Break Even help/ fun with billing!

[guitarchris]

I'm just diving into taking over the family business and trying to see if I can get this thing in to shape. Thanks to searching the forums here I've been trying to find our break even point. I've looked at some of the online fill in the blank calculators and have had mixed results so I attempted to figure it out on my own. We are a small shop I'm the Lic. holder now, Dad is employed (and lic'd), mom does the books and we have a helper. 2 vans. Dad is trying to retire so the helper and I do most of the work.
Right now our overhead 97510.93 for the year.that includes salaries. that is at my current pay, which is WAY WAY WAY bellow what it should be, and the folks taking a minimal salary. I figured 6 hours of billable hours per day and 18 vacation days which equals 1452 billable hours a year.
So in our current state I figured our break even is:
97510.93/1452=67.16 per hour

Am I dumbing this down too much and missing something?

As far as billing goes I had been billing at $60/Hr and billing materials with a 30% mark up. What is common practice as far as marking up materials?

One more thing, how do you guys pay yourselves? a % of rev? a modest salary with a bonus at the end of the year depending on profits?

We've been doing a lot wrong on the business side of things for a long, long time and I want to do the right thing for my future, any input is appreciated:smile:

[Rich R]

I think your overhead figure is low, especially with 2 trucks etc..

Even if trucks are paid off, you should be figuring a certain amount for replacement or maintenance of them.

Somebody posted a list of basic overhead items a while back, maybe they can chime in and post it again

[JES2727]

There's you and a helper working in the field every day, two vans on the road, and you're only coming up with 6 billable hours per day? Are you not charging for the helper's time? Who's driving the other van?
You've got 4 people on payroll, two vans on the road, and your OH is only $97K?
Keep poking around this forum. There's lots to learn.

[cadpoint]

Welcome and it all seems low, where's all the other expensives, profit, Etc, etc...


Keep poking around this forum. There's lots to learn.

...

[s.sparkomatic.r09]

I'd like to attach a really good excel spread sheet, one I got from SBA. How do you attach, where are the instructions?

wait a minute, if I’m not smart enough to attach things to the form……..

[brantmacga]

if you want a higher salary, add that to your hourly rate. also, i add my profit margin % to the hourly rate as well so i'm doing that % on the gross income, not just material sales. If you're trying to do 30% @ $60/hr, you would charge $86/hr. My target is 20% on material & labor which I hit easily; there are some guys on here that say their's is 50% on material.

At the suggestion of another forum member, I picked up two books by Ellen Rohr titled "How much should I charge" & "Where'd All The Money Go?" They were a big help to me. I ordered them online from barnes & noble.

[Sparky555]

IMO you need to figure all the salaries at replacement value, as in what $$$ it would take to have a non-family member do the job. Add that into your overhead. Likewise for replacement vehicles.

Usually the rate turns into a shocker, so try flat-rate where your hourly rate isn't slapping everyone in the face.

Dave

[nafis]

Divide your employment salary by 1,000, and that's your hourly rate. So if you make $50,000 as a wage slave, you need to bill at $50 an hour to make it independently.

Is it really that simple? Hardly. You have dozens of factors to consider, and you'll need at least a bit of professional help to come up with your final answer. We'll break the problem down for you and help you set fees that make sense for your situation.

You Will Pay More Taxes

When you work for yourself, you double the fun of paying the FICA tax. "You're paying the employer's share of Social Security -- that's the big difference," says Dorothy Rosen, a CPA who offers advice on BankRate.com as the Dollar Diva.

As an independent professional, you may have to pay other taxes and fees. For many contractors, these additional burdens are minimal, but be sure to ask your state and local authorities or your accountant about these levies:

State and local taxes on business income.
Business property and inventory taxes.
Fees for business licenses.
"Bear in mind that half of your income is going to go away" to taxes, advises Rosen.

