the project with a complete call out of construction and materials and this too will go
back to the Operations Manager. If everyone is on the same page, then the Operations Manager will
accept the order.
If by chance (which is often) the order isn’t accepted. Operations will list these complaints and send
it back to Sales. These complaints vary from not enough information on the concept drawing, or the
improper list of materials or labor hours. In any event; it is not uncommon for Operations to kick back
an order. This isn’t to say that Operations refuses to do the job, but rather that issues may need to be
resolved. Sometimes the Operations Manager accepts a questionable estimate. He does this under a lot
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of pressure. He has people that need work back in the shop and sometimes an overrun looks better than
no work at all. When things are slow management sometimes will do things, they wouldn’t normally
do. However, when things are busy, the tables are turned and rejecting projects in hopes of getting a
better deal is always on their mind.

Keep in mind, there is nothing wrong with this. This order needs to be right because it is the
Operations Department that will pay for it if things go wrong. Now is the time for Operations to
complain and complain they will.
I remember some years back when Sales sold a great project. When the work order finally went
active; Operations kicked it back. Sales would make changes and again Operations kicked it back.
This went on for a few weeks when finally, Sales asked the President of the Company to get involved.
Operations had issues with labor hours and frankly they were right. Estimating short changed the
project a few hours and Operations wouldn’t accept the project. Now it wasn’t really a big deal. It
wasn’t all that many hours to begin with, but Operations wasn’t about to have an overrun and it not be
their fault. When the dust finally settled, Operations got their way and everyone was happy. As it turns
out, Operations didn’t really care all that much about the overrun either. They just wanted to stall
because there was already a big project in the shop and they knew they couldn’t complete this new
project in the proper time frame. Forcing the sales person to go back to his customer and re-negotiated
a different install date. Such is the conflict with Sales and Operations.
The Operations Manager will have many departments under him. I will attempt to list some of them,
but I’m sure some will be missed:
Office staff
Construction design
Purchasing
Cost accounting
Manufacturing
 sheet metal
 structural
 plastics/vinyl
 graphics
 paint
 inventory
 etc.
Installation & Service

Before a project can begin we need to order all the materials. The purchasing agent will review the
estimates involved and order the material accordingly. Purchasing will need to order materials in the
order that they will be needed. Additionally, any subcontractors listed on the estimate will need to be
contacted. The purchasing agent may decide to use other subcontractors than listed on the estimate if
they so choose. Operations may have access to better service or price from another contractor and it is
ultimately their responsibility to make these decisions. They will need to make sure all these purchases
reflect the estimate. They will also need to negotiate with the subcontractors that their end of the
project will be done on time and reflect the budget allotted.
If the project is big enough, then a Project Manager might be assigned to it and then he may be
responsible for the materials and subcontracting to be done on time and on budget. Purchasing will
also cut out purchase orders reflecting the needs of each project. Copies of these purchase orders will
then be handed over to the project manager if required.
If the purchasing agent has issues or conflicts with any of these factors, then it is up to him to rectify
the problem or notify Operations management. The purchasing agent will do everything possible to
rectify the problem, rather than bring it up to his boss. This is the sign of a good purchasing agent.

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Manufacturing manager

In many mid sized sign companies, there is a manufacturing manager that will be below the
Operations Manager. Sometimes the Operations Manager and Manufacturing manager is the same
person. Either way; this person will be in charge of all the manufacturing departments. Typically he
receives an order and schedules it in those departments involved. Prior to this scheduling, the
manufacturing manager will need to make sure the materials will be there for the department, so
getting with purchasing is very important.
He will take each estimate and separate out the department hours. As you may recall; there are
colored flags on the estimate just right of the labor columns. Each color represents a department and
inside each colored flag will be the total amount of hours as it is related to that department.

Example:

Here the sheet metal department on this estimate will have 4½ hours. The manager will provide
prints and other information for the sheet metal department. They now will know when they are
expected to perform these tasks and how many hours they it will take to do so. The employee will
show the job number on his time card and indicate how many hours he spent on this job. Hopefully if
all goes right, the time on this card will reflect the time that was allotted to do the job. This project will
go like this for each department. The scheduling for this project will be department related. Example;
the sheet metal department might start the project and other departments such as electrical and paint
will need to wait for the sheet metal department to complete their tasks before they can begin. It’s not
possible to paint something that isn’t fabricated yet. Keep in mind, the manufacturing manager will
have other projects going on at the same time. This project is given a deadline and it is absolutely
taboo to miss it.
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 It is common for hours to run slightly over or under different departments. What is important is that
the total hours for a job are close to the estimate. Managers will sometimes move employees around to
get the best performance for his departments in order to make sure these hours are comparatively
close.
Now picture in your head fifty to a hundred projects all going on simultaneously in manufacturing;
each project with their own completion date and each one with their own issues and problems during
the course of each project. Think of materials handling having to be on time as everything is
choreographed throughout the plant. One breakdown in any department could put a wrench in the gear
of multiple projects at a time. Any delay of anything may make Operations miss a date and look bad.
The reality is that there are issues that can’t be avoided and projects do get set back. It is Operations
responsibility to recognize them immediately and respond to them. If you do need to notify Sales to
inform them of time tables that can’t be met, then Operations needs to be able to answer exactly when
product will be ready. Saying; “I can’t get this job done on time” isn’t the total report to Sales. You
also need to give a date when things will be complete. It doesn’t matter how you paint it. It always
looks bad on Operations if a schedule doesn’t get met. Operations accepted the project as written and
are ultimately responsible. Missing a schedule is a taboo and to be avoided at all costs.
As each day ends and the time cards are tallied up. Each job’s hours are accounted for and the
manager can review the progress. This is the time to make sure projects are keeping their dates. Any
problems in the manufacture’s report will allow the manager to respond the following day by making
adjustments to the schedule. Some jobs will run under and this will free up those hours for another
project, while some jobs run over, which will require more demands on respective departments. As
long as the completion dates are met, all is well.
The manufacturing manager will attempt to keep every employee of each department busy. Idle
hands affect the department’s performance. The best way to keep people busy is to make sure their
departments have a full schedule each day. This can be a difficult task when things slow down. When
the plant is running at 100%, management is pulling their hair out making sure things get down on
time and on budget, but when things slow down to say 90%, 80% or even less, then it is time for
management to act.
Many times it is specific departments that slow down. Sheet metal for example might be scheduled
for the next six weeks out, having several hundred of hours listed, but the channel letter department
has slowed down and maybe only having a hundred hours total. This would suggest that one employee
has just a couple of weeks’ worth of labor to do. If you have more than two people in this department
then decisions need to be made even quicker. The first thing management needs to do is see what
projects have recently been sold. This department could get real busy if channel letter projects go
active in the next week. There is no point in doing anything, if this happens. This is where some of that
whining comes in. Operations sometimes complain to Sales that they need to sell more because it is
affecting shop performance. If only we got just the right amount of sunshine and rain everyday.
Another possibility is to relocate people into other departments that are busier. The problem with this
however could be that the other departments might be running at 100%. In other words; you can’t fit
anyone else in that department because there are only so many square feet of shop floor and only so
many tools and equipment to go around. You also need to consider is that some employees aren’t
trained for some departments; hence this might not work anyway. The last option you may need to do
is to lay someone off. Laying people off is always the worst thing to do. Employees are people with
families and financial responsibilities just like everyone else. Additionally, when you let someone go
they may not come back. This would mean training someone else all over again which is time and
money.
Perhaps the best solution is diversity. Departments that historically are busy need to operate at 80%
or so. In other words; more shop space and equipment than those department employees can actually
use. Perhaps it is better to run all departments at a lower percentage so that employees can be moved
around accordingly. It is also wise to make your employees as diversified as possible; making them
capable of moving from one department to another. This way when one department slows down,
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employees simply move where the work is; insuring less chance of layoffs. Manufacturing would
rather have fewer diverse employees than more employee’s incapable of moving around. When things
get busy perhaps it’s better to pay overtime than to layoff when things get slow.

