*
I don’t mean specifically, but in general: say you pay a guy 10$ (everything included, just to keep the math simple). When estimating or charging him out, do you charge him at $10…$20…more…does everyone get charged at the full shop rate (or whatever you want to call it), or do you figure each guy is contributing to the overhead, and go leaner in your bids? I know a lot will depend on what the local market will bear (mine won’t bear much), but as a principle, what is your $10 an hour guy worth to your client….especially in a competitive bidding situation?
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A 10.00 an hour guy costs me almost 5.00/hr to have. So I have to at least make that much off him, or there's no point in it for me. 20.00/hour for a 10.00/hr hand, minimum.
Now, a more expensive guy doesn't cost that much more than the 10.00/hr guy here in Washington. It's not a 50% deal, as you might think from your example, and my response. So say I'm payin' a guy 25.00, he costs me another 7.00/hr. I want to make at least 7.00/hr off him.
*We charge a flat rate for everybody. I make money on some, and break even on others. I wouldn't advise this method to anybody, but it seems to work for us.Ed. Williams
*If you ever bill T&M, I think you've got to charge a flat rate for everyone. It's too confusing to the customer to understand that Jonny cost you this muvh and we charge more for Paul but if we send Paul and Mike, you'll be charged this other price. Causes arguments, makes things complicated.And, the experts (whoever they are) say you need to charge 2.5X their hourly wage to break even.
*You need to know your overhead costs and have a (set of) pricing stratagies to know where/how you want to charge your profit. Using the formulas from a book or off a web site might help in making sure you make money, but in a tight market/bidding situations you won't know what costs you control and don't control. Know what costs you control can help you lower your charge-to-customer price and still keep a reasonable profit. There was a thread that talked about overhead but it didn't end up "listing" evrything that might be put into it ( http://webx.taunton.com/WebX?50@@.ee95bb3/17). What you put in your overhead or charge direct is part of your strategy, which can be different for diffeernt jobs,but you have to know how you're doing something so you know what is really profit and what is not.
*Don't charge by the person. It is too complicated in your bidding and too confusing for your customers. Instead either just charge a flat rate for all labor, or charge by category. By category I mean for example; one rate for the Foreman, one for a Journeyman, one for the Apprentice.Then figure your All Up cost for each employee category and at least double it; maybe even more. Why be bashful, the local garage charging $85 - $150 for shop time certainly isn't; and they get it. Why not you? One of the key ways you get to retire at ~50 is to leverage your employee's labor. (Just be sure you are treating them right and paying them well, or leverage turns into exploitation and That is Wrong).
*Adrian, I think Sonny mentioned something once about adding 52% to the hourly wage. It seems to cover Workman's Comp, witholding, tool depreciation and supplies ( nails, sand paper, sandwiches), and no clients have complained ( winced, but not complained) since I started charging that.Now, if my boss would only add that on to my pay, BB
*bb... i'm pretty sure the 52% only covers Labor Burden...it doesn't cover company overhead or profit..our burden is 47% and Sonny carries a couple- two -three extra 2% for some other contingencies..labor burden is the extra amount it costs you over and above what you pay the employee..here's some:SSMedicareFed UnemploymentState unemploymentState disabliityWCGLDowntime (training, shopwork,non-billable)Warranty workPayroll AdminSupervisionWC, SS, Unemployment, any benefits, any non-productive time... if it's an expense you only have if you have employees , then it is burden.. if it is a company expense not directly related to employees , then it is company overhead....
*The only guys making money at wages times two are paying cash and receiving cash...If you run a legal business, then your costs are at least half the wage and with losses much more. My area is very sensitive to hourly wages....So I avoid it most of the time except for myself alone.near the stream,ajLaborer...pay 10 cost 15-20 charge 22-25tech......pay 15 cost 22-30 charge 35-45PM(lead).........charge 35 plus 35-55 elsewhere in costsTravel paid and charged one way (out of town jobs or day work)
*Ahhhhhh. Mike is not only a wise man, but a smart man too. Several very important things that cost each of us a lot of money, but are rarely provided for in our overhead:1. Warranty work, or is it "warrantee" work? Whatever - it costs money!2. Training expense - read "time".3. Supervision (even when working along side with an employee - at least 1 hr. per day)4. Other "non-billable" hours - also known as "down time" (rain out, not home, lost key, broken tool, I forgot the other extension ladder, supplier out of stock to drive to another supplier, etc.).5. Extended lunches - even a 45 min. lunch instead of 30, is 1/4 hour per day. Add that up per month.6. Yes, bb, tool depreciation is part of overhead, as opposed to a labor burden expense. Labor burden and overhead are two separate expense categories. Labor burden is a "direct" expense, while most of the rest are "indirect", therefore, get lumped into the general "overhead" category. However, some items, like when we used to build Lindal Cedar homes, we supplied the circular saws used by the framers (our staff), so we included two circular saws in the direct job cost since by the end of the job, they were usually trashed anyway. Ditto for the electric stapler used for installing insulation & visquene on a large perimeter house.If not addressed, the above 6 items can be, and usually are, a few grand out of your pocket each year.