You Will Need to Buy Benefits

If you're like most employees, your company has provided you with a number of valuable benefits, especially insurance. As a contractor, if you can't hitch a ride on your employed spouse's plan, it's crucial that you figure in the cost of buying these services. Your fiscal and physical health depend on them. And being in business for yourself, you may need professional insurance. Add these items to your master checklist:

Health insurance.
Dental insurance.
Life insurance.
Disability insurance.
Professional/business liability insurance.
Retirement savings.
And don't forget about time off. Many a contractor concedes every weekend to the business and doesn't even entertain the idea of a vacation. But if you take this road, you will burn out faster than a middle manager in an 8-by-8-foot cubicle. Face the music: You will need to take time off, and this will reduce your billable hours. To save your sanity as well as your bottom line, budget for all of these time-off types:

Vacations.
Holidays.
Sick days.
Personal days.
Medical/parental leave.
You Will Incur Business Expenses

Most business expenses are deductible, but they do cut into your bottom line. Before you make the leap to becoming a contractor, do your best to estimate expenses that will ultimately come out of your hourly rate. The variety of business expenses is limitless; we cover the basics here.

First, consider business startup expenses:

Computer hardware and software.
Office equipment and furniture.
Business stationery and marketing materials.
Web site programming and design.
Initial inventory, if applicable.
Second, try to gauge your ongoing expenses, such as:

Marketing and advertising.
Car and other business travel.
Business entertainment.
Telecommunications services.
Accounting, legal and other professional services.
Professional books, subscriptions, memberships.
Payments on business debt.
What Do You Do Now? Go Figure

Once you've done your homework and made your best estimates of all the applicable items above, get some professional help to put it all in perspective. See an accountant or financial planner specializing in helping small businesses. Let your advisor crunch the numbers and come up with an hourly rate that you should charge based on your estimate of billable hours per year.

Then compare this hypothetical rate to the open market's going rates. "You need to charge what the market will bear," says Rosen. "If you're going to make a mistake, err on the side of charging too much."

.

[ramsy]

Before the newer bookkeeping apps with reports for Break even, cash flow, and payroll, we had to think out this manually.

One tip I heard was that many business fail to control cash flow. Being hung up with the Accounting Balance sheet and assets, they forget about the income and expense sheets, which determine cash flow and business solvency.

If you have any city college refresher courses for contractors, and can engage other class members, that might also bring you up to speed on local costs, rates, and handy services used by other shops.

[Rich R]

I was digging through old files and found this copied article from Frank Blau. Keep in mind it is 18 years old so the prices are lower than they are now.....even though for some strange reason most contractors are still charging less than the figures in this article from 19 years ago


How Much Should A New Contractor Charge?
By Frank Blau

The following feature story ran in the June 1989 issue of Plumbing & Mechanical. While the prices have changed since the late 1980s, this article remains as useful now as it was then.
This letter is to ask you and the staff of Plumbing & Mechanical to invest some time and effort to solve a problem for me. If you can make a “project” of answering my questions, I’m sure it will be of interest to many other readers.

I want to start my own small plumbing company, specializing in repair, remodel, drain cleaning and small construction. Technical knowledge and practical experience are not a problem. I have been a union plumber for 20 years, working on nuclear plants, hospitals and other large construction projects. The last 12 years, I’ve worked for Natkin & Co. in the plumbing service department. As foreman, bidding jobs, dealing with commercial accounts and performing the work, I know the technical side. The business management and planning are areas where I need help.

The Small Business Administration has offered help, but they don’t know our specific industry. Their outline for a business plan suggests setting service call hourly rates at three times the hourly rate of your employee. Fifteen dollars per hour is a fair wage in Tulsa, Oklahoma, but by the formula, I would charge $45 per hour. The average service call is $35 per hour in our area. To start a new business and attract customers, it seems I would have to charge about $30 per hour. While working in Natkin, I have bid jobs competing with fly-by-night companies which charge $22 to $25. Your magazine has discouraged price cutting for years, and I agree, but how else can I succeed? Can you recommend a formula for arriving at a service call rate?

The SBA wants me to estimate my first year total sales volume. Is there an industry average ratio of materials to labor charges for a small service company? In other words, would it be safe to estimate my total yearly billing would consist of 2/3 labor and 1/3 parts and fittings? ...

If Plumbing & Mechanical is looking for an interesting project, assign a writer to ... advise the new company on name, financing, insurance, advertising, computerization and other subjects vital to an embryonic company. Your prompt response would be greatly appreciated ... Signed, Ronald L. Coates, Coweta, OK.