Fudging the hours

We mentioned earlier that it would be wise if estimates were identified. We need an estimate number
so that we know it is reflective of a particular drawing and project, but we also need to identify the
type of sign the estimate represents. Wall signs, poles signs, channel letters, channel letters on
raceways, etc. This is usually done by a code. Coding the estimates will allow us to gather information
that could affect our future sales and profits. Separating out all the estimates done in a period of time
can give you some interesting statistics. Let us assume that the estimating department did five hundred
estimates in a six-month period. Out of these five hundred estimates a specific percentage of signs had
sold. So, lets us assume for the sake of this exercise that fifty signs were sold. This would imply that
for every ten estimates done, one would sell. Out of the five hundred estimates done in this period of
time, how many sold were channel letters? How many sold were wall signs? What type of sign did our
Company sell more of than anything else? Is there a pattern? All sorts of questions can be asked with
this kind of information. You may find that your Company sells a much higher percentage of a
particular type of sign. This could be because of a major account or it could be that you are more
competitive building this type of sign. The point here is that information can be valuable. You want to
know what you are the most competitive in; just as much as you want to know what kind of signs you
are the least competitive in. This is important because now you can ask yourself why.
The least competitive type of signs may be due to shop equipment or lack of knowledge. There are
many possibilities, but if you are not aware that a problem exists; then you won’t react to solve it.
Also, you may find that the majority of all signs estimated in that six-month period were signs that
your company was least competitive in. In short; the Art Department and Estimating Department were
designing and estimating signs that are least likely to sell. It becomes painfully obvious that these
problems exist when you are identifying the types of signs you are estimating.
Let me now create a scenario that is very common in manufacturing. As previously mentioned;
Operations gets all the blame when things go wrong. Perhaps this is why they whine so much. Most of
the blame comes in the area of overruns or missing dates (mostly overruns).
Operations will experience hundreds of projects during the course of a year. All of these projects
will be slightly over or slightly under in hours performed. A smaller few will be bigger problems in
over runs and I suppose it wouldn’t be inaccurate to say the majority of under run issues are fewer and
farther between than overrun issues. This is because under runs implies they cost too much, hence
fewer sales. Operations will experience an uncomfortable amount of poorly represented hours on some
projects they accepted. This is the nature of the beast.
There comes a time when manufacturing is worried about a project. They realize that this project is
going to have an unacceptable number of overrun hours. They may have just recently experienced this
same problem with another project and they don’t wish to experience this all over again. In short;
things aren’t looking very good and the results will be finger pointing (again). As management worries
on what to do, it occurs to them that several jobs will have extra hours and that perhaps he could steal
those extra hours and applies them to the overrun project. This way the overrun issue will disappear as
the surrounding projects absorb the problem. Management then switches the work order numbers
around to retrieve these hours for the problem project. Now all is well and life is good. Not only did
they compensate for the major overrun, they also showed that none of the other projects had under
runs. Operations looks good in the production meeting and another problem is averted.
As time goes on this technique is used more often. Here is another project with overruns not too bad
this time, but we can look good by diverting hours from other projects. Before you know it; Operations
doesn’t appear to have any major issues with overruns what so ever. They seem to operate perfect all
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the time. Wow… what a great feeling. Now that this technique has been enacted it appears that the
Estimating Department can do no wrong. Apparently, Operations is in complete agreement and they
have history to prove it.
The problem with this scenario is that it has a direct affect on sales. While all appears to look good,
the Sales Department is gaining more sales on projects that don’t make money. They are doing so
because all those projects that had overruns hidden are falsely competitive. The hours were too low,
hence were priced too low and now theoretically are sold more often. It goes back to the probability of
sales. Additionally, the signs that were sold and had under runs suggested that they were priced a bit
high. Now that the under runs are hidden, they are not as competitive as they could be and now the
Company gets fewer sales on these types of signs. The probability of sales drops when the price rises.
If you are a sales oriented company, then this is bad news.
As you can see, this can be a real problem. When you identify a problem like this, you also need to
identify its cause. Yelling and screaming isn’t the answer as Operations gets enough of that. Besides;
we’re all adults here (I think). The problem is that Operations’ management moved hours around so
that they wouldn’t get blamed (again) for overruns. Perhaps the real problem is that the Company over
reacts with these kinds of issues. Overruns are bad news, but sometimes over reacting is worse. The
Company needs to look at the big picture. This is a much better perspective and frankly more accurate.
More often than not, the big picture shows that the under runs tend to cancel out the overruns, or at
least show that the major over run when compared to the entire picture is not all that bad. When
management acts as a partner to Operations you don’t have, people scrambling around covering up
problems.
Let me know give you a true scenario that happen just a few short years ago, estimating had been
gathering history from cost accounting as it typically does. They were up dating their history file and
were categorizing every type of sign in their computer. As they were doing so they noticed they had a
consistent amount of under runs with one type of sign. They were channel letters on raceways. These
under runs were considerable and showed approximately five percent plus fewer hours needed to do
the same project. When they compared these under runs to this same type of sign going back a couple
of years the under runs didn’t show up. What had happened? They kept an eye on this for the next
couple of months and still these under runs kept showing up on just this one particular type of sign.
Estimating contacted Operations to see what was going on. Perhaps they purchased another piece of
equipment that helped improved the time on these kinds of signs. Operations said that there were no
purchases made on any equipment in that department that would improve the time in fabricating
channel letters on raceways. Estimating scratched their heads wondering what the cause was. They
finally hit upon the idea of checking to see exactly when this time improvement started happening.
After retrieving an approximate date the Estimating Department again contacted Operations to see
what happened around that date. It turns out that Operations purchased another piece of equipment for
a different department and that they ended up moving equipment around to make this new piece fit.
The moving around of equipment squeezed the channel letter department a little closer together; hence
making it more competitive fabricating channel letters on raceways. Who da thought?
This process may have taken several months, but if it wasn’t for Operations giving accurate cost
accounting and solid labor numbers, Estimating would have never seen it. This is also a great example
of a system coming together and departments supporting each other.