*In addition to the labor burden portion you have been discussing, it is possible to amortize your entire overhead and profit over your employee base. If you need $100,000 for overhead and profit during the year, and you have 5 guys working an average of 1600 hours annually each, then:$10.00/hr. for employee$5.20 for burden (52%)$12.50 O&P ($100k divided by 8,000 man/hrs.)$27.70 billout rate
*Peter,good post...I may have to print it and make it part of my marketing and billing.near the stream,ajI also actually use 1600 hrs as my average too. 40hrsx40weeks but with 3 men...4800hrs equals $20.83...so $35/hr billable rate.
*AJ and Peter, I have a suggestion. How about figuring your labor per man at 36 or 37 hour per week. That 2-4 hours covers any downtime each week. Part of the problem I had was dividing the total hours needed to do a job by 40 hours per week per man. Always ran over and it was always due to down time for one reason or another. After I switched to the above system, I stayed on track unless I really screwed up on an estimate due to something other than the above reason.Anyway, at least please consider it. No one works 40 hours per week even though he's paid for those 40 hours. In manufacturing it's call a "production factor." So operating at a 80% production effeciency factor is 3.2 hours lost. That leaves 36.8 hour actually "producing."
*Let me get this straight. The property owner wants journeyman carpenter A to perform carpentry labor on his property. So person B decides he will charge the property owner X amount of dollars for journeyman carpenter A's labor. Out of amount X, person B will give journeyman carpenter A a small portion. How much does journeyman carpenter A then charge the property owner? If the property owner wants journeyman carpenter A to work on his property, then why does the property owner ask person B how much he is charging for journeyman carpenter A's labor? Why not just deal with journeyman carpenter A? Journeyman carpenter A is the only person who has the legal right to charge for his labor. At least this is so in the United States. Labor is property and the property owner is the only one who can charge for it. Is it person B's contention that Journeyman carpenter A's labor is the property of person B?
*b "Labor is property and the property owner is the only one who can charge for it." Carpenter A's and person B's labor rate charge are moot. The property owner determines what "he" will pay per hour, and not only the capenter, but the painter, the groundskeeper, the cleaning lady, his doctor, dentist, CPA, lawyer, etc. Therefore, the property owner can, if he so desires, only pay the current minimum wage, or if he also so desires, pay anything at all.
*BOB... how many times are you gonna resurrect that dead horse so you can beat him again... you live in a dream world....any carpenter who wants to work for themselves is free to do so.... any one else who wants to be an employee is free to do so.. if they are an employee then the business has to stay in business so the employee will have a job...to stay in business.. they have to charge enough for BURDEN, OVERHEAD, and PROFIT.. your version and interpretation of arizona and US law is naive... and your conclusions are contrary to fact...give it up..b but hey , whadda i no ?
*MikeSuppose you are out at the job site and are working at framing a new house. A carpenter comes by looking for work. You say you will hire him as your employee. He declines and decides he would rather work for himself and not as your employee. He rolls out his tools and starts framing alongside you. What do you do?SonnySorry about the confusion. In one case I meant the property owner to be the owner of the real estate. In the other case I meant that the person performing the labor is the owner of his own labor which is property and thus the carpenter is the property owner of the labor.
*i'd tell him to beat it..... i have a contract with the owner.....the carpenter can work for me... at will.. or he can shove off....what don't you get about common law..are you dense ?are you all right ?
*Mike SmithSee if you can comprehend this. Arizona's mechanics' and materialmen's lien laws state that mechanics and materialmen shall have a lien for labor or materials furnished whether the labor or materials are furnished at the instance of the property owner or the property owner's agent.It then states that all contractors and subcontractors are agents of the owner. That may be difficult for you to interpret but the law was written so that a person of average intelligence could understand it.Arizona's contractor licensing statutes are also written so that a person of average intelligence could understand. They make a distinction between general contractors and specialty contractors. Specialty contractors include master carpenters, master painters, master electricians, master plumbers and the like. To obtain a specialty contractor's license such as a master carpenter's license, one individual known as the qualifying party must meet certain requirements. In the case of a carpentry contractor's license, the actual master carpenter who supervises the job site must have four years of practical trade experience as a journeyman carpenter or four years of management trade experience as a master carpenter or a combination of either that totals four years. This master carpenter who acts as qualifying party must also take an examination. The master carpenter who takes the examination can be what is called a "responsible managing employee" and represent an individual, partnership or corporation engaged in the business of master carpenter (carpentry contractor) or if not acting in the capacity of a "responsible managing employee", he can represent himself as an individual, represent a partnership in which he is a partner or represent a corporation in which he is a corporate officer engaged in the business of master carpenter (carpentry contractor). There are certain statutory requirements imposed on the master carpenter who qualifies for the license. First is that journeyman carpenters who act in the capacity of mechanics and materialmen who furnish carpentry materials can only negotiate their contracts with this individual. Second is that the master carpenter who qualifies for the license must actually, directly and continuously supervise the job site where the individual, partnership or corporation he represents is engaged as carpentry contractor.The contractor licensing statutes require any property owner who acts in the capacity of master carpenter and negotiates contracts directly with journeyman carpenters and suppliers of carpentry materials to obtain a specialty license as a carpentry contractor unless he falls into an exemption category. Any agent who is employed to act in the capacity of master carpenter must have a specialty license as a carpentry contractor unless he falls into an exemption category.It is thus seen that the use of the term agent is used in both the contractor licensing statutes and the mechanics' and materialmen's lien laws. If you are confused as to what an agent is, you can consult a dictionary but it does have a meaning that persons of ordinary intelligence can comprehend.Arizona's statutes make a distinction between those engaged in practical trades such as journeyman carpenters, journeyman plumbers, journeyman painters and the like and those engaged in management trades such as master carpenters, master plumbers, master painters and the like.Arizona chooses not to license and regulate journeymen of any trade. That is the will of the people as expressed through the legislature.It is however, only journeymen carpenters who can make contracts to perform carpentry labor. Since they all have lien rights, they all have the right to make contracts. It is only possible to have a lien if there is some debt to be secured by the lien and there can be no debt unless there is some contract either express or implied. Now do the math. If labor and materials can be furnished at the instance of the owner or his agent, then if no agents are employed the cost to the property owner for labor and materials is the sum of all the labor and material contracts. If contractors and subcontractors are employed as agents, then the cost to the owner must increase by the respective amounts of their contracts.I fail to see Mike why you find this to be so difficult to comprehend. Oh, that's right, the law is written so that people of ordinary intelligence can comprehend them.