Yep, I got the assignment. I started by giving Mr. Coates a call to get more background information and just to chat a little. I found him to be pretty typical of the kind of person who aspires to PHC contracting.

He is 40 years old, married and has three wonderful children ranging in age from 11 to 18. He plans to start his enterprise from his home in Coweta, a suburb of Tulsa, which has a population of about 750,000. Coates said he has about $30,000 in seed money to start his enterprise, money derived from financing his home. He owns a 1978 Chevy van that he figures to make due for the initial year of operation.

Coates stated that his wife has office skills necessary—including job costing, billing, bookkeeping, phone reception, etc., and has past experience working for Natkin. He informed me that she would perform those tasks at no compensation. Ron stated that she probably would work a minimum of 20 part-time hours per week, or 1,000 hours per year, in the new enterprise, with additional income from another full- or part-time job to “make things go.”

First let’s dispense with some of the easier questions Ron poses. When it comes to choosing a name for the new enterprise, I’d just make sure to let the public know what kind of activity the business engages in. For instance, instead of calling it Ron Coates, Inc., it would make more sense to call it Ron Coates Plumbing-Heating, Inc. In regard to insurance, I’d just advise Ron to shop it like any other commodity. Also, make sure that the companies you shop have clientele who are construction-oriented companies.

The trickier questions concern money and as my first piece of financial advice, I told him that I was opposed to wives or anyone else being sold as slaves to the public. When told that Mrs. Coates earned $14,500 per year working for Natkin, I suggested that be used as a guide to what he should pay her.



Cost of Labor
From a friend of mine who’s a union contractor in Tulsa, I found out that the current journeyman base wage rate is $15.86 and also got a detailed breakdown of fringes called for in the current agreement. In addition, we estimated an approximate payroll and insurance tax burden that may vary with each individual company. The hourly cost picture looks as follows (the percentages are percentages of the base wage rate):

Counting fringes as compensation, one sees that a Tulsa area journeyman who works 2,000 hours a year earns $47,860—not too shabby for a person who does not have the headaches and risk that a typical PHC contractor has. Ron informed me that he earns above the average compensation. With a maximum amount of overtime, the total compensation for a journeyman could reach as high as $80,000.



Know Your Costs
A key part of a questionnaire I pass out at my seminars asks, “What is the basic reason you went into business?” As you might guess, the most common answer is, “Earn more than you could working for someone else.” This is Ron’s basic reason, as well. He stated that he would be quite satisfied earning $60,000 the first year in business, which is about 1 1/4 times more than he presently earns.

Keep in mind that he and his wife will be the only employees generating the sales necessary to “harvest” $60,000 in owner compensation. What we need to do now is figure out the hourly selling price of labor needed to achieve that goal.

Remember, Ron needs to charge a bare minimum of $23.93 just to match what he gets from Natkin, but there is much more than that to consider. First of all, I’d like to see Ron and his family take a vacation two weeks out of the business year. This means that we’ll establish a 2,000-hour work year for this embryonic company, based on the industry standard of fifty 40-hour weeks. (If he can get more work than that, great, but a brand new contractor is wise to be conservative estimating the amount of work that will come his way the first year in business.)

But remember, not only will Ron be the sole journeyman working in the field, he also will have to estimate jobs, sell jobs, purchase materials, pull permits and perform a multitude of other “non-productive” tasks. While he is doing those things he does not generate revenue, but instead becomes overhead.

I estimate that he will be non-productive for at least 500 of those 2,000 hours. This means that he only will have 1,500 productive hours available to be sold to the consumer. If we multiply that by the bare minimum compensation of $23.93, we end up with total annual payment of $35,895. That’s a far cry from his goal of $60,000 annual income, $24,105 short to be exact.

So how does Ron corral these dollars? One thing’s for sure, he doesn’t do it by charging less for his labor!

The $24,105 represents overhead, and dividing it by 1,500 hours gives us $16.07 per hour of additional overhead to cover Ron’s salary requirements. We must add this to the base labor rate of $23.93 to arrive at a $40 per hour cost. Multiply 1,500 hours times $40 and we arrive at the goal of $60,000 owner compensation.