Install manager

When manufacturing is complete the installation-department puts these projects on schedule for
install and hence completion. The Install Department; just like Manufacturing will evaluate the
estimate and determine the best course of action to complete the projects in the correct time frame on

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the scheduled date of completion. The Install Manager works closely with Manufacturing and
manages his department much in the same way as Manufacturing.
The Install Manager might also have a fleet of service vehicles in which they will have mostly T&M
orders. These orders are primarily service for customers. As previously mentioned Order Processing
creates these service orders based on customer’s request. These orders are identified by the work order
number. The Install Department may also receive other types work orders such a work orders to repair
leases or maintenance contracts. These too should be coded as such via the work order number.
Example: A 24-month lease agreement that was activated last year might have the number “70” as the
first two digits; ending with the remaining numbers in s numerical order such as: 70-00897. When a
lease project has been completed and installed, the work order stays open for the leasing time period.
If a service call is required on this lease, then the number is re-activated and a work order is created
using this work order number. This way, all expenses can be applied to this lease number throughout
the life of the lease; hence management can then view all the expenses as they are related to its
income. The Install manager might also receive other work order types; perhaps maintenance contracts
or special work orders. In any event, you can see how this system is used and monitored.
Much of Install and Service Management has to do with keeping the trucks maintained and
inventoried properly. Truck maintenance or better yet; preventive maintenance is something that
should be budgeted and scheduled accordingly. Additionally, the service and install crews should have
access to a stock room so that they may requisition materials as needed. These materials are also listed
by part numbers much as we see in manufacturing. This way we should expect to see items such as
“indeterminate” not to exceed 7% on any one vehicle.

Operations Manager

As we can see the Operations Manager has a lot on his/her plate. He/she will expect weekly progress
reports from all of the departments to stay a breast so that projects and finances are under proper
control. This person keeps a special vigilance on costs and reviews all jobs that have been closed.
They need to make sure that expenses are always under control and that all expectations of the project
have been met. The Operations Manager will need some accounting and organizational skills to pull
this off. Additionally, they will need to represent operations in the best light for the Company.
The conflict that arises in both Sales and Operations should compliment each other and be used to
get the best performance as possible from both areas of the business. Sales and Operations may speak
different languages, but they are in fact brothers of the same Company.

Estimating and Operations Pow Wow

There comes a time when the Estimating Department and representatives from Operations need to
come together and meet. This meeting of the minds is to review the past year’s projects and compare
them with the estimates. This usually ends up being a shouting match at times, but believe it or not,
some things actually get accomplished.
What the meeting is suppose to do, is to see what changes each department needs to make so that
monies aren’t lost on those projects in question. Typically, there is a cost accounting report for each
job and they are compared to each estimate. They may go over stacks of these during the course of the
meeting. Each report is reviewed by both departments and dialogue usually talks about specific
overruns in specific departments, or materials purchased or even perhaps different venders. The point
of the dialogue is to work out what went wrong (if anything) with a particular project. Estimating
attempts to protect its position and Operations does much the same. After some finger pointing and
debate they usually find some kind of common ground. Sometimes Estimating needs to be more
specific on their call outs or perhaps they need to make some adjustments when estimating and
perhaps Operations should have called the Estimating Department to ask for more information about
some things, etc.
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 Usually by the end of the meeting the departments have worked out their differences. Sometimes a
report is written and copies sent out to all those involved. It’s a great way to resolve issues that have
been brought up over the past year. This is a meeting that should be done annually, but I must admit;
most companies don’t.

