$25 bucks a house!

[ITO]

So I get invited to a supply house free BBQ lunch deal and normally I avoid these kind of things like the plague but ended up stopping by to pick up some fuses, then got some food, and ended up doing some networking with some residential contactors. Ok curiosity got the best of me and it seemed like a good idea to get a feel for the local market.

$25 bucks a house! That what these guys are making in profit after it is all said and done. Granted they are paying their own wages and overhead, but only $25 in profit? It made me want to cry.

So this thing called common sense kicks in and it gets me to thinking that maybe somebody is bullshitting me, and I talk to my salesman about it and he confirms it’s no joke. He then tells a story about loosing a material bid over 8 cents. We have guys in my area who are basically giving their services away and haggling over pennys; I just cant believe we are doing this to ourselves and sincerely hope these guys don’t decide to move into commercial work.

[fisherelectric]

I hope there's enough houses to go around.

[peter d]

This is new residential we are talking about? Tract homes for the national/regional builders?

I believe the number. But I thought the point on the tracts was to make money on the upgrades?

[emahler]

one of those outfits up here did get into commercial when the housing market died....they closed their doors 2 weeks ago, less than 6 months after geting into commercial....40 years after opening their doors....3 yrs ago they had 220+ guys in the field....2 weeks ago they had less than 40 in the field...it happens...

[satcom]

one of those outfits up here did get into commercial when the housing market died....they closed their doors 2 weeks ago, less than 6 months after geting into commercial....40 years after opening their doors....3 yrs ago they had 220+ guys in the field....2 weeks ago they had less than 40 in the field...it happens...

That explains. the increased phone calls, looking for jobs.

[bkludecke]

If the economy gets much worse we may do a job here and there for a net loss. I know many of you out there recoil when you hear that kind of talk but I will sometimes dig into the company savings to keep a good man on the job.

I've been doing it this way for 30 years now and have been through a few economic downturns. Usually I lay off the less productive people first and then cut back the hours on everyone else. Then we just hang on and make the best of it. If I see a job has the potential for a bunch of extras I may bid it low just to keep things moving (sometimes this comes back around to bite me in the rear).

Tommorow we're going to clean out the warehouse :confused: .

[bikeindy]

This is new residential we are talking about? Tract homes for the national/regional builders?

I believe the number. But I thought the point on the tracts was to make money on the upgrades?

One would think so, but two weeks ago I get a call from a former customer and she wants us to install 7 ceiling fans and a few fixtures in her new home day before move in. So I was curious and asked why the EC who wired the home wasn't doing it. She said that the only thing in the contract was for the rough of the wiring and they blanked all the boxes, said the EC didn't want the job of installing the fans and some other fixtures. I got a bunch of free blanks that were only a few days old. I charged her $1200.00 for the work we did in 5.5 hrs + 30 mins drive time, she provided fixtures. Got to wonder why a guy making about $150.00 in profit per home here would pass on that. Housing here is not dead but slowing down quite a bit.

[ITO]

Ditto, I will do the same thing to keep my good guys, including make work.

However to use no profit on base bid as a business model just seems foolish to me. Contrary to popular believe changes can end up costing YOU money and are a pain the butt.

[satcom]

If the economy gets much worse we may do a job here and there for a net loss. I know many of you out there recoil when you hear that kind of talk but I will sometimes dig into the company savings to keep a good man on the job.

I've been doing it this way for 30 years now and have been through a few economic downturns. Usually I lay off the less productive people first and then cut back the hours on everyone else. Then we just hang on and make the best of it. If I see a job has the potential for a bunch of extras I may bid it low just to keep things moving (sometimes this comes back around to bite me in the rear).

Tommorow we're going to clean out the warehouse :confused: .

Just about every contractor I know that tried to keep guys by having them, work at a loss, ended up in trouble sonner or later, did you ever notice the larger companies, even the fortune 500 ones,, lay off workers even before the slump comes, just good business sense, the workers can apply for unemployment benifits, then when you have a back log building sure hire them back, if you treated them well, they will usually return, the work to keep busy or keep guys idea, is a sure way to loose, yet many follow that doomed path, I think they follow emotions, not business practices. The guys that layoff, will not only survive, they may even do better.

[peter d]

The guys that layoff, will not only survive, they may even do better.