But wait. Does this company have additional overhead? You bet your sweet life it does. If Ron takes my recommendation to pay his wife at least the same amount as she earned at Natkin ($14,500) we need to add an additional $9.67 per hour to cover her salary.

Then there is “general overhead,” covering things like truck repairs, gas, rent, phone, advertising, office supplies, callbacks, utilities, bad debts, legal and accounting, etc. A very conservative estimate to cover it all would be $15 per hour, times 1,500 productive hours, or $22,500 a year. So add $9.67 plus $15.00 to the $40 hourly labor charge already figured, and we reach a labor price of $64.67 per hour.



Still Rising
This is a far cry not only from the jackleg prices in Tulsa, but also from the prevailing rate of $35 and even from the $45 SBA recommendation that Ron thinks is way too high. But this is what he needs to do if he is to reach the personal compensation goal he set for himself.

Unfortunately, reality is even harsher than it appears so far. The $64.67 of hourly labor charge represents merely the break-even or “static-point” of business. If our assumptions are correct, it will cover all costs and provide the desired level of compensation for the Coates family, but will result in no profit for the business. Ron needs profit for future growth, to buy new vehicles and equipment (his ‘78 Chevy van isn’t going to last too much longer), to hire additional personnel and so forth.

What level of profit should Ron shoot for? Well, I say 23 percent net before taxes. That is about equal to what the McDonald’s corporation earns, and I figure a good plumber is worth at least as much as the people who fill our kids with salt and cholesterol. It’s far less than the average partner in a law firm earns, but we’re not as greedy as lawyers. (Though I often wonder, why shouldn’t we be?) To get a selling price with 23 percent net profit factored in, divide $64.67 by 0.77 (77 percent), to produce a selling price for labor of $83.99, of which $19.32 is net profit.

WHAT!! Please, lower your voices. I can hear your incredulous screams of disbelief all the way here in Milwaukee.

Continued next Post

[Rich R]

Continued :

WHAT!! Please, lower your voices. I can hear your incredulous screams of disbelief all the way here in Milwaukee.

My friends, $83.99 per hour is not a fantasy or a fairy tale. It is an attainable labor rate. I am living proof of that. Although my company uses flat-rate pricing, it translates to substantially more than $83.99 hourly, and my net profit percentage is in the McDonald’s range, as well. (Much of the profit dollars go to my employees via a profit sharing plan and bonuses.) Of course, you better be good and provide superior products and services if you expect customers to pay premium prices, but that holds true for any walk of life.

Still skeptical? Then plug in any profit percentage you wish. If Ron wishes to lower his sights to 10 percent net before taxes, he can divide the static point rate of $64.67 by 0.90 to come up with a $71.86 hourly selling price of labor. If he’s content with merely 1 percent profit, he would have to charge $65.32. You can play still more games with the numbers by not paying your wife, or assuming more than 1,500 hours of productive work and so on. But at some point it all becomes an exercise in self-delusion.

The important thing is to know what your true costs of doing business are, and reward yourself for the investment, risks and long hours an owner puts into his business, along with the value you contribute to the marketplace.



The Material World
Let’s turn to some of Ron’s other questions. In his letter, he refers to labor and material ratios of 2/3 labor and 1/3 material. Actually, the opposite ratio, 1/3 labor and 2/3 material, is the ideal situation.

I’ll settle for 25 percent material and 25 percent labor as cost of sales, thereby producing a gross profit margin of 50 percent for the service, replacement and remodeling market. (I’m hesitant to offer much advice regarding new construction—other than to stay far, far away from it! I was into new construction in the early days of business but couldn’t make any money and got out. Many new construction contractors that I come into contact with through my seminars are looking to exit that market for greener pastures. This must be some people making good money in it, but I don’t know how.)

Let’s look at the figure 1, dealing with labor only. If Ron sold nothing but the commodity of labor (himself) for my recommended price of $83.99 per hour, he would earn $19.32 of net profit per hour for every one of the 1,500 hours he works in the field, and annual net profit before taxes would amount to $28,980 on sales of $125,985.