Production Meeting

Of all the meetings within a sign company this is probably one of the most important. The title
“Production Meeting” is a bit misleading. One would think that production meetings must be
discussing production. It’s true that production is discussed, but there is so much more to this meeting
than just production. To start with, every facet of the business is participating. The Sales Manager
should be present as he/she needs to know the progress of each and every job. It is important that the
Sales Manager know because if dates are going to be missed they will want to be present during this
announcement. As Sales Manager, this person carries a great amount of influence and if there is any
possible way of NOT missing that date, then this person will be directly involved. Additionally, the
Sales Manager needs to be there so that they can relate any issues that may come up to their sales staff.
The Operations Manager should be at the Production Meeting also. Additionally, they may be
accompanied with manufacturing management. Operations presents will give an up to date of each
project as they are presented. They will typically comment on where they are with a specific project
and whether any problems have occurred or are about to occur. Project Managers are sometimes
present as they tend to complete the information given by Operations. These are typically the
processes involved with venders and completion dates, etc. Accounting needs to be present also. They
wish to know when projects are to be completed so that they know what is to be invoiced and when.
Additionally, they will take this kind of information and give projections as to the revenue the
Company will generate in that given month. The Installation Manager will need to be there. Issues
with installation need to be brought up and the assurance of installation dates need to be confirmed.
The person running the Production Meeting should be somewhat neutral; perhaps from the
administrative environment. Accounting is always nice because they want a completion dates. This is
typically the person who is imputing the comments as they are stated in the production report as the
meeting progresses. Another person you would like at a Production Meeting would be the person
handling permits. Projects aren’t much good on hold and this person will help identifying when those
jobs go active. This will flag Operations to get ready for what’s about to go active and if permits take
too long, then this will notify those interested that completion dates might be affected.
The production report is usually handed out the day before or perhaps that morning before the
meeting to each participant. This way each person involved in the meeting can go over it and better
prepare. They typically write notes or bring along memos, etc. to help them participate. The nice thing
about the production report is that it covers every project, no matter how small. It is said that you
should judge a company by how they treat their smallest customer. The production report will make
sure that every project has its day; even the small ones.
A Production Meeting should be done weekly and usually towards the end of the week. Thursday
mornings are always nice because those involved can influence how the week is going to close.
Additionally, they can influence how the following week is going to begin.

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This is a typical example of the production report:

The report starts out on the top left hand side with the date. This first date indicates when the project
went through Order Processing. Any dates below that under the same work order number will be the
date of that particular production meeting. Order Processing will also give a date that the customer
wants the project completed by. This will be on the far-right side of this example. The second column
“B” will give the work order number. As previously indicated; the numbers are coded so that they may
be identified as to the type of order it is. The third column “C” will give the name of the business.
Many times, a sign company will be doing several projects that may all have the same name. This
typically isn’t a problem as the work order number helps keep them separated. The forth column “D”
is labeled “status”. It will have statements said by persons in the production meeting regarding this
particular project. There may be several statements made, hence the status column may use a handful
of rows to cover all the comments made that day. Column five “E” will be the estimated hours for the
project. This is retrieved from the estimates via a data base system. Some projects will not have
estimated hours listed on this report as they are not outright sales. They may be leases or T&Ms, etc.
and hours can not be indicated. The estimated hours is typically for manufacturing only. Just right of
that is column six “F” and it indicates the actual hours done on a project up to that date. For every hour
added to “actual hours” the “estimated hours” just left of it will be reduced by that same value.
Additionally, the percentage of the completion of this project will be shown just right of the “actual
hours” in column seven “G”. The percentage is nice because it gives you a brief value as to how much
of the project is done.
The example starts out with a customer on a T&M work order. As you can see, order processing
indicated a date it was activated, but there is no completion date listed. The production reports suggest
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that the order was created two days before the Production Meeting and the service truck has not yet
gone out to do this service. This being the case a statement is made in the “status” column of the report
that the service call is scheduled for the following day. We can also read on the following week that
the service call was made on the date previously stated in the status column and that the service was
still not complete due to lack of materials. As you follow down the report you can see this T&M order
was finally completed. Note that on every date the service truck was on sight, the “actual hours” are
indicated on the report.
On row 9 we see another work order number. This work order has a completion date expected by the
customer. The project started out as not active. In short; permits needed to be secure before
manufacture could purchase materials or begin any work. If you scroll down to the bottom of this
work order number, you will see the job complete a few days before the customer’s opening date. Note
if you will the “estimated hours” and the” actual hours”; as the project progresses the estimated hours
shrink and the actual hours increase. The percentage also increases accordingly. By the end of the
project the actual hours exceeded the estimate. The Production Report then indicated so by showing
the values in “red”. (See above)
A production report like this can go on for several pages listing each job in their numerical value. As
projects get completed the report drops those work orders from the screen and the list keeps adding
new ones as Order Processing inputs them.
These meetings can get very interesting at times. Many statements are made throughout the course of
these projects that people wish they didn’t say. Committing on paper promises that sometimes aren’t
met can be somewhat uncomfortable. Additionally, every overrun and every under run are listed for all
to see; and note that the overruns are always in “red”. To suggest that these meetings can get heated is
an understatement. Having said all this, it is a great system. Nothing wrong with the conflict; it keeps
us on ours toes and we learn from them.

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Directions on how to use the computerized
spreadsheet system

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 How to understand and operate the Estimating Spreadsheet

The spreadsheet operates on a Microsoft Excel Program. You will need Microsoft Excel on your
computer before you can go any further. When you download this spreadsheet you will want to
immediately make a couple of working copies. This will allow you to experiment with the spreadsheet
and still give you the opportunity to refer to the original if necessary.
The spread sheet program is broken down into several files; the estimate and several leasing options.
These files are listed on tabs at the bottom of your screen as shown:

The Estimate

The estimate spreadsheet is located on the far left tab. Click on this tab to go to the estimate
spreadsheet if you are not already there.
The estimate spreadsheet starting at the top left indicates the information required to identify this
estimate. The brown box area located in column “B” and row “2” (B2) to column “B” row “8” (B8)
indicate the area in which you need to type the information requested in column “A2”through “A8”.
There are also additional brown box areas that you will need to fill out accordingly on the top of your
estimate sheet when doing an estimate. See Example below:

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 On the right hand side of the screen you will notice a slid bar which will allow you to view the
spreadsheet vertically. Sliding up and down on the bar will allow you to view the cost estimating
portion of this spreadsheet. Example:

This cost estimating portion of your screen will allow you to determine how much a product or
service will “cost” your company. As previously indicated in the book; you must first know the cost of
your product before you can determine a “selling price”.
Cost estimating is broken down into three basic areas; 1) Materials at Cost, 2) Labor at Cost and 3)
Buyouts at cost. These three basic areas are then added up and shown as a total cost to the company in
the lower right portion of the spread sheet.