*Bobby....You are doing mushrooms.....Aren't they great?!!near the other end of the stream,aj
*Mike SmithIf you have a contract to do the work, then why would you consider hiring an employee. By your scenario, it is possible for one man to make the contract to build everything in the world and when he finds it impossible, then by default everyone must be his employee at will because one man has every contract. By the way, when the employee you pay to take the labor portion of the contract off your hands, it is understood that he takes the corresponding compensation from the owner isn't it?
*Mushrooms....Mushrooms.....Mushrooms....near nervana bob,aj
*the truth is bob... that you are still full of sh*t..you don't know the law in the other states... you don't even know how to interpret the law in AZ..you've been on this kick for as long as you've been posting here... and these conversations are all circular...go chase your tail.....
*Bob, What is the point you are trying to make? I am new here so don't have the history of your previous posts. Are you saying that everyone else is charging more than you are for your labor and your angry? Are you saying you are tired of living in Arizona and want to make real money again? Are you saying that Arizona should amend their laws to your interpretation? Just spitting in the wind? I must not be of average intelligence cause' I don't get what you are saying either. DanT
*All providers of goods and services are entitled to just compensation as determined by their agreement (wrtten or verbal) with the parties involved. Since the property owner bears the benefit of improvements to his property he also bears the risks (in the form of lien laws) in the event that a problem occurs.The IRS makes a very strict determination of what an "employee" is, versus what a "sub-contractor" is. Basically, if an individual works primarily for one company or firm, at their direction, they are an employee. An employee can not also be a a sub-contractor on the same hours of work. Either he will be issued a W-2 or a 1099, not both. Since the carpenter in question works for a contractor that provides his tools, directions, and other means of support, he is the contractor's employee. If the contractor fails to pay his employee, the employee has recourse to file claims against the contractor and also the property owner where the improvements were performed.Since the lien laws are based upon an exchange of value, we must ask where that value lies. In the case of property improvement, it is clear that the owner has benefited from the goods and services provided to him. That is where the value lies, so that is where the claim is made.
*Jaysus, this pisses me off...a perfectly good thread gone to hell due to Haugens dead hobbyhorse. I suggest everyone just ignore this stuff....it's all of it been argued into the ground....and Haugen is the only one playing by his interpretation of the rules.Anyway, one of the reasons I posted this is because I've been trying to work some of this into my pricing; most of my work is competitive bidding, and since I've started charging my guys at a more realistic rate (x2), I haven't won a bid. I'm busy enough on another project, but it's worrying. Bear in mind I'm in one of the most depressed economies in North America, and the going rate for a journeyman with tools and a truck is 100$ a day under the table here. I'm a lot more expensive than that even before I start adding a factor to my employees labour.Thanks for the input.
*Sonny,don't encourage him.
*Do you think Bob "dead horse" uses this line of reasoning with his customers? "You see mam, it's illegal for me to work for someone and illegal for you to hire a company that has employees. In fact, we can't sign a contract at all and the federal government requires that you hire me. And if you don't, I'll just start working on the project the other guy's working on next door and he can't stop me. Ha Ha Ha Ha Ha (evil laugh)"."They're taking me away ha ha, they're..."
*Adrian...marketing will set you free. but in the meantime... until you can see the fruit of your planting.....i think you want to have some multi-tier pricing..a little above competitive for the legitimate competition in your area..and in the niches where ther is no competion you will have to make up the difference..in a limited market that you have... you need a steady labor force so you will have the employees available..they must be multi-talented so they can do the bread and butter work.. but be available for the more highly profitable work you are striving for....as we discussed awhile ago..Nantucket & Martha's Vineyard were depression areas similar to your economy in the '70s...Those that hung in and reivented themselves became the cabinet shops and Gen.Contractors that are featured on This Olde House and the like now..When i play Faith Popcorn and look in my crystal ball.. i see the maritimes becoming the playground for Canada's rich and famous..is that in the cards?if it is.. you may be positioning yourself for a business that will not arrive for 15 years...not a bad place to be when you're 50...is demography and climate on your side ?...do you really have any competition for your euro -style cabinets that you are tooling up for ?can you mark them up based on your better levels of production and automation so you can get the mark-ups you need ?there are some small cabinet shops here that went bigtime with melamine and euro.. the one i'm thinking of is VERY successful...if you were here , you'd get all my business as a custom builder and remodeler.... but that might be only 3-4 kitchens a year... we don't specialize in anything....