Figure 2 shows Ron’s year-end statement with material costs equal to Ron’s labor cost, the 23 percent net profit goal remaining constant. Note that first-year sales become $172,896 as compared to $125,985. Also note that the bottom line profit dollars have increased by $11,016 without having to add a single hour of extra work. Another significant factor to note is that overhead has decreased by 13.36 percent while overhead dollar expenditure remains constant. Such is the impact of material sales on a contractor’s business.

Just for the heck of it, let’s plug the same numbers and ratios into a P&L statement based on the SBA’s recommended labor rate of $45 an hour. Figure 3 reflects 1,500 hours or labor sold at $45. We again assume that material cost is equal to labor cost, and mark up the selling price of material with the same 23 percent profit margin used in the previous examples.

We see that total sales become $114,116, and the bottom line is reduced to a loss of $19,779. Ron has a problem. How does he get out of trouble?

Well, if he sells his wife for nothing, he’ll reduce his loss to $5,279. Still not good enough. Forget about taking the remainder out of general overhead — the $22,500 we assigned as a hypothetical amount is probably too low to begin with, and there’s no way Ron could cut it by almost a quarter. He could take a $5,279 cut in personal compensation, leaving him with a marginally respectable salary of $54,721 for the year. But that only leaves him at the break-even point. The purpose of a business is to earn a profit! And if he reduces his own income much further, he stands to make less than he does working for Natkin, which makes no sense at all considering the headaches and risks he assumes as an independent businessman.

So there is where he would be heading following the SBA’s guideline of $45 an hour. Imagine how steep the cliff is for those “blind men” rushing toward the edge with $22–$25 selling prices!



Dangerous To Health
Ron believes that the way to penetrate the market is to sell labor at less than the prevailing rate in Tulsa. Unfortunately, this thinking is all too pervasive among those who aspire to enter the PHC contracting business — pardon me — it’s pervasive among many who have been in the business for years, as well! This approach is very dangerous to your financial health.

Anyone entering this business had better lock into his mind the thought that the worst thing in the world is not to lose work because your price is too high. The worst thing is to lose money because your price is not high enough. You must assure that what you charge is adequate to cover all materials, labor, permit fees, overhead, plus a healthy profit.

I just don’t see how it’s possible for Ron to realize his financial goals charging $30 per hour as he suggests. He may indeed end up doing a lot of work, but for what? To earn less income than he now does as an employee of Natkin, and to bring home a whole bunch of headaches after hours on top of it? If that’s the case, frankly, I think he would be better off staying employed by someone else. I urge him to continue to do some soul-searching about why he wants to go into business for himself.

He seems to feel that once he breaks into the market and builds a reputation, he can boost his rates. But that may take years, and what will he raise to, the prevailing market rate of $35? Far too often the prevailing market prices are wrong ones that do not rest on solid financial footing. There’s too many blind men out there who don’t know what their true costs are and we end up with the blind leading the blind.

I’m not sure Ron is happy with the way I’ve handled this assignment, but I fervently believe that the numbers I’ve crunched show the only sensible way for this good mechanic and good man to make it worthwhile to go into business for himself. My advice to anyone who has the desire to enter the PHC contracting business, or any other business for that matter, is very simple.

Before you establish any price, turn a wrench, install a water closet or boiler or whatever, immerse yourself in the kind of business mathematics covered in this article. Do it from the start and make it habit forming. Numbers crunching and eternal vigilance of financial data point the way to true business success.

In future articles, I’ll delve further into the specifics of overhead items and other cost factors pertinent to the PHC business.



In September 1990, Frank Received This Follow-Up Letter:
Dear Frank:

After completing a year in the plumbing service and repair business, I have found most of your predictions were correct. I was able to charge for about 1,600 hours after the first year. Instead of charging the $83.99 per hour you computed, I charged the hourly rate of $35. This put me right in the middle of the rate charged by reputable firms in Tulsa. Close cost management and putting much non-compensated time made the year one of survival. The pay for all the investment and hours my wife and I put in amounted to about $30,000.