Materials at Cost

On the left side of the Cost Estimating spreadsheet there are several columns referring to the Materials
portion of the cost estimate. These columns refer to materials purchased at cost by the company for a
project.
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Example:

You will also notice that if you scroll up and down using the slide bar. The materials side of the
estimate spreadsheet varies in color with each department indicated to you on the far left side of the
screen written vertically. Example: the yellow zone is indicated as the “Sheet Metal” department. The
green zone is electrical and so on. Any materials written in these zones will be for that particular
department. The materials side of the spreadsheet is made up of four columns identifying the
materials. Column “B” lists the name of the material being used. Column “C” indicates the quantity of
that material. Column “D” indicates the cost per unit of that material and Column “E” gives you the
total price of that material. Notice that materials are typically listed in the same order as they would be
used.
At the bottom portion of the list of materials the spreadsheet ads an additional 7% of the total cost of
materials used. This will cover for the indeterminate expenses as explained in the book.
Example:

The grand total of the material list will show up in cell “E71”.
If you type in value amounts on various rows in column “C”; you will see that the spreadsheet
automatically computes those values in column “E”. It will then total all the values in column “E” in
cell “E69”. It then computes the 7% indeterminate cost in cell “E70” and gives you a grand total of
materials in cell “E71”
The spreadsheet can be altered to suite your purposes. If you wish to change or alter the material list,
cost of materials etc. you need only to delete those items or costs of those items by high lighting the
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zone in which the text is located. You can then change the list of items to best suite your needs or
perhaps change the cost of that item to better reflect your company’s cost. You can also alter the
department zones by renaming them if you so choose. Example; the vertical copy reading “sheet
metal” you can delete and make it read “vinyl department” instead.
The areas you can not alter are those that are protected. These areas typically will have formulas and
should not be altered for the purposes of keeping the information’s integrity.

Labor at cost

On the right side of the Cost Estimating spreadsheet there are several columns referring to the Labor
portion of the cost estimate. These columns refer to Labor at “cost” by the company for a project.

You will also notice that if you scroll up and down using the slide bar. The materials side matches in
color with the labor side of the estimate. Example; the yellow zone indicates the sheet metal
department; hence the Labor side of the estimate is the labor regarding the sheet metal department and
is also the color yellow. Additionally the green zone, blue zone, etc. shall indicate different labor
zones accordingly.
Labor is also indicated in four columns. Column “F” identifies a task of labor. Column “G” indicates
how many hours are given for that task. Column “H” indicates the labor/burden rate. Labor/burden
rate is explained in the book and how those rates are achieved. It is not what you would charge your
customer, but rather what the labor will “cost” the company. If you wish to change the labor/burden
rates, then delete the rate in column “H” and replace it with a labor/burden rate that reflects your
company’s needs. Column “I” indicates the total cost to the company for that particular task. If you
scroll down you can find the total “shop labor” indicated in cell “I72”.
If you impute values in column “G” you will notice that labor computes this information much like it
does on the materials side of the estimate; giving you a total cost of shop labor hours in cell “I72” as
previously stated.

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 There is also Installation labor further down laid out in the same sequence, but you will notice that
labor/burden rates are different to reflect the different needs with installation labor as previously
indicated in the book. There is also a total cost for installation labor shown towards the bottom in cell
“I87”.

Buyouts at cost

The buyout portion of the cost estimate spreadsheet is located on the lower left hand corner. Scroll
down and it will be viewed in a blue zone. Buyouts as previously indicated in the book are those items
or services that would be provided by others as opposed to your company providing them. Example: If
you don’t have a neon plant, but fabricate and install illuminated channel letters, then you would have
to purchase neon from a subcontractor. This contractor would be listed in the Buyout portion of the
estimate spreadsheet. Notice that there is no 7% mark-up on buyouts.
Buyouts are also listed in four columns then totaled accordingly. Column “B” lists the name of the
company and or product being purchased. Column “C” indicates how many are being purchased.
Column “D” indicates the unit cost and column “E” indicates a total cost from that company or
product. At the bottom in cell “E87” is a total of all buyouts purchased.

Now that all three basic areas of the estimate have been covered; we need to total them up for a
grand total cost to the company. It will be this grand total that will compute all future pricing and
leasing options.
Down at the very bottom right hand corner of the spreadsheet is a yellow box indicating the totals of
all three basic areas of concern; materials at cost, buyouts at cost and labor at cost. “I93” will give us
the grand total. This is what it will cost the company to produce a product. Remember, this is not the
selling price.

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The Markup Analysis

The markup analysis is for the sales person to view. It will create a selling price for the customer
from the cost of the product listed on the estimate side of the spreadsheet. This system will create
multiple selling prices with multiple commission rates. Additionally it will compute various lease
options with various prices and commission rates.
Notice on the bottom of your screen there are multiple tabs. The first tabs reads: “Estimate”. The
next tab reads “Mark-up”. Go to the “Mark-up” tab and click. This will take you to the Mark-up
Analysis portion of the program.

Let’s review the mark-up analysis from left to right and top to bottom. This mark-up analysis will
use as an example a cost of $5000 from the estimate portion of the spreadsheet. In short; the product
will cost the company $5000 to produce. So let’s go back to the estimate spreadsheet portion for a
moment by going back down to the bottom of the screen and clicking on “Estimate”. Now go down to
the bottom at cell “D86”. Type in the number: “5000”. This is only for the purpose of seeing how the
system works. You can always go back and “delete” the 5000 at a later time. Typing in the value of
5000 will activate your estimate spreadsheet and show a total cost of $5000 in cell “I93”. The mark-up
analysis side of the program will now automatically be activated and it will think that there is an
estimate total of $5000. Now; let’s go back to the mark-up analysis by clicking on the tab that reads:
“Mark-up” and see what a cost of $5000 should sell for.
The mark-up analysis is broken into three separate mark-up groups. The top mark-up system creates
multiple selling prices with commission rates. It also computes maintenance prices with maintenance
commissions and various leasing prices and lease commissions. Starting on the far left column “K”
will show the percentage of commission each row represents. It is a sliding scale from 2% at the
bottom up to 15%; totaling 11 different rows of commission rates. The next column “L” shows you the
actual selling price of that product depending on the commission rate in which someone chooses to
buy it at. Example: If the cost of the product to the company is $5000 (as we just indicated in “D86”
on your estimate spreadsheet) then the bottom portion of this mark-up sheet shows the selling price
would be $7,500 at a 2% commission. This would be a price to the customer. The selling price and
commission percentage rise the higher you go up the scale until you reach a 15% commission ceiling
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with a selling price of $11,500 in this example. Column “M” shows the actual amount of money a
sales person would receive if they sold the product at any given percentage. Notice that the
commission dollar amounts are always shown in red. This will be a theme throughout the entire mark-
up analysis. In this example the 2% commission is $150 and rises to $1,725 at the 15% level. (See
below)