*as a matter of fact.... what are the import /export rules ?the cabinets in my house came from canada in 1985..all inexpensive melamine euro...still look like the day they were installed.....
*PeterIf you go to a doctor, a dentist, an accountant or some other person that practices an independent profession or occupation and employ their services, then you are their employer and they are your employee. U.S. law has always held that there are two types of employees - those who follow an indepentent trade and profession and those who are servants. Do you tell your doctor or your dentist that you will give them a paycheck with taxes deducted and monies paid in for social security, etc.? I would bet that whenever you employ a doctor, dentist or accountant that he, as your employee, gives you, as his employer, a bill for his services.Adopting that line of reasoning, when a property owner wants a deck built, a set of stairs constructed or a door installed, he has two options. First, he can do it himself in which case he acts in the capacity of a journeyman carpenter which is synonymous with carpentry mechanic. In such a situation he is neither employer or employee. Second, he can employ someone else to do the work. In that case, the property owner is no longer the mechanic (journeyman) who does the carpentry. The property owner becomes an employer of an employee. The property owner now occupies the position of master carpenter or synonymously carpentry contractor. But this property owner who employs a mechanic to do this piece of work and then may never see him again does not give him a paycheck with taxes deducted or a 1099 any more than he would give a surgeon or dentist a paycheck or 1099. Obviously, every person would have the right to perform their own open heart surgery - but most people hire an employee to do this. Just as a property owner may choose not to perform his own carpentry labor in the capacity of a mechanic, so too can he choose not to act in the capacity of master carpenter (carpentry contractor). He has the right to employ an employee to contract on his behalf. Instead of negotiating a contract directly with the mechanic who does the carpentry work, the property owner can pay someone else to contract on his behalf. In other words, if I as a property owner want to, I can make an agreement with another person and say to him that I will pay him to negotiate a contract with a journeyman carpenter on my behalf and that I will be liable for the contract negotiated by him as my agent. Under Arizona law, it is simple - if you offer to negotiate contracts on behalf of a property owner for which the property owner is going to pay, you must obtain a contractor's license to do so unless you fall into an exemption category. For example, certain property management companies that manage rental property can employ a plumber, carpenter, electrician, etc. to perform repairs on the property without being required to obtain a license. But the management company does not pay for the repairs or improvements - the property owner gets billed. The management company is a mere contractor acting in an agency capacity. They are authorized to call a plumber, carpenter or otherwise to perform repairs or improvements. The journeyman who does the work then bills the property owner.It can't be any clearer.
*Bob...No one cares what you have to say...Start your own thread....Go away....cease....I am emploring you and would contract you to stop...not near your drivel stream,ajThe subject is pay ...Do you have employees?
*Adrian, you absolutely, positively, must buy The Profit Zone. Please; this book was custom authored for your situation. Just a couple of quotes from it:From the Preface:"The PROFIT zone is the arena of a company's economic activity where 'high profit' happens - not average profit, not cyclically inflated profit, not short term profit. The profit zone is where sustained, superior profitabliity creates enormous value for the company.""In each case the company and it's visionary leader were able to beat the odds.""Part one shows that understanding how to lead one's company into the profit zone requires a new point of view about wha tis important in business. The old rules of market share, of scale, no longert are sufficient. New rules must be applied.""Chapter 2 focuses on the most critical building block in understanding how high profitability happens - cusomter-centric thinking. "Cusotmer focus' has become a mantra across today's business landscape."Chapter 3 begins the discussion of profitibility by outlining a set of profit models that the reinventors (business owners) have employed. In each case, there is a unique mechanism that creates unusually high profitibility. "Part Two discusses twelve examples of companies and executives that have been able to move their businesses into the profit zone (and keep them there for an extended period.)In other areas of the book:"What is our profit model? How do we make money?"Companies that implement a CUSTOMER DEVELOPMENT MODEL (my caps) invest heavily to inderstand their customers' economics and find ways to make them more favorable.""The method by which customers are developed explains the companies' profitability.""When a firewall (low end) brand ISN'T (my caps) built, competitors have the opportunity to come in at the bottom and then work their way toward the top, where the profits are."The authors (Slywotzky and Morrison) list 22 Profit Models and their Practitioners ( public companies).1. Customer Solutions Profit2. Product Pyramid3. Multicomponent4. Switchboard5. Time Profit6. Blockbuster Profit7. Profit-Multiplier Model8. Entrepreneurial Profit9. Specialization Profit10. Installed Base Profit11. De Facto Standard Profit12. Brand Profit13. Specialty Product Profit 14. Local Leadership Profit15. Transaction Scale Profit16. Value Chain Position Profit17. Cycle Profit18. After-Sale Profit19. New Product Profit20. Relative Market Share Profit21. Experience Curve Profit22. Low-Cost Business Design ProfitThe authors also discuss what Peter Bush and I collaborated about briefly via email concerning "Reversing the value chain."Anyway, this book contains a tremendous amount of information, concepts, ideas and existing operating "business models" that can be transferred to our industry - successfully. In fact, I intend to implement several of these "models" in my new preventative home maintenance program (PHMP) business.The contents of this book is a several month long discussion in itself.Buy it and study it like a college text.