As you concluded in your article last year, it makes no sense to work this hard and invest so much for compensation that is less than one can make working for an hourly wage. I have therefore gone to work as a maintenance plumber for a major airline. My wife is running the business using a plumber she hired to replace me.

I am certain your response to this news will be, “You should’ve taken my advice and charged rates like I recommended.” It remains my contention that a new contractor cannot charge more than average. I had to work long and hard to come up with customers who used our services. I believe, had we charged more, fewer people would have switched to us.

Your message of demanding a respectable return on investment is right, how to implement it is the problem. No one company can afford to raise prices unilaterally. When the subject is brought up in industry association meetings, shrieks of “price-fixing” begin. Supply and demand are the true “price-fixers” in our industry. There will always be good plumbers who are poor businessmen, charging less than they can afford.

As the “guru” of the industry, your work in convincing and reforming the contractor is cut out for you. Those of us in the trade owe people like you and the others who write for Plumbing & Mechanical a big “Thank You” for your efforts. PM

Sincerely,

Ron Coates

[s.sparkomatic.r09]

Should be on excel.
I try to keep 12 months history and 12 months going forward.

Job costing is in QB.

Really helps to make sure I’ve got enough, but not to much work.

Estimate & Goals bla bla. If I know I have enough work with the profits that I want under estimate for the current month I start to give way high numbers...funny enough I've been getting more and more of those jobs.

So and so Electric lucky town usa


Year: 2008 Jan 2008
Estimate Actual
1 Cash on Hand
(Beginning of month)

2 Cash Receipts
(a) Cash Sales
(b) Collections from A/R
(c) Loan/Cash Injection
(d) Loan/Credit Card
(e) Other

3 Total Cash Receipts
(2 (a + b + c + d) = 3)

4 Total Cash Available
(1 +3 = 4)

5 Cash Paid Out
Materials
Payroll
Subcontractor
Auto
Advertising
Bank fees
Bus License/Permits
Computer/Internet
Dues/Subscriptions
Insurance
Interest
Office Supplies
Postage/Delivery
Phones
Professional Fees
Storage
Uniforms
Medical
Meals/Entertainment
Owner's Draws
Principal Payment

6 Total Cash Paid Out


7 Cash Position

Essential Operating Data
Sales Volume in Dollars
A/R End of Month
Bad Debt
A/P End of Month - Material
CC Balance
loans
Depreciation

[s.sparkomatic.r09]

QB is great, cash flow statements, estimating programs, tax deposits, overhead….Why don’t we just start a thread about getting people to just send the checks to my house. I’ve got the working part kinda figured out and it makes me tired, and my back sore.

Or I could take all the shelves out of my vans and do those magazine sales plays. How does that work? You pick up ten people (could be outa work electricians) drop them off in different sub divisions (ones that they wired so they don’t get lost), then they sell magazine subscriptions, I can pick them back up at night and make a percent off of their efforts. No that won’t work all of the homes in the sub divisions are getting foreclosed on. Man I just can’t get ahead.

No, wait if I sell no money down real estate magazines in the sub divisions……..electricians work for cheap anyway, I’ll be rich!!! Rich I tell ya
:grin:

[guitarchris]

There's you and a helper working in the field every day, two vans on the road, and you're only coming up with 6 billable hours per day? Are you not charging for the helper's time? Who's driving the other van?
You've got 4 people on payroll, two vans on the road, and your OH is only $97K?
Keep poking around this forum. There's lots to learn.

the way I came up with the figures is that I went through the checkbook and recorded EVERY actual expense that we incurred. I split every expense into it's own category on excel (so I could put other figures in to "play" with the numbers). I subtracted out material cost and this is the actual numbers for last year....well actually I added in a figure for the helper that was just hired.
Mom and Dad are essentially retired and have other income so they take very little money, I am only taking 26k until I can see if we can afford to pay more. The helper is GREEN GREEN GREEN so his pay is very low until he starts getting up to speed. We run only one truck on the road most of the time, we used to run two. Since dad is essentially retired he takes one on service calls etc. Both are paid for and we do most maintenance ourselves.
I know we need to factor in for replacement of vehicles, future wages etc. I'm just telling you guys the raw numbers for now.