Looking to the far right of your screen in column “V” you will notice the company profit percentage.
The company profit percentage also rises on a sliding scale. This example shows an 8% profit when
selling at a 2%, 3% and 4% commission rate, and then climbs to 9% when selling at 5% and 6%
commission rate. The company profit percentage will raise five different levels until it reaches its
maximum percentage of profit at 15% in this example.
Previously mentioned in the book; the percentage of profit a company gets is a policy determined by
that company. A different company may choose its own level of profits during the course of a sliding
scale commission rate. Example: A company may decide that its profit shall be 12% on all levels of
commission rates. This example shows a company’s policy willing to accept a lower percentage of
profit during the course of a commission rate being lowered by a sales person’s decision.
You will notice the company’s percentage of profit does not reach as low as the sales person’s
percentage rate. When a company accepts the sale it takes all the risks and finances the project, hence
has more to lose during the course of business. This being the case; the company shouldn’t be
expected to commit to the same percentage of profits as the sales staff. Be that as it may; the sales
person is the ultimate decision maker when it comes to making the sale; which is the whole point of
using a sliding scale commission system.

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 To the right of your screen in column “W” is a gray box area. This gray area is typically not seen
when reviewing the mark-up analysis, nor will it show up if you print out the mark-up section. You
will need to move the slide bar on the bottom of your screen to the right to view the gray box .This
gray box lists all the multipliers which are determined by computing pricing models based on your
company’s P&L Statement as indicated in the book. The bottom multiplier in this example is 1.5. If
we take this bottom multiplier and use it to multiply the cost to produce ($5,000) which is located on
“E87” of your estimate spreadsheet, you will see that it creates the selling price of $7,500 which shows
up in cell “L22” in your mark-up analysis on the same row as the multiplier. In short; cost X’s mark-
up equals selling price. These multipliers in the gray box are used to compute the sliding scale selling
prices in column “L” on the same row as the multipliers are located. The higher the commission rate,
the higher the selling price created by the higher multiplier rate in column “W” as you go up the
sliding scale.

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 The multiplier value is designed to be changed to meet your company’s needs based on your
company’s P&L performance model. Example: If 1.5 creates a projected profit for your company that
is too low based on your company’s P&L model, then you can compute a new multiplier number using
the P&L pricing model example in the book to match your company’s performance. You then delete
the 1.5 multiplier in the gray box area and type in the new multiplier. This can be done to all the
multipliers in the gray box to best represent your company’s performance. There must be a multiplier
value in each row in column “W” of the gray box for the mark-up analysis to work properly.
Additionally you can change your company’s profit margin in column “V” to also best suite your
company’s policy requirements; however you may also choose not to put any values in column “V”.
Column “V” only displays a company’s profit to be shown when viewing this screen or printing out
the mark-up analysis; however it is for display purposes only and does not affect the mark-up analysis
during its computing process.
Column “N” represents the monthly maintenance selling price. It too is on a sliding scale. Monthly
maintenance is computed by taking the selling price along the sliding scale and using a multiplier. The
multiplier is shown in cell “N5” and it indicates .004. This shall be .004 X’s the selling price giving
you the monthly maintenance price to the customer.

NOTE: 004 is a rule of thumb and this multiplier too can change to meet your company’s
requirements.

Example:
The Selling price at a 2% commission rate is $7,500 and its monthly maintenance price to the
customer would be $30 a month if the customer decided to purchase a maintenance agreement. The
sliding scale maintenance rate coin sides with the sliding scale selling prices. This example shows a
2% monthly maintenance price of $30 up to a $46 monthly maintenance sold at 15%.
NOTE: The mark-up analysis is programmed to go no lower than $20 per month for a monthly
maintenance price.

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 Column “O” indicates what the sales person would receive “annually” on the sliding scale of the
monthly maintenance agreement. Example: If the sales person sold the maintenance agreement at
15%, then the customer would pay $46 per month and the sales person would receive $82.80 annually.

Columns “P&Q” compute a standard lease/maintenance agreement for 24 months. Column “P”
indicates the monthly amount the customer would pay for the lease/maintenance agreement.
Remember; this does not include the sales tax. “Q” indicates the total commission received on the sale
of the lease agreement. Both of these columns are also on a sliding scale and are based on the sliding
scale selling prices in column “L”.
Example:
If a sales person sold a lease/maintenance agreement at a 10% commission rate, then the lease would
be based on the selling price in cell “L14” of $9,750. This would mean the customer would pay a
monthly lease/maintenance fee of $507.10 (+ tax) for the length of the lease period of 24 months.
Typically the customer pays five months down. Example: 1st. month and last 4 months; or first two
months and last 3 months. The customer then makes the remaining lease payments (19 payments)
during the life of the lease. The sales person would receive a commission over the period of the 24
month lease totaling $1,217.03. Note that the commission amount of a lease is higher than the outright
sales commission. The outright sale at 10% would be $975.
How a commission amount is paid on a lease/maintenance to the sales person may vary from
company to company. The sales person may receive a percentage of the commission on the date of the
sale and then perhaps payments monthly or annually for the remaining lease period depending on the
size of the lease. Additionally note that column “Q” is in red to indicate the commission amount as in
the other various commission columns.