CES did both. They laid off when things slowed down, and took work for no or minimal profit to keep the good guys aboard...but they went bankrupt. Maybe that's not such a good example. ;)

[Rewire]

So I get invited to a supply house free BBQ lunch deal and normally I avoid these kind of things like the plague but ended up stopping by to pick up some fuses, then got some food, and ended up doing some networking with some residential contactors. Ok curiosity got the best of me and it seemed like a good idea to get a feel for the local market.

$25 bucks a house! That what these guys are making in profit after it is all said and done. Granted they are paying their own wages and overhead, but only $25 in profit? It made me want to cry.

So this thing called common sense kicks in and it gets me to thinking that maybe somebody is bullshitting me, and I talk to my salesman about it and he confirms it’s no joke. He then tells a story about loosing a material bid over 8 cents. We have guys in my area who are basically giving their services away and haggling over pennys; I just cant believe we are doing this to ourselves and sincerely hope these guys don’t decide to move into commercial work.I guess it depends on how many houses you do in a year and of course what the profit margin was.

[ITO]

Loyalty is a two way street and I have a long memory. I have worked too hard and suffered way too many drunks, slackers, malcontents and other defective losers off the bench to give up on the good ones I have now. I don't care what it costs, I will not lose my good men over a silly thing like needing work. Besides I can do quite a few jobs at cost before it starts to hurt and even when it does hurt I can still keep making it work just to stay in business.

[Rewire]

Loyalty is a two way street and I have a long memory. I have worked too hard and suffered way too many drunks, slackers, malcontents and other defective losers off the bench to give up on the good ones I have now. I don't care what it costs, I will not lose my good men over a silly thing like needing work. Besides I can do quite a few jobs at cost before it starts to hurt and even when it does hurt I can still keep making it work just to stay in business.
Good mechanics are hard to find and harder to replace I have three guys that I will absolutely keep working because when it picks up in the spring I can easily get box nailers but I went through twenty druslacmaldefeloosers to get these guys and I cannot afford that every spring.

[iwire]

Loyalty is a two way street

It's really great to hear an owner say that. 8-)

[bkludecke]

Satcom; I don't think it's a "one size fits all" world. I keep track of things pretty closely. I'm sure that many people would fail trying to run their business the way I run mine, and I know I would fail trying to run my company strictly "by the numbers". My way of doing things has worked well for me for 30 years now, I make good $, I've been able to put some away for later, I'm happy and my men appreciate working here. I pay $27/hr for my JWs, they have paid health ins, paid vacations, paid holidays and company trucks to drive home if they wish. Life is good.

[Tiger Electrical]

If the profit margin is very low at the start it doesn't take much to turn it into a loser. I'm curious from these posts. When you switch from working alone to having employees does your business change from pricing to make a profit to pricing to feed the hungry payroll monster?

Dave

[bkludecke]

If the profit margin is very low at the start it doesn't take much to turn it into a loser. I'm curious from these posts. When you switch from working alone to having employees does your business change from pricing to make a profit to pricing to feed the hungry payroll monster?

Dave

Actually I have found it easier to turn a profit with employees than when I was solo. Working alone I seemed to pay the bills ok but found it hard to get very far ahead unless I worked a huge amount of hours. Back then I'd work 8-10 hours in the field and another 2-3 at the office billing, bidding, returning calls etc. Now I can run the whole thing working about 8-10 hours/day and a little on Sat/Sun when needed and I'm making more $$.

Another weird thing is that when I send a service-man out I usually don't get much complaint about the rates. When I go myself people seem to think that I really don't need to charge as much.

[Rewire]

If the profit margin is very low at the start it doesn't take much to turn it into a loser. I'm curious from these posts. When you switch from working alone to having employees does your business change from pricing to make a profit to pricing to feed the hungry payroll monster?

Dave
Do you understand the difference between profit and profit margin?

[Tiger Electrical]

Rewire, I'm illiterate when it comes to accounting. I call it profit or profit margin, but I calculate it like margin.

Dave

[Rewire]

Rewire, I'm illiterate when it comes to accounting. I call it profit or profit margin, but I calculate it like margin.

Dave
Think how much it takes to make $1.00 if it takes you .90 cents to make $1.00 you have a profit margin of 10% so at a 10% margin you are spending $9.00 to make $1.00 profit so profit margin is more important than what the profit was

[satcom]

Satcom; I don't think it's a "one size fits all" world. I keep track of things pretty closely. I'm sure that many people would fail trying to run their business the way I run mine, and I know I would fail trying to run my company strictly "by the numbers". My way of doing things has worked well for me for 30 years now, I make good $, I've been able to put some away for later, I'm happy and my men appreciate working here. I pay $27/hr for my JWs, they have paid health ins, paid vacations, paid holidays and company trucks to drive home if they wish. Life is good.