There is a lot to learn and your advice is very valuable to me, thanks guys.

[guitarchris]

Great article Rich.
Do most of you choose a goal pay for yourself like in Rich's artilce or what? I'm wanting to find a good number to pay myself so I can factor that into the equation. If I can factor the new wage in in a year or so, once I have a good idea of our "new" financial position, I might can start paying myself fair compensation.

[s.sparkomatic.r09]

i do electrical work for free during the day, then to pay my bills i work all night selling magazine subscriptions....i'd ask some of you guys to buy but that would be soliciting. darn

[brian john]

if you want a higher salary, add that to your hourly rate.. If you're trying to do 30% @ $60/hr, you would charge $86/hr. My target is 20% on material & labor which I hit easily; there are some guys on here that say their's is 50% on material.



In my expierence you will receive less questions on T&M billables with a higher material mark up that with increasing rates.

100.00 x 1.2=120.00
100.00 X 1.5=150.00

Try increasing you hourly rates 3.75 dollars an hour (to achieve 30.00 a day)

Customer's may question you for the hourly material is seldom questioned in my experience.

[jmsbrush]

The numbers that are being discussed in Franks article is that for service calls only? Or is it for also when you bid out work lets say a Walmart or gas station?? Lets just say 15000 hours for pretend

[Rewire]

How do you adjust for additional employees I have 8 men working I pay the same for my rent electric and phone aas when it was just me.If 65 dollars was the static point for one will it change as I add employees?

[satcom]

How do you adjust for additional employees I have 8 men working I pay the same for my rent electric and phone aas when it was just me.If 65 dollars was the static point for one will it change as I add employees?

When we added employees, our comp insurance rates went thru the roof, our payroll services went up, and the scheduling costs increased, general liability also increased, and in my state the insurance on the trucks also went up, you really need to track your costs when adding employees

[Rich R]

The numbers that are being discussed in Franks article is that for service calls only? Or is it for also when you bid out work lets say a Walmart or gas station?? Lets just say 15000 hours for pretend


Those numbers are based on a service type business, If you were doing new construction, you have more billable hours in a day, less overhead ( less trucks, insurances, fuel etc..)

The same rules would apply but your rate would be reduced (if you desired)due to more billable hours and less overhead

[Rich R]

Service based business with 4 electricians =

4 trucks
4 fuel bills
4 truck insurances
4 truck maint
4 sets of ladders
4 of every tool from benders to drills etc.
4 radios
2 - 3 hours of travel a day


New const. based business with 4 electricians

1 truck ( most of these companies have employees go straight to site)
1 fuel bill
1 truck insurance
1 truck maint
2 sets of ladders
2 sets of tools ( this is if company even provides tools, most require employees to bring they're own drills, benders etc.)
1 maybe 2 radios
0 travel time

[cadpoint]

Service based business with 4 electricians =
...
4 of every tool from benders to drills etc.
...

New const. based business with 4 electricians

2 sets of tools ( this is if company even provides tools, most require employees to bring they're own drills, benders etc.)


New construction guys get so Jipped ...

[Sparky555]

Blau is the man.

1500 billable hours in residential service is a generous number in my experience. Unless you have a good client base & good marketing in place your billable hours are going to be less. IMO 1000-1350 billable hours is more typical.
Dave

[emahler]

when you do a break even, or any type of pricing calculation, you have to look forward...

if you are paying yourself $26k, fine. But if you want $100k, you better figure it in to your pricing, otherwise you will never be able to "afford" it.

If you want to add a truck, figure it in. You want to purchase a new computer system, add it in...

if you don't charge for these things in advance, you'll always be robbing peter to pay paul to get them...

[peter d]

In September 1990, Frank Received This Follow-Up Letter:
Dear Frank:

....
It remains my contention that a new contractor cannot charge more than average. I had to work long and hard to come up with customers who used our services. I believe, had we charged more, fewer people would have switched to us.
.....

Sincerely,

Ron Coates

It's funny how some attitudes never die, particularly the myth about charging the going rate. Frank Blau's article is nearly 20 years old but yet the information and ideas are still fresh, and more relevant than ever.