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 Lease financing is based on amortization tables. The book gives you an example of this table for
reference. You will notice in cell “Q5” has the multiplying factor for the amortization and this
example shows that this multiplier is based on 14% over a 24 month period. Please note that cell “P5”
identifies what type of multiplier is used in cell “Q5”.
If the company wishes to change the amortization rate to a higher or lower percentage, then you can
refer to the amortization table for the proper multiplier number. You then delete “Q5” and replace it
accordingly. Additionally you would want to change “P5” to reflect the revised percentage. Cell “Q5”
must have a multiplier value for the leasing portion of the mark-up analysis to work properly.
The other standard leases for 36 months and 60 months will also have multipliers reflecting their
amortization tables. They are located in row 5 see below for the example.

Columns “R&S” reflect lease/maintenance for 36 months and columns “T&U” reflect
lease/maintenance for 60 months.

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 The mark-up analysis shall provide the sales person with 11 selling prices, 33 leasing options and 11
maintenances prices. These prices shall all reflect the sliding scale system to allow a sales person to
negotiate with their customer.

Pay Down Leases

You will need to use the slide bar on the right side of your screen to scroll down to the Pay down
Lease/Maintenance portion of the mark-up analysis program. A Pay down Lease/Maintenance is a
lease where a percentage of the selling price is given as a down payment. The remaining portion is
then financed over the length of the lease period. The advantage of a pay down lease is that the
customer typically pays less money per month because we are only financing the remaining balance
owed in the lease.
This paydown system creates two different percentages of down payments; a 20% down payment or
a 35% down payment. This mark-up system also uses the same sliding scale concept as the previous.
Notice that on a Pay down Lease the down payment (20%) shown in column “L” and the remaining
balance of the selling price in column “M” will total the original selling price shown in the Standard
Lease (above).

Example:

The monthly maintenance portion of the Pay down Lease in column “N” is at the same rate as the
Standard Lease; hence you will see no change. Column “O” (shown in red) is the commission amount
the sales person would receive at the sale of the Pay down Lease. This commission represents the
percentage of the down payment shown on column “L” in a sliding scale. Additionally that percentage
is indicated in column “K” as in the previous Standard Lease. In short the sales person receives a
partial commission upon the sale from the down payment.
The remaining portion of the selling price in column “M” is then financed and the monthly lease
payments are shown in columns “P” for 24 months, column “R” for 36 months and column “T” for 60
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months. Those monthly lease payments are on a sliding scale as shown and the commission amounts
are posted in red just right of the lease payment columns.

Using this example; if your estimate spreadsheet cost was $5000 as previously stated and the selling
price was to be sold at a 10% commission computing a 24 month Pay down Lease based on this mark-
up analysis sample. The selling price would be $9,750. Using the 20% Pay down Lease/Maintenance
system the customer would need to come up with a down payment of $1,950 plus tax. The sales
person would receive $195 (10%) at the date of the sale. The sign company would finance the
remaining balance of $7,800. The customer would pay $413.38 plus tax every month for 24 months.
The sales person would receive $992.35 in commissions during the life of the Pay down Lease;
totaling $1,187.35 in commissions for the sale.

The 35% Pay down Lease/Maintenance mark-up system works the same way as the 20% Pay down
system. The difference will be the higher down payment the customer will need to come up with;
however the monthly payments will be less and you will find some customers attracted to the smaller
monthly payments.

Buy VS Lease

The estimating system also has multiple Buy VS Lease forms. This system automatically inputs the
numbers of an outright sale and a lease/maintenance sale. It then processes these figures into their
prospective paths giving you the financial outcome for both types of sales. You can then compare the
financial differences and tax benefits between the outright sale and the lease. The system is designed
to show the customer the benefits of leasing over an outright sale by viewing the course and its
financial outcomes.
We need to begin in the Mark-up analysis portion of the system. Click the bottom tab reading
“Mark-up” to enter the mark-up system. You will notice two blue fields on the top portion of your
screen. These fields are blank, however to the left of the field reads: “Price Quoted”, and “Sales Tax
Percentage. You will also notice the column “L” that is also colored in multiple blue & white fields.
This field indicates multiple selling prices.

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 The sales person must decide what to sell the product for. He can choose from 2% up to 15% based
on the mark-up analysis system. Let us assume the sales person wishes to sell the product at a 10%
commission rate using the same cost from the estimate side of the spreadsheet of $5000. This would
imply the selling price of $9,750.
The sales person types in this price as indicated in the blue box on column “M”. See example below.

This example also shows that the sale person must type in a percentage of sales tax to represent their
sale; this example shows 8%. Each State will have there own sales tax percentage and the blue box
indicating sales tax will need to reflect the proper tax to represent the sale.

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 So let’s view the standard Buy VS Lease form and examine the outcome. The bottom of your screen
is multiple tabs going from left to right. Click on the tab reading: “24standard”. (See example below)

This example shows a Standard 24 month lease, hence the label on the tab. There are a total of 9 tabs
using various Buy VS Lease options you may choose from; three standard lease options from 24 to 60
months. Three 35% Pay down lease options from 24 to 60 months and three 20% Pay down lease
options from 24 to 60 months. Additionally you have eleven different commission rates you can input
into any of the nine Buy VS Lease options you wish to choose; leaving you 99 options for your
customer using the sliding scale options in your mark-up analysis.

The Buy VS Lease form has two basic sides. The left side shows “Buy” indicating the financial path
of the customer’s money if the sign were to be purchased as an outright sale. The right side shows
“Lease” indicating the financial path of the customer’s money if the sign were to be leased. In short we
can compare the left side with the right side allowing the customer to better understand and compare
how his money is working.
You will also notice a black horizontal line in the center of the form separating the top from the
bottom. The top portion explains monies spent before any income tax effect takes place for both the
outright sale and a lease. Notice the yellow line high lighting the total money spent in this portion of
the form; comparing buyout VS lease. See sample below

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 The highlighted yellow area shows a total outlay of money for both the outright sale and the lease.

Buy side (left)

This side shows the original purchase price located in cell “E9” indicating the price of $9,750. The
sales tax (8%) just below that is located in cell “E12”. This program, automatically computes with the
8% that was posted in the Mark-up Analysis earlier.