*I see from the posts that there is some confusion about how to figure the All Up Cost for employees. Frankly I think a lot of the confusion is created by those of us who have either written books, made a living from consulting to others, or have taught the subjects.It really is a very simple thing that doesn't take any gee-whiz formulas, or any extraordinary knowledge or intelligence. What it does take is a precise accounting system that captures all costs, income and statistics. By statistics I mean how many hours are used for what, how much material it takes to do a given job, what your mandatory profit is, etc.If you have the numbers it is a simple matter of doing the math to come up with a breakeven number as I posted before. On top of that you put in whatever you think the market will bear. The additional number will depend on your local market. Once you do it a couple times and find out either how much you lost a bid by, or how much you left on the table you will have the market by the tail.All these books with catchy titles and can't fail models are like fishing lures to fishermen. They are designed to catch you, and they do. Don't let them intimidate you into thinking you don't know what to do. If you have been reading the business posts over the last few months you know what to do and how to go about it.Now do it.
*Fred, your comments are valid, but I respectfully take one exception, or at least, would like to expand upon it.b "It really is a very simple thing that doesn't take any gee-whiz formulas, or any extraordinary knowledge or intelligence."I contend that most of us do have knowledge and intelligence, but like myself, can "apply" the above when "concepts" can be first acknowledged, and finally, understood. Besides, you seem to forget, most of us don't have management degrees, nor even the "concept" of general business management. We are - the lot - tradesmen to one degree or another who have made the decision (bad or good), to make our living as the business people we are not.Personally, I've made dramatic changes in my company due to learning new "concepts", discerning their relationship(s) and subsequent application to our industry, and specifically, my own business.I view the discussions in this forum of the contents of appropriate books as an extension of any seminar or formal class, yet better, for we have the time to digest comments, and the ability to offer additional comments. They become true debates and learning via intelligent discourse.From these discussions, each of us can then clarify and/or apply concepts to each of our respective businesses, location and markets, both existing and potential.In doing the above, each of us then become both mentors "and" students - a win/win situation for both contributors and lurkers.Considering the tremendous opportunities the Internet represents, it would be foolish not to utilize it to our advantage in this particular application. For I am convinced, business people we will become - each one of us, and damn good one's I might add.
*Sonny you make the point that I wasn't very clear very well. As a person who has been in most of the postions you refer to I can relate very well.What I was trying to point out was that most of the books mentioned as well as most of the "business books" a person sees marketed do little for the indidvidual business owner. They do not address concepts that can be understood and applied to a business. They say they do, but they don't. At best what they actually do is present one person's idea of what worked for them. Most of the time they are classic business concepts glitzed up for the sole purpose of making money for the author. This is something like those perpetual How To Make Money In Real Estate seminars.For most people just starting out as business owners/managers the tried and true method is best. First, have something to sell. If you don't have a quality product all the concepts and good management in the world won't help. Second, go to the local University and Govt Business assistance to take a couple of their "How To" courses. Then learn something about accounting. This isn't very glamourous but it is as essential as knowing the trade.Then read this and other forums where good business is discussed. Take it all in, discard what doesn't work for you and press on.Lastly, have some confidence. There is no one right answer that fits everyone. At some point a person must quit seeking and start doing. In the final measure the proof is in the doing.As it pertains to this thread, How Much To Charge Your Guys Out At, it really is very simple. Find out what your All Up Cost is for each individual or category of individuals including yourself(see my previous post). Tack on your mandatory profit margin(that amount you must have to at least equal a rate of return you could have gotten by just banking the money you have invested). Add on a healthy amount that is as much as the market will bear(don't be shy). That is the answer and will guarantee as much profitablility as you can get. Not enough? Then the market is telling you to do something else.
*Actually, Fred, the title of the post is "what do you charge your guys at?"...not "what should you charge your guys at". All the responses have been interesting, but I knew the book answer when I posted it, pretty much. I figured all the other other regulars knew it too, and I knew some of you guys, you included, know a lot about how it should be done. What I was getting at was , in the day to day wars, are guys getting what the books say they should (and other industries take for granted)? When push comes to shove, and you are typing in the numbers on the bid, to what degree are people sticking to their guns and charging labour out at the 'proper' rates, and how many have a sliding scale as Mike mentioned above (I do)?Anyway, that was my drift, even if it was poorly expressed.
*Adrian, I guess I might of missed the intent of your question as well. Sure I have problems sometimes getting the price I think I deserve, but it's a salesmanship problem on my part.One of the guys at the RO site (I think it was Rick) had called it "buying work". I never forgot that. I was discounting my services to get the job, just so I didn't have to sell as hard. People can only shop price on you if they perceive your product and services to be the same as the next guy. Educate them, and show them how much better you are at your craft. Use whatever means are at your disposal. You may also need to find a way for your customer to pay your higher price. Maybe an installment plan, or a connection at the local bank or lending institution. Do you provide financing? You can sell the notes to a third party, or you can do it in house if you have enough capital to kick it off.New cars are expensive too! Auto makers find ways to differentiate their products from each other and they find ways for the buyer to purchase at the higher price. 5-7 year loans...leases....Can you lease cabinets?
*Robert, your assertions seem absurd.If a guy starts to roll out a cord on my job, without authorization, I politely ask him to leave, and have him arrested for tresspassing if he doesn't leave immediately.There's liability issues that need to be dealt with if you let now workers in the work area...blue
*Robert, I urge you to get some terms in your dissertation defined for you by a competent lawyer. I'm going to suggest David Boise. I'm sure he will have a lot of free time soon....blueps. check with your doctor to get a blood test to see if your meds are correct....