No it's not "one size fits all" world. But one thing is the same for all business, if you have no money comming in, you can not continue to pay a payroll account, without incuring debt, unless you have some Magic that works!

If you can meet payroll then your business os not in trouble and a layoff is not necessary, You must have some rare accounts to be able to pay those rates and benifits, not the average electrical contracting business.

My neighbor has 2 men he has been keeping busy for the last 15 or 20 years, one is in a hotel doing maint work, and the other is in a large office complex doing maint ann fit up work, he works for the post office full time, and has the two men jobbed out, that is not your tipical contracting. His men have the same security as if they were working direct for the fortune 500's.

[bkludecke]

Satcom: What I have built up over the last 30 years did not come easy. There have been a great many sacrifices along the way. Fortunately my chief accountant/wife/ book keeper/office manager/girl friend has not bailed out on me yet. We have the reputation of being the best and highest priced EC in our area. We have a great and solid client list. But these days work is very slow so I use some of the "rainy day" money to augment the operations and keep the whole thing afloat until there is more work. In times like these the one man operations can cut prices down to the bone and I've got to finds ways to compete. So I do.

[peter d]

Work a skilled trade to make $25 a house. That is sad.

Oh well, at least there's one of these on every corner:

http://www.minnesotarestaurantsearch.com/monticello/mcdonalds.jpg

[stickboy1375]

If your not going to make any money today, then why even get out of bed?


$25 dollars a house sounds unbelievable....

[peter d]

If your not going to make any money today, then why even get out of bed?


Yeah, you can make a lot more money doing side work! :D :D

[kbsparky]

Been there, done that. Cut prices to the bone to "keep the guys busy" while waiting for better economic conditions.

Problem was (early 1990's) all the other guys out there were doing the same thing: Operating at a loss.

I finally had to fall back and punt, changing the way we did business to survive.

I got to sit on the State Board a few years later and had those same guys come crawling back to us asking to reinstate their licenses after going belly-up and not renewing them. I recognized many names and had wondered what had become of them.

I actually had to recuse myself on one case as he had beat me out of a large commercial project years earlier, and now he was the one who had gone bankrupt!! Talk about bittersweet :mad:

[emahler]

It's really great to hear an owner say that. 8-)

hey, i won't make you bankrupt if you don't make me bankrupt:D

[peter d]

hey, i won't make you bankrupt if you don't make me bankrupt:D

You'll never get Bob to agree to that. ;)

[hardworkingstiff]

Yeah, you can make a lot more money doing side work! :D :D

Now that's FUNNY, I don't care who you are. :grin:

[iwire]

hey, i won't make you bankrupt if you don't make me bankrupt:D

:D I make no promises

Funny aside, if you expect loyalty from me I expect some loyalty from you. :smile:

If you really can't pay the bills, then you have to let me go. It sucks but that is how it is. I have been there and had no ill will at all to the boss, the work was just not there.

If however you lay off good workers just so you do not have to tighten your own belt for a few weeks then I see that in a very poor light.

Nothing motivates a worker more then realizing the company thinks no more of them as a tool to use when needed and put on a shelf when done. :roll:

[Rewire]

$25 bucks a house! That what these guys are making in profit after it is all said and done. Granted they are paying their own wages and overhead, but only $25 in profit? It made me want to cry.

$25 dollars profit after wages and overhead could be good if they are paying themselves $80 dollars an hour and have alot of overhead expense now if they only pay themselves $10 /hr and work out of their trunk then it would be sad then again if you do 1000 houses a year that is $25,000 in profit .

[emahler]

why would you want all trhe aggrevation, and exposure to liability, of 1000 houses....for essentially no profit?

ITO...does it make sense to you now?

[ITO]

I think a lot of business men forget one of the golden rules of business; business is about people and personal relationships. Sure there is another golden rule about making money, and if you don’t follow that one you will go out of business, but to be truly successful it takes people to make it all work.

[ITO]

why would you want all trhe aggrevation, and exposure to liability, of 1000 houses....for essentially no profit?

ITO...does it make sense to you now?


