Analyze this

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Over the years of reading this forum I've noticed that there are those who feel that you should not become a contractor unless you are a masochist or a business genius who could sell sandboxes in the Sahara. I can't say I completely disagree with this view.

To that end I wanted to put some facts and figures about a small job that I just finished and have you guys pick it apart.

I made a trip to the site to bid on the job. It is about 35 minutes away.

The job was installing 3 sloped ceiling cans in a newly framed roof over an existing porch. They are controlled with existing sconces in the work area and were an easy fish. There was a touch of demo getting rid of a few wires for an electric awning. In addition I provided and installed a plug in transformer and 1 LV yard light to sign on the address sign (I usually use better fixtures but the circumstances of this job made using HD stuff a better fit). Inside I installed a 3way dimmer for the recessed lights and R&R'd an owner provided wall timer on an unrelated circuit.

The permit fee was included with the building permit. My permit activity was handled via phone and fax and both times there was someone on site to meet the inspector.

Material came to right around $220.

The first day was me for 2.5 hours and a helper for 3. The finish was me for 2.5 hours. The helper I used has a side business doing handyman work (he is a licensed RW) and has his own insurance. I paid him $19/hr as a 1099 employee (note that this was before I realized that CO did not allow electrical work to be subbed to anyone but a licensed EC).

So $819-$220=$599-$57=$542. As an employee I figure about $35/hr w/ burden for myself. Which leaves $542-$175=$367.

So tell me did I make money on this job? What am I leaving out? What would you have bid it for? Any other questions or comments?

I'm truly trying to get a grip on numbers and sell prices. I feel that I did OK on this one but it always seems that I forget to factor something in. What do you think?
 

Rewire

Senior Member
Over the years of reading this forum I've noticed that there are those who feel that you should not become a contractor unless you are a masochist or a business genius who could sell sandboxes in the Sahara. I can't say I completely disagree with this view.

To that end I wanted to put some facts and figures about a small job that I just finished and have you guys pick it apart.

I made a trip to the site to bid on the job. It is about 35 minutes away.

The job was installing 3 sloped ceiling cans in a newly framed roof over an existing porch. They are controlled with existing sconces in the work area and were an easy fish. There was a touch of demo getting rid of a few wires for an electric awning. In addition I provided and installed a plug in transformer and 1 LV yard light to sign on the address sign (I usually use better fixtures but the circumstances of this job made using HD stuff a better fit). Inside I installed a 3way dimmer for the recessed lights and R&R'd an owner provided wall timer on an unrelated circuit.

The permit fee was included with the building permit. My permit activity was handled via phone and fax and both times there was someone on site to meet the inspector.

Material came to right around $220.

The first day was me for 2.5 hours and a helper for 3. The finish was me for 2.5 hours. The helper I used has a side business doing handyman work (he is a licensed RW) and has his own insurance. I paid him $19/hr as a 1099 employee (note that this was before I realized that CO did not allow electrical work to be subbed to anyone but a licensed EC).

So $819-$220=$599-$57=$542. As an employee I figure about $35/hr w/ burden for myself. Which leaves $542-$175=$367.

So tell me did I make money on this job? What am I leaving out? What would you have bid it for? Any other questions or comments?

I'm truly trying to get a grip on numbers and sell prices. I feel that I did OK on this one but it always seems that I forget to factor something in. What do you think?

let me take a crack at it

8 man hours at 35.00/hr = 280.00
material cost = 220.00
3 round trips 35minx2 3.25hr at 35.00/hr = 113.75
bid time 1.5 hr at 35.00/hr = 52.50
total material /labor cost = 666.25
819-666.25 =152.75
195miles traveled 195/15=13gal fuel 13x3=39.00


152.75-39.00 =113.75
vehicle costs
195 x .40 =78.00

113.75-78.00=35.75

I am down to 35.00 for overhead and profit
 
So this is what I'm talking about. But let me ask a few questions.

You included numbers for bid time, vehicle use and fuel. The number we were using for labor ($35/hr) included burden which includes insurances, taxes etc. Isn't that all part of overhead? Isn't figuring those items on the front end and then not considering them overhead double dipping a bit? I know there are things like advertising etc that aren't included in the burden but it seems that you may be counting things twice.

Right?
 

Bill Ruffner

Member
Location
Plainfield, IL
Ishium,

If you do a detailed take-off, it's fairly easy to calculate the material cost for a job. If you have labor units attached to the material, it's also fairly easy to determine how many hours it will take to install the material.

I would like to go over the other costs that need to be included in your estimate.


Labor Burden

Your labor burden should include costs such as the following: (FICA, FUTA, SUTA, Workers comp, G/L insurance, health insurance, etc)

You can calculate your labor burden as a billable rate per hour. The billable rate per hour equals your total annual burden divided by number of hours that you will be able to bill out. This will ensure that you are charging enough per hour so that you get your burden costs back. If you can determine that in all likelihood you are only going to be able to bill out for 1,200 hours, then you need to divide your annual burden by 1,200.