*Adrian:Apparently I still am not being totally clear. Following my pricing there is no "proper" rate. There is a minimum/mandatory rate below which you cannot go and still meet all your costs(see my prior posts). Then there is the rate that is market driven. The market driven rate must be equal to or higher than your mandatory rate for you to stay in business. It very well might be several times higher than your minimum rate. Just how much higher depends on the job, the competition, and other factors we have spent a good deal of time discussing.This actual charge rate, unlike the minimum rate, is as much a work of art as it is one of accounting and calculation. A typical case might be that your minimum/mandatory/all up cost rate is $30.00 per hour. But you look over at your local auto dealer and see he is charging $85/hr. If you were in the States you look at the Davis Bacon prevailing wage, which might be $50/hr. You might look at several other wage sources to get a number. Then you pick a figure and bid the job; keeping in mind that under no circumstances will you charge less than your all up cost rate.So, unless they are being extremely foolish or short sighted everyone with a going business must charge the minimum rate. Guess this could be called a "proper" rate. But, most of the time you can and should charge much more than that.
*Adrian- We live in an area that until recently was very depressed and the price competition for work was very strong. We had differentiated ourselves from much of the competition in terms of quality but this did not always get us the jobs. In fact sometimes the quality of our work was equated with a high price and this lost us opportunities even though we were willing to take on just about any job to meet our payroll. We have always charged out at a little more that twice the hourly rate of our highest paid employee and charge everyone's rate as the same. We have only had one customer question this and are immediate response to button up the job and leave if he was not happy with one of our workers was extremely gratifying to that employee. We finished the job satisfactorily.We have always been able to make money in the end, though not as much as we would have liked. Now that the economy in our area has improved we have raised our rates and improved our income and that of our employees. I wish that we could take credit for that ourselves but I would rather have the money. Good luck to you and just make your business the best that it can be. ---Schell McKinley
*Simple as dirt. Figure the cost of your product and mark it up to a baseline figure to give you a starting point. If you go cost+50% you'll have a 33 1/3% profit margin as your base return on investment.After that it is up to you to judge the conditions in your market, and the individual client to gauge how much the market will bear. Many times it is possible to double the cost $$ or more, but if you insist on the cost+50% as a baseline, you should guarantee yourself a decent profit. If you are in a very lucrative market you may be able to raise the baseline, but you should never go under it.That makes the $10/hr. guy worth a minimum of $15/hr. to the client. Anything over that is just gravy.
*joel... i don't think so...the $10 / hr guy COSTS $15, cause his burden is 50%....now.. if you take the $10 & add BURDEN you get $15..and if you add 50% to that for O&P.. that is probably a better baseline..ie: $22b but hey , whadda i no ?
*Mike, can you explain what you mean by burden? I'm not following you there.
*if you have a W-2 employee.. you have to pay SS, WC, Unemployment.. yada , yada, yada..over and above their hourly rate...if you do the math.. with most companies this amonts to 47% to 52 %.....= Labor Burdengo back to the beginning of this thread.. there is a lot of discussion about burden.. Mike Smith 12/1/00 2:28pm
*Mike, if you look at Adrian's example, he says"$10/hr., everything included". This I took to be his entire cost. In my post, that is the figure I was referring to.I wasn't familiar with the term, but "burden" is quite descriptive.
*OK guys...no one around here works for Ten including the burden...are some of you saying that ten with burden flys in your area?near the stream,aj
*I assume Adrian used $10 as a nice round figure and not necissarily as his or anyones actual costs.
*Yup.
*Isn't it amazing the range of apparent knowledge in these posts? Everything from folks trying to figure out how to do the math and understand the basics to those trying to maximize profit.
*Adrian, the one point that everyone seems to miss in your post, is competition. If competition can get the job and prevent you from keeping good people busy then eventually they will force you out of that sector of the market. from a practical stand point there is NO formula that will work. That is exactly why enterprises like cabinet shops/ contractors/ etc. can't "sell" their business for much more then the asset value when they retire, that judgment is exactly what earns you the right to be "BOSS"
*Frenchy, I don't agree with your contention.The first mistake most contractors make is to, although inadvertantly, create a business around themselves "instead" of around the business, where the value should be. For most businesses, if the owner were to become incapacitated or die, so too does the business. Good bye paycheck! The reason that happens is because most are just self employed people - they make a job for themselves and a weekly pay check, instead of creating a business. The business should be systematized to the point where as the owner is no longer needed other than to oversee and "lubricate" the overall operations when and where needed.Read The E-Myth by Michael Gerber. His astute observations and statements are correct about this issue.That is also the basis for franchises. Create a viable business and then sell it, or sell it again and again and again. The business is run by "managers", not self employed tradesmen. There is a world of difference between making a "job" for one's self and creating a business.Also, in every industry and within the same locales, there are those (businesses) enjoying very high margins and annual growth, and there are those (self employed) just getting by each month - maybe. I ask the million dollar question, what is the difference between the two types?There is absolutely nothing wrong with making a job for one's self. But, s/he must acknowledge exactly what they have done, and the pros and the cons. These people must also realize that they may be "in" business for themselves, but they do not "own" a business. They simply get their own projects to work on, enjoy the freedom of independence (another discussion), able to set up their own schedules and answer to know one. (?) On the other hand, no income is being produced when they are sick, on vacation, home working on estimates, on sales calls, when the starter quits, maintaining their tools and vehicle - you get the picture. During the latter, they are working on other "jobs" but those that pay nothing. In fact, they not only get no money for those, the time required to do them actually takes money from their pockets since they are no longer "producing." This is also the typical scenario of what's called a "practice."Even with "practices", there is usually a wide disparity between the net income from differrent "practices" and again, even within the same city or locale. So competition is not a factor, nor is geographical location, nor is the weather, nor is business nor technical knowledge. It's all in "attitude."Rick Ritivoy is an an example of what I'm talking about. He own's "Mr. Fix-It" in Detroit, and performs jobs from the mundane as installing awnings and storm doors to building $200,000 additions. He get's top buck selling jobs to white and blue collar workers as well as retires and professionals. Think his success is due to his "attitude", or determined by, or inspite of, his competition? And consider his company name - about as generic as one can get - nothing fancy like "Creative" this or that - just plain old "Mr. Fix-It." I think he stated on one of this post that he will do about $9,000,000 in sales this year. Guess Mr. Fix-It's "attitude" is fixin' himself a nice retirement nest egg - and a "business" to sell when he's ready! And when he does sell it, I'll bet my $1000 to your $100, that he gets top buck for the business as well.