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 Maintenance is the next item to recognize; it is the monthly maintenance figure from the mark-up
analysis, and then multiplied times 24 to indicate the 24 months; hence coming up with a total. If the
customer were to actually compare the outright sale over the lease then it would need to compare
apples for apples; hence they would need a maintenance agreement providing the same services as
does the lease. This is located in cell “E15”.
The next item will be insurance. The display will need to be insured to protect the customer.
Typically insurance is approximately 2% of the selling price. The customer should contact their
insurance company when a major purchase has been done to make sure it is covered. The insurance
will be located in cell “E19”.
Property tax is an item often overlooked by the customer. In today’s world many municipalities are
re-evaluating property when changes have occurred. Typically permit filings notify the local
municipalities and re-assessments are done to reflect the changes for property tax. This was often the
case in the billboard industry and now happens quite frequently with other property improvements.
Property tax is typically computed at 2% of the selling price. It will be located in cell “E23”.
Interest lost on capital investment is also often overlooked, but must be considered. The monies
spent on a sign display could have been invested; hence we’ve lost the capital investment value. This
loss is in fact a reality and must be considered when comparing a lease over an outright sale. In this
Buy VS Lease form we are using 8% as an example. It is a little high for today’s market, but we are
using the same percentage on the leasing side of the form as well. If it is 8% or 4% it is not that
important. What is important is that it has been recognized and the same percentages are used on both
sides of the form, making the investment loss equal in percentage. This capital investment loss is
computed over the 24 month period and is shown in cell “E26” which will be the same period as the
24 month lease agreement.
OUTLAY BEFORE INCOME TAX is shown at the bottom portion of the top section of this form. It
is highlighted in yellow and shows the customer the actual expenses they will incur over the next 24
months on an outright sale. This is shown in cell “E28”.
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Lease side (right)

The lease side shows much the same type of expenses itemized. It will also come up with the same
type of results, but a different value.

We begin with where the money starts. The customer pays a down payment typically representing a
few months. This example shows a total of five months for a down payment; the first two and the last
three months of the 24 month lease agreement. This means the customer will make the down payment
as required. Upon the installation date of the sign the customer will have two months in which no
payments will be made. After the two months are up the customer will then begin making payments
for 19 months. After the 19th month has been paid, the lease will then have the last 3 months remaining
at no cost to the customer because they already paid it with the down payment at the beginning of the
lease. The down payment covered the first two and last three months. It is also common to have the
first month and last four mouths as a down payment; with 19 payments during the course of the lease
agreement. This Buy VS Lease form will use the 2/3 method as first mentioned.
In cell “H10” you will see the down payment amount. It represents a 2/3 down payment (first 2, last
3). Just below the down payment in cell “H11” will be the tax amount for the down payment. This tax
amount shall be automatically 8%. The monthly lease payment amount is shown in cell “H12”. There
will be a total of 19 payments made by the customer during the course of the lease agreement. The
total amount of these lease payments are shown in cell “L12” Sales tax of 8% will also be applied to
the monthly payments. This amount is shown in cell “H15”.
There will be 19 of these monthly tax amounts paid during the period of the lease agreement. These
19 payments are totaled and shown in cell “L15”.
The total amount of expenses incurred which include the down payment plus sales tax, the monthly
payments plus sales tax throughout the lease period will be shown in cell “L19”.
The interest lost on capital investments are shown in cell “L23”. This consists of the down payment
plus tax at 8% for two years.
The total cost before income tax effect is shown on cell “L28”. You will note that this cost is slightly
less than that of the outright sale in cell “E28”; however it wouldn’t be enough for most customers to
warrant purchasing a lease over a sale.

We have compared an outright sale over a lease and came up with the total cost effect over a 24
month period on each. Additionally the outright sale provided the exact same services as did the lease
for the same period of time. Mentioned earlier the cost difference wouldn’t be enough for the customer
to lease over an outright sale.
Now let’s review the lower section of the Buy VS Lease form and see what the tax effect is when
comparing the two. Going to the left side of the lower section of the form are the figures for the tax
effect on the outright sale. The first figure you will see will be in cell “E34”. This figure shows
depreciation monies that would be received over a period of two years. On a capital expenditure you
can expect 7 years depreciation under previous tax laws. This means we have to wait the entire 7 years
to collect all of the depreciation value if you were to use purchase the sign with an outright sale. In the
mean time we can a least take advantage of the two years as shown.
We will also show sales tax, maintenance, insurance and property tax as indicated in column “E” in
various rows. All of these deductible expenses will be totaled and shown in cell “E44”. We can not
know what the customer’s tax bracket is, but we can make an assumption and use that assumption on
both sides of the form so that they both are equal with one another. The form chooses that the
customer is in a 40% tax bracket and will list the tax effect of that bracket accordingly as shown in cell
“E46”.
We can now subtract the outlay before income tax (a) in the highlighted yellow “E28” from the 40%
right off (b) listed in cell “E46”. The results of this will be in cell “E49” which is also highlighted in
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yellow at the bottom left of the form. This figure of $11,818.11 will be the amount of money the
customer will spend during the 2 year period if he purchases the display as an outright sale. (See
below)

On the lower right hand side of the Buy VS Lease form you can view the income tax effect if the
customer purchases a lease agreement. It’s much simpler to figure out; leases are a 100% right off.
Simply take the total expenses incurred throughout the life of the lease and use the 40% tax bracket as
the right off. The total cost after you’re right off is shown in cell “L38”. When you compare the total
expenses incurred with an outright sale to a lease the savings is substantial. You will also note that the
total cost after the right offs for the lease shown in “L38” is less than the original selling price! Cell
“L49”shows how much money is saved with a lease over an outright sale. Cell “H51” puts that savings
into a percentage to give you an even better perspective. This example shows a savings of 30% which
is more than enough incentive to go with a lease.
You can go to the bottom of your screen and click on all nine of your tabs and see the results of each
Buy VS Lease form. You will see that the results all vary to reflect the different performances of each
lease and how it may benefit your customer. The Buy VS Lease tools will help you better understand
the advantages of leasing over an outright sale and will help you explain this to your customer.

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