[mdshunk]

You want to purchase a new computer system, add it in...No kidding. Grow beyond just a tiny bit, and the PC won't cut it. I'm in a position of having a 5 year old server that Dell won't support past November, and the replacement Citrix server and a few Thin Client terminals will run 24K.

[emahler]

No kidding. Grow beyond just a tiny bit, and the PC won't cut it. I'm in a position of having a 5 year old server that Dell won't support past November, and the replacement Citrix server and a few Thin Client terminals will run 24K.

just remember this quote "the customer pays for everything"

[mdshunk]

It's funny how some attitudes never die, particularly the myth about charging the going rate. Frank Blau's article is nearly 20 years old but yet the information and ideas are still fresh, and more relevant than ever.Right. After all, plenty of people bought Curtis Mathes televisions, and they flat out advertised that they were the most expensive TV you could buy.

[peter d]

No kidding. Grow beyond just a tiny bit, and the PC won't cut it. I'm in a position of having a 5 year old server that Dell won't support past November, and the replacement Citrix server and a few Thin Client terminals will run 24K.

24K for a computer system?? Why so much?

[mdshunk]

24K for a computer system?? Why so much?There's probably a computer guy someplace saying "why so little". I don't know. Apparently that's what they cost.

[peter d]

There's probably a computer guy someplace saying "why so little". I don't know. Apparently that's what they cost.

Shessh...Well I basically know almost nothing about computers, let alone a whole system..but I assume this is multiple terminals with a main CPU or whatever it's called?

[zappy]

Plus using the flat rate pricing!I better not get my hope up too much this economy stinks right now:mad:

[emahler]

Plus using the flat rate pricing!I better not get my hope up too much this economy stinks right now:mad:


why not? we make $250+ an hour using flat rate...however, by your statement, i can tell that you have done absolutely no research on the topic, and do not understand the system 1 iota...

so, keep doing what you are doing and don't stress yourself....it's simpler that way...

[satcom]

Plus using the flat rate pricing!I better not get my hope up too much this economy stinks right now:mad:

"this economy stinks right now" all the more reason, to use flat rate pricing.

[zappy]

why not? we make $250+ an hour using flat rate...however, by your statement, i can tell that you have done absolutely no research on the topic, and do not understand the system 1 iota...

so, keep doing what you are doing and don't stress yourself....it's simpler that way...
?!?!?!?!?!?!?!?!?!?!

[emahler]

?!?!?!?!?!?!?!?!?!?!

proves my point...good luck

[iwire]

Plus using the flat rate pricing!I better not get my hope up too much this economy stinks right now:mad:

Quite seriously, give a listen to emahler's and satcom's experience. You would be foolish to not at least look into it a bit deeper before just brushing it off.

[john_axelson]

In my expierence you will receive less questions on T&M billables with a higher material mark up that with increasing rates.

100.00 x 1.2=120.00
100.00 X 1.5=150.00

Try increasing you hourly rates 3.75 dollars an hour (to achieve 30.00 a day)

Customer's may question you for the hourly material is seldom questioned in my experience.


Brian,

I thought we learned that we don't multiply by the percentage, but instead divide by it to make more money.

100 x 1.2 = 120, but 100/.8=125...

[brantmacga]

Plus using the flat rate pricing!I better not get my hope up too much this economy stinks right now:mad:

stay positive; and if you're segment is not doing so good, move into something else. That's what I did and everything's going just fine. I don't do t&m either.

[emahler]

Brian,

I thought we learned that we don't multiply by the percentage, but instead divide by it to make more money.

100 x 1.2 = 120, but 100/.8=125...

you should be billing with margin, and not mark up...

also, brian's method works well in commercial...but not so well in residential when the customer says "but that outlet only costs $0.49 at Home Depot"

[zappy]

Quite seriously, give a listen to emahler's and satcom's experience. You would be foolish to not at least look into it a bit deeper before just brushing it off.
Maybe they could help me to learn more by posting some link or something like Rich did.That would be great and much appreciated!

[emahler]

Maybe they could help me to learn more by posting some link or something like Rich did.That would be great and much appreciated!

give a man a fish....teach a man to fish....search "flat rate" here...