*Sonny, I must respectfully disagree with you, While your assertion that it has worked in the past cannnot be refuted, that is no warrantee that it will work in the future. Classic example, Mc Donalds. The pattern is established, just copy it and success will follow. Not so, if it did there would be countless Mc Donald clones. Burger King tried exactly that and with all of Pillsbury's money they aren't nearly as successfull. Ultimately, small business is totally dependant on the owner making judgement decissions in a timely fashion, ...do I take this job or hope for the next one. What are the repercussions of that chioce? Too long now, we have had it great, it's almost hard not to make money. Don't you remember when we all drove ten year old trucks/cars/vans and felt it was a pretty good year if we made $25,000 ? Nowdays there are more then a few tradesmen making six figure salaries and evan average employees earn more then half of that Because of that the question seems to be HOW MUCH CAN I MAKE, rather then looking long term to what works. The Economy tends to cycle. Highs are followed by lows, really good highs followed by..... those who succeed will establish themselves as good value now and when the down turn comes they will still get the calls while those who have a reputation for chargeing what the market will bear will tend to be the last called. Good quality work at fair prices earns something you can't buy, a good reputation.
*Frenchy:Your post reads as though you think that making as much money as possible is separate from developing a good reputation. You also seem to say that you shouldn't charge what the market will bear in good times so that you will have business in bad times.If this is in fact what you are saying maybe my rephrasing will point out how illogical those postions are.My posts and several others have consistently made the point that you always make the maximum profit possible under the circumstances. Also that your All Up Price is the starting point for your contract pricing. I'll not rehash what has already been said here.It is not unfair to charge every penny the market will bear for your work. Now what the market will bear may change from year to year. But, you need to charge every penny of it. I've never found that charging top dollar inhibits business at all.What does put a choke on business is not having anything to sell. If you bid a job and then don't do quality work while keeping the customer informed, educated and involved your reputation will suffer and you will lose business.Haven't you ever heard about a company: "Boy they are expensive, but they sure do good work and you can count on them." Sure, you have, and that is the kind of company everyone should want to be.
*Frenchys statement: "While your assertion that it has worked in the past cannnot be refuted, that is no warrantee that it will work in the future. Classic example, Mc Donalds. The pattern is established, just copy it and success will follow. Not so, if it did there would be countless Mc Donald clones. Burger King tried exactly that and with all of Pillsbury's money they aren't nearly as successfull." But McDonalds does work, but only if it's cloned again and again by different franchees in different locations. Granted, their margins and sales will still be dependent up local environments. Burger King is NOT a clone of Mc Donalds. It's a different operation, and according to articles I've read, they have abandoned going for the kids, which Mc Donalds has locked up, and instead going for a different market.Different operation; different market. Maybe now they will succeed. And what is "succeeding"? Even with their competition problems, I'll take Burger King's bottom line over mine any day.Frenchy's statement: "Ultimately, small business is totally dependant on the owner making judgement decissions in a timely fashion, ...do I take this job or hope for the next one. What are the repercussions of that chioce?"I agree entirely!Frenchy's statement: "Because of that the question seems to be HOW MUCH CAN I MAKE, rather then looking long term to what works. The Economy tends to cycle. Highs are followed by lows, really good highs followed by..... those who succeed will establish themselves as good value now and when the down turn comes they will still get the calls while those who have a reputation for chargeing what the market will bear will tend to be the last called. Good quality work at fair prices earns something you can't buy, a good reputation."Again, I agree, but only part of the philosophy. When the market is down, those with exceptional reputation will still get the work that's out there, and I contend regardless of their previous pricing structure being geared to what the market will bear. A reputation is far more important, and carries much more weight than price. One's good reputation, even during cycles of getting what the market will bear, is still maintained, as Fred stated above. Assume for a sake of arguement that I can survive, and am happy with a 10% net profit during good times. What do I do when the market cycles down? On a $5000 job, $500 of that is my 10% net profit. Am I expected to drop my price to $4500 for the same job - at no profit? BUT, if during an "up" cycle I charge with a 25% net profit, that $5000 job becomes roughtly $5950. Now, if a "down" cycle mandates a dro in price, I can go to $5000 ad still get my 10% net profit. In a down cycle, I don't have to operate in the red. That's exactly how Fortune 500 companies operate, and we, finally gettting smarter, should mimic those who are already successfull, and in the same mannerFrenchy's statement: "Good quality work at fair prices earns something you can't