Corporate Overhead

Your corporate overhead should include costs such as the following: Accounting & legal expenses, advertising & marketing expenses, bank & government charges, depreciation of vehicles & equipment, donations & sponsorships, general insurance expenses, interest paid, motor vehicles (payments, gas, service, parking, etc.), office rent/lease expenses, printing, postage & stationary, protective clothing, salaries/wages for non chargeable staff (Office personnel, supervisor, etc., subscriptions, licenses and education, telephone expenses (Office, cell, etc.), tools, equipment rental expenses, water, gas & electricity expenses, etc.

Do you have historical data that you can use to determine what percentage your corporate overhead represents in regards to your direct job expenses for the same period of time? (If your total direct job expenses for the last year was $100,000 and your corporate overhead for the same time period was $10,000, then your burden is 10%.) If so, you can calculate your burden cost for a job by multiplying the burden percentage times the project’s estimated prime cost. (The prime cost equals material, labor and misc. direct job expenses.)

You can also calculate your overhead cost per hour. This follows the same principle as the billable burden rate per hour listed above. The billable overhead rate per hour equals your total annual corporate overhead divided by number of hours that you will be able to bill out in a year. If you have this amount, you can simply multiply the overhead rate per hour times the projects total labor hours. (If your burden per hour equals $13 per hour and the project will take 10 hours, your burden cost for the job would be $13 x 10 = $130)


Additional Labor

Make sure to account for ALL additional labor such as the following: As built plans, deliveries, demolition, driving, excavation, job location, job scheduling, job set-up, material handling, material ordering, meetings, mobilization, non productive labor, OSHA compliance, paperwork, plans and specifications, project management, public safety, security, service and warranty, shop time, site conditions, subcontract supervision, sweeping, standby power, training, etc.


Labor Hour Adjustments

Make sure to make labor hour adjustments for items such as the following: Building conditions, change orders, concealed and exposed wiring, construction schedule, job factors, ladder and scaffold, management, off hours and occupied, overtime, remodel (Old work), repetitive factor, restrictive working conditions, shift work, team work, temperate, weather and humidity, job learning curve, type of work (Commercial, residential, etc.), etc.


The goal is to estimate your break-even cost. Before you can decide on a bid price, you need to be able to calculate how much money the job is going to cost you to do. Then you’re in a position to determine how much to sell the job for.

I hope this helps. :)
 
Last edited:

satcom

Senior Member
Bill,
Good information, I had many guys, that would wait, until they have been operating for a number of years without any planning or direction for their business, and then ask for help, after they discover, they never knew their real break even costs, not having that money for the truck repairs or replacement, and not a penny in the budget for health insurances, or retirement, and a pile of bills for unpaid comp insurance, and other business expenses, that were not included in the cost, and they all had one thing in common, they arrived at a price by looking at others, or had an hourly rate that was not developed from a close look at the cost of overhead, and operating expenses, and they all forgot to add even the smallest profit.
 

Rewire

Senior Member
So this is what I'm talking about. But let me ask a few questions.

You included numbers for bid time, vehicle use and fuel. The number we were using for labor ($35/hr) included burden which includes insurances, taxes etc. Isn't that all part of overhead? Isn't figuring those items on the front end and then not considering them overhead double dipping a bit? I know there are things like advertising etc that aren't included in the burden but it seems that you may be counting things twice.

Right?

burden is a fixed cost where as overhead is not.Although you may have fixed costs in overhead like rent ,insurance etc. you also have adjustable costs like advertising and everyones overhead will be different. If you have two workers in one truck you will have the same labor burden for both but your overhead is now spread over two men. so if you had 30.00 burden and 20.00 overhead you would need 50.00 for break even but with two men you only have 80.00 to break even ,30+30+20, but you charge 100.00 ,50x 2, so you now have a positive cash flow of 20.00.
 

Bill Ruffner

Member
Location
Plainfield, IL
Satcom,

I must admit that in the past I never knew what my real costs were either. That's actually why I created TurboBid. I didn't set out to create a software program to sell. I actually created TurboBid because I was frustrated and needed a better way to estimate my jobs.

I use to use an Excel workbook for estimating but it never allowed me to fully identify and account for all of my costs. I really only had a general idea of what expenses were included in the numbers that I was using. One of the things that bothered me was that I couldn't accurately adjust my estimating numbers when my actual costs changed. While there were other benefits that I wanted to achieve by creating the program, not knowing my true cost was the main reason. This gave me many of sleepless nights.

It doesn't matter what method someone uses to complete their estimates. What matters is that they use an approach that allows them to accurately identify and account for all of their costs. If you can't measure it, you can't monitor it. If you can't monitor it, you can't make an informed decision to adjust it. If we can't accurately adjust our numbers in these crazy times, we increase the likelihood that we will fail.
 
Yeah this all a day late and some dollars short for me but I really am trying get a full picture of what it really costs to be in business. In the past my marker consisted of "Are the bills paid, can I take a check and is there anything left after that?". Certainly not the most effiecient way to do things but I have a feeling that the vast majority of ECs use a similiar metric. I'm trying to break that cycle.