I think it is insane, and it hurts all of us in this profession.

[satcom]

why would you want all trhe aggrevation, and exposure to liability, of 1000 houses....for essentially no profit?


It may be, that some believe they will actually end up with $25000 in profit, most likely the same group, that believe turkeys fly.
Many years ago they built the kendall homes, 1000s at a time, all the contractors were feed the same story, in the end not one of them made a penny, most were lucky to get out with what they went in with. Not every home is built on schedule, and the payment cycle on these jobs usually cost you money. to meet payroll, and expenses.

[emahler]

I think it is insane, and it hurts all of us in this profession.

i agree....however enough guys don't.....

[cschmid]

I find this quite interesting..I am with Bob on this one..Budget was real tight boss calls us all in to a meeting gets out the white board and goes at it..explains everything even his plan of saving it..then explains who's hours are cut and who is taking pay reductions and the whole match..a year later according to plans he has hired everyone back full time, everyone has their wages restored and even got a raise for our efforts in the plan..It is way better when you are respected by your employer and told the truth..If you lay off just so you don't have to endure a little comfortableness then it shows to your employees as well..

I was a contractor long time ago and did not have a real solid game plan after awhile I just told everyone I had decide to quit contracting layed everyone off and went back to being an employee..I am happy and so is my boss..

Oh yea 25 bucks a house I dont think so..

[Rewire]

It may be, that some believe they will actually end up with $25000 in profit, most likely the same group, that believe turkeys fly.

Actually wild turkeys can fly ,had one come through a side glass of my truck a few years back .the question I have is do you pay yourself out of the profit or do you pay yourself first and then what is left you call profit.So if I am paying myself 65.00/hr and I spend 100 hours on a house that would be $6,500 and x 10000 that would be $650,000.00so would you consider this part of the profit?

[satcom]

Actually wild turkeys can fly ,had one come through a side glass of my truck a few years back .the question I have is do you pay yourself out of the profit or do you pay yourself first and then what is left you call profit.So if I am paying myself 65.00/hr and I spend 100 hours on a house that would be $6,500 and x 10000 that would be $650,000.00so would you consider this part of the profit?

Sorry, we don't operate out of a shoe box, every project has an account, and a budget attached, we track every job for actuals and post the real costs, including payroll burdens.

But you make a good point, some don't understand what a profit is.

[winnie]

So I'm pretty clueless as far as accounting is concerned, but I think that Rewire and satcom are figuring out a critical distinction for this discussion: just what are you calling 'profit'.

1) You account for everything necessary to do the job: the materials, the labor, the overhead, the holiday bonus, the allowance for warranty work, the kickback to ..., the boss' salary, etc., and after _everything_ is taken care of, you've charged $25 more than _all_ of your costs?

or

2) You only account for the materials, labor, and other direct job related costs, and at the end have $25 which has to pay your overhead, your various fixed operating costs, the boss, investors, etc.

In other words, are we being quoted $25 direct profit per house, or are we being quoted the corporate profit after all expenses averaged over all of the houses.

These are two rather different situation. 1) is probably a good place to be; with a good accountant, you will probably have an even lower number to minimize taxes. 2) is probably a damn hard place to be.

-Jon

[romexking]

Actually wild turkeys can fly ,had one come through a side glass of my truck a few years back .the question I have is do you pay yourself out of the profit or do you pay yourself first and then what is left you call profit.So if I am paying myself 65.00/hr and I spend 100 hours on a house that would be $6,500 and x 10000 that would be $650,000.00so would you consider this part of the profit?

Your profit amount requires you to work 10,000 hours a year. When will you find the time to spend all of that money?

[romexking]

These are two rather different situation. 1) is probably a good place to be; with a good accountant, you will probably have an even lower number to minimize taxes. 2) is probably a damn hard place to be.

-Jon

I can assure you, neither place is a good place to be. Let's say an EC bills about $6000 to wire a relatively small home. If, as the OP stated, they have a net profit after all expenses and overhead was paid, they have a net profit percentage of 4/1000ths of a percent. I don't think that will take you very far. Let's also say that it takes 100 hours to complete a home, if they complete 1000 homes year @ $25 each, sure they made $25,000, but it would at least 40 men to do 1000 homes. Each man would be generating $12 a week in profit! WOW...where do I sign up?:rolleyes:

[Rewire]

Your profit amount requires you to work 10,000 hours a year. When will you find the time to spend all of that money?where did I say it was a year?