buy, a good reputation." Good work quality and "High" prices earns something else you can't buy besides a good reputation, profitablility on an annual basis regardless of economic cycles.If I have a good reputation, it's based on things that are highly vauled to the buying public. Damn right I'll exploit those sweat and tear earned values to them for the max.I'm 110% with Fred on this one. You work for peanuts. Fred and I will work for peanut bars. Mmmmmm. We get the peanuts "and" the rest of the bar's goodies.I laugh at this word "fair" being cavalierly used when determining prices. "Fair" to whom? For any product or service there is always a large percent of the buying public who will state a "fair" price that is actually below cost. "Fair" is, like beauty, in the eye of the beholder. What has it cost you, or Fred or I or anyone else here to learn what we have learned that allows us to ply our trades? What chances and "potential" liabilities do we accept that effect our finances, future and health - our very lives? As to what is "fair", I'll determine what is fair - to me! If I can't get it, I'll do what I have to do to get my prices - I;ll become a better businessman, better marketer, better anything needed. So far, it's working, so again, I'll stick to my definition of "fair."You see, I'm the only person who knows the "basis" by which "fair" is determined, because I, not they, knows what it costs to do as they want, and what it cost "me" to be able to do what they want. They only determine if they want to pay it or not. And they base their decision on their "perception" of the value(s) they anticipate they will receive, ergo, what goes along with one's reputation. The only time one has to chop their price is if they get desparate. Therefore, never let yourself get "desparate" , and always do what you have to do to not only maintain your reputation, but continually enhance it even more, no you can command more, and be in more demand.Geez! Will I ever stop making long posts? Fred can say the same thing, but much more succinctly.
*Sonny!!!!In ten words or less....WTF did you just say?near the babbling stream,aj
*C'mon aj, that was 17 paragraphs worth! ya gotta at least give him 17 words to work with! Ken
*AJ, I'll work again, on being more succinct.
*I'll try one last time to make my point Next time you buy a new car/truck do you buy what is a good deal from a dealer with a good service dept. or do you just pay list? Some will hold out for absolutely the lowest price (and wind up cheating themselves) Your customers will shop you untill you establish that you are always fair with them. You don't have to be the cheapest, but you have to give what they consider value. Since most have little idea of the price of work, the only way they establish that is by comparision. No one cares what some account thinks of your profit structure, they care what they get for what they give.
*For years I've been suggesting that the 1st priority of any contractor should be to get his business to the point whereas 100% of his sales comes from repeats and referrals. I stopped advertising in June, 1991. From that business, and sold to my sons 2 years ago, I started another business - with no, notta, zip, zilch, advertising.From repeats and referrals, one should close about 90% of all sales calls, because these clients are already presold on you. Price is 2nd, 3rd or whatever, but these people rarely or don't shop. Buy hey Frenchy, whatever, do what you want. My Ma used to have a great saying: "Why break your teeth?" She was right. Neither of us is going to change the other's opinion, so let's stop breaking our teeth.Hey AJ, brief enough? Or as you might say, WTF - this post short enough and comprende?
*The way I do it is this:If I'm paying a guy $10 per hr and and additional 50% in benifits, workers comp, FUTA, SUTA, FICA, etc., he is costing me $15 per hr. I want to profit on him, so I add 30% to arrive at $19.50. I'll round it to $20 and that is what I will charge for him.I could charge $25-30 but don't. He cannot do the quality of work I can at $45 per hr. I want to be fair to my customers, while profiting myself.
*AJ....here on Long Island in NY we have to import our shroomers and can afford to do so because its far from a depressed market. My heads swimming from this thread...love hate thing ..ya know? 25+ years in the biz and I'll be 50 this year..Retire? Did I hear retire? Nah...I finally became a good craftsman, why let go of a creative soul. Downsize, take the jobs where your appreciated and use your knowledge that we've finally collected. Do the more creative gigs and GET THE FU*K PAID FOR IT. I think I'm comin' down....You rock AJGood Luck Andy in Cold Spring Harbor
*Hello Adrian, I followed the Winchel's donut trail up your way a number of years ago..camping at Keji..a bit o' Fundy and Gundy and so on. My small remodel company charges for mechanics and helpers. The mechanics are considered journeymen and helpers can be laborers or apprentices. Generally the paid hourly rate is billed at around twice that. Simply stated, an $18/hr. mechanic is billed to the customer at $36/hr. Okay.. Dan-O
*
I don't mean specifically, but in general: say you pay a guy 10$ (everything included, just to keep the math simple). When estimating or charging him out, do you charge him at $10...$20...more...does everyone get charged at the full shop rate (or whatever you want to call it), or do you figure each guy is contributing to the overhead, and go leaner in your bids? I know a lot will depend on what the local market will bear (mine won't bear much), but as a principle, what is your $10 an hour guy worth to your client....especially in a competitive bidding situation?