And a quick note about "going rate". I agree that that is not the way you should price your work but I do feel that is a valuable tool. If there a dozen ECs in your area (for sake of arguement assume viable, established companies) that charge X and you need to charge 2X to cover costs and make a profit I feel that should tell you something about where you are and perhaps need to cut overhead (or something) to get back into the realm where you are somewhat near an even plane.

And I gotta admit that chrometophobia kind of has me at a loss.
 

Bill Ruffner

Member
Location
Plainfield, IL
Bill,
I had many guys, that would wait, until they have been operating for a number of years without any planning or direction for their business, and then ask for help, after they discover, they never knew their real break even costs, not having that money for the truck repairs or replacement, and not a penny in the budget for health insurances, or retirement, and a pile of bills for unpaid comp insurance, and other business expenses, that were not included in the cost, and they all had one thing in common, they arrived at a price by looking at others, or had an hourly rate that was not developed from a close look at the cost of overhead, and operating expenses, and they all forgot to add even the smallest profit.

I've read a lot of posts by people that express dismay over how their competition is bidding on jobs so much lower than what their bids are coming out to be. "How can they bid so low and continue to stay in business?" they ask. The answer is that they can't. Satcom's quote spells out exactly what is going on. That's why forums such as this are so important to our entire industry. People that do not know how to accurately bid on jobs need to be educated. It actually benefits all of us to help our competition learn the basic principles and best practices of estimating. Every one of us should send a copy of Mike Holt's Illustrated Guide to Electrical Estimating to our competition. It would be money well spent.
 
Part of my problem is that when I started I had a partner that was an estimator for some large firms. I kind of followed him blindly and accepted what he said. He got cold feet early on and jumped ship. Since that time I've used a lot of what he set up with out questioning it too much.

I did go through that worksheet that was posted here awhile ago that was a link to a plumbers site that helped walk you through what your expenses were and what you needed to be charging.

I've known for awhile that I need to stop being an electrician and start being a business owner but I've only made small steps in that direction. I'm really going to start trying to tip that balance.
 

Rewire

Senior Member
Part of my problem is that when I started I had a partner that was an estimator for some large firms. I kind of followed him blindly and accepted what he said. He got cold feet early on and jumped ship. Since that time I've used a lot of what he set up with out questioning it too much.

I did go through that worksheet that was posted here awhile ago that was a link to a plumbers site that helped walk you through what your expenses were and what you needed to be charging.

I've known for awhile that I need to stop being an electrician and start being a business owner but I've only made small steps in that direction. I'm really going to start trying to tip that balance.

The hardest part after you find your sell price will be charging it.I have bid on only one remodel this month and I was underbid so the temptation to lower my price is great but i have to remind myself that loosing money just to get work is the wrong way to think.
 

Bill Ruffner

Member
Location
Plainfield, IL
I've known for awhile that I need to stop being an electrician and start being a business owner but I've only made small steps in that direction. I'm really going to start trying to tip that balance.

You are on the right track Ishium. Knowledge is power, so keep asking questions. I will be glad to help in any way so please don't hesitate to contact me. There is a wealth of experience in this forum and the members here really do enjoy helping out by sharing their knowledge.

Running a company can be a very rewarding experience but it takes constant attention to ensure that we continue to move forward. However, we're usually so busy with the day to day operations that the last thing we have time to do is search out ways to improve our core operations.

I look at it this way. Before any of us can build a truly successful business, we MUST have a solid foundation. If we have any doubt at all whether or not we are operating at peak efficiency then it is imperative that we make the time to search out and implement better ways of doing things. If we fail to shore up our foundation, everything that we work so hard on building is in jeopardy of collapsing.

Ishium, the fact that you are making the effort to search out ways to improve your operations speaks volumes.

Good luck!
 

Bill Ruffner

Member
Location
Plainfield, IL
The hardest part after you find your sell price will be charging it.I have bid on only one remodel this month and I was underbid so the temptation to lower my price is great but i have to remind myself that loosing money just to get work is the wrong way to think.

Good point Rewire.

Contracting is so challenging because it requires that we wear so many hats. It is really important that when we've completed our bid that we take off our estimating hat and put on our salesman hat. A lot of us struggle with this part.

Even though there are many aspects to salesmanship, I feel that the easiest, and most important one, is to make sure that we are presenting a very professional looking bid package to our customers. Our bid package is the number one representation our company. We need to take the extra time to write out a detailed proposal that spells out in black and white what our bid includes, as well as excludes. Don't leave any gray area.

Customers need to feel confident that they know exactly what they are getting. A highly professional, detailed bid package can give us an advantage over our competition.

The worse case scenario is that we will provide our customers with enough detailed information that they will be compelled to question our low ball competition to ensure that they have included everything that we have.

The best case scenario is that our customers will have more faith in our abilities than our low ball competition. Remember that the lowest bid does not always win. What typically wins the job is the best perceived value. That's where we want to be.

It's hard to obtain any sort of success by always having to be the lowest bid to get the job.
 

220/221

Senior Member
Location
AZ
What would you have bid it for?

Don't forget that though you only have 8 hours labor on site, you have about 4 hours travel time. One thrird of the time on this job is spent gretting there and back.

I would have been around $1500 min.
 
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