[winnie]

I can assure you, neither place is a good place to be. Let's say an EC bills about $6000 to wire a relatively small home. If, as the OP stated, they have a net profit after all expenses and overhead was paid, they have a net profit percentage of 4/1000ths of a percent.

And again, I ask how you are defining your expenses and your profit.

Say you are an EC, and have 40 employees in the field and 5 people (including yourself) in the back office. You do 1000 homes a year at $6K each. Your expenses for the year come to $5,975,000. But those expenses include all materials, all salaries (including a comfortable salary for you), benefits, overheads, equipment maintenance, etc.

I claim that such a situation is not a bad place to be. Your company is not growing, but it is in a good steady state, covering its costs, etc. Not bad during a construction downturn.

If a retail store buys a widget wholesale for $100 and sell it for $105, then it isn't doing very well. If a store buys a widget for $50, sells it for $105, but their overheads and costs for making that sale are $54, that that store is doing quite well indeed.

I think, however, that I'll back off on this topic, and stick with electrical theory, rather than economic theory :)

-Jon

[Tiger Electrical]

The problem with running the business so close to cost is that a minor scheduling problem, or minor increase in any of twenty or thirty categories of expenses will turn it into a loss. At $25 a flat tire will turn it into a loss.

Dave

[satcom]

The problem with running the business so close to cost is that a minor scheduling problem, or minor increase in any of twenty or thirty categories of expenses will turn it into a loss. At $25 a flat tire will turn it into a loss.

Dave

Sure what happens when the EC, pulls up to the 7-24 store and they will not get in the truck unless they pay $6 instead of the $5 they paid last week.

Dave, you can tell I am feeling a bit better.

[abe72487]

There is always someone who will do it cheaper. People who consider price alone are the fools easy prey. The sue to be a guy down the street who had the best prices in town until he went of business. Don't sell yourself short.

[mdshunk]

Just another in a long list of reasons not to rely on new work.

[JohnME]

CES did both. They laid off when things slowed down, and took work for no or minimal profit to keep the good guys aboard...but they went bankrupt. Maybe that's not such a good example. ;)

CES was run by a very large company from what I hear that decided to just cut their losses and run. The guys showed up to work and found all the locks changed. I did get a couple of their aprons though ;)

[bigjohn67]

There is a huge demand down in the New Orleans area for skilled and willing to work electricians. Most of the companies are paying great and with benefits. If the economy is slowing it sure is not happening here.
Major labor shortage.

[romexking]

where did I say it was a year?

When we talk about profit, we are usually talking about yearly profit. Your parameters of $6,500 per home with 100 hrs, and a $650,000 profit would equate to 100 homes in this time period. 100 homes x 100 hours = 10,000 hours.

Even if that profit is over the 10,000 time frame, well that is pretty good, but I doubt that if we are talking about a $25 net profit on these homes, that anyone is getting $65/hr to wire them.

[romexking]

And again, I ask how you are defining your expenses and your profit.

Say you are an EC, and have 40 employees in the field and 5 people (including yourself) in the back office. You do 1000 homes a year at $6K each. Your expenses for the year come to $5,975,000. But those expenses include all materials, all salaries (including a comfortable salary for you), benefits, overheads, equipment maintenance, etc.

I claim that such a situation is not a bad place to be. Your company is not growing, but it is in a good steady state, covering its costs, etc. Not bad during a construction downturn.

If a retail store buys a widget wholesale for $100 and sell it for $105, then it isn't doing very well. If a store buys a widget for $50, sells it for $105, but their overheads and costs for making that sale are $54, that that store is doing quite well indeed.

I think, however, that I'll back off on this topic, and stick with electrical theory, rather than economic theory :)

-Jon

Yes I suppose it is better than losing money, however it's not much different. There are very few circumstances when a company should plan to have, for all intents and purposes, no profit, and only a company with a large cash reserve will survive purposely losing money, and they must have a plan to return to profitability.

Using the percentages from the above example, does it still sound like a good place to be if a small contractor is only doing 40 homes a year and making $1,000 a year in profit? What many people forget is that a corporation is a completely seperate entity from the people running it, and it, like the shareholders(owners), deserve, and in fact, have a responsibility to make a profit. Sure, there may be times when things don't go according to plan, but a plan to make .004% percent profit is surely a plan to failure.