Estimates based on “per opening” vs “assembly”

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To the OP - It really just depends on how far you're willing to go, how many variables, and how much math you're willing to tolerate.
I'm OCD as crap. Just having one general price doesn't cut it for me. But it takes up more time and it's probably why my stress levels are high, lol.

And theoretically, all the time I spend figuring this stuff out could be spent doing jobs. My mindset is that it's part of the sacrifice of building a reputable business. The first few years should be somewhat trail and error, business wise.

The idea is that it will eventually pay off when customers realize how much effort I put into pricing things accurately and affordably.. but in my case, this remains to be seen.
 
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Jerramundi said:
To the OP - It really just depends on how far you're willing to go, how many variables, and how much math you're willing to tolerate.
I'm OCD as crap. Just having one general price doesn't cut it for me. But it takes up more time and it's probably why my stress levels are high, lol.

And theoretically, all the time I spend figuring this stuff out could be spent doing jobs. My mindset is that it's part of the sacrifice of building a reputable business. The first few years should be somewhat trail and error, business wise.

The idea is that it will eventually pay off when customers realize how much effort I put into pricing things accurately and affordably.. but in my case, this remains to be seen.
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The real payoff is for you, not the customers. They don't care how the sausage gets made, and in fact most would strongly prefer not to know. The benefit to you is your quotes/estimates are tight and you have confidence that by and large, you won't take it in the shorts after you've collected the final payment. That there can get you some restful sleep. It also helps you draw the line in the sand if a GC starts whining about your price and keeps you from opening an artery by accident. (You did start out 25% high for the GC pricing, right?).
 
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gadfly56 said:
The real payoff is for you, not the customers. They don't care how the sausage gets made, and in fact most would strongly prefer not to know. The benefit to you is your quotes/estimates are tight and you have confidence that by and large, you won't take it in the shorts after you've collected the final payment. That there can get you some restful sleep. It also helps you draw the line in the sand if a GC starts whining about your price and keeps you from opening an artery by accident. (You did start out 25% high for the GC pricing, right?).
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Shooting for a win-win partnership. I'm not a huge fan of conventional business ethics that dictate, for example, profit must come first in order to be an ethical company (i.e. you have to keep your doors open before you worry about ethics). There's a change in the tides occurring as far as business ethics is concerned. The new model argues be ethical and profit will come as a result. Both models have their relative negatives and positives.

There are personal pay offs for my system, like, as you said, having confidence in knowing where every red cent is going, but I feel the real pay off in my system is for the customers (e.g. I'm transparent about every cost, down to the screw, that they are paying for) and I benefit as a result of their benefit, invoking the aforementioned "new age business ethics."

It's true that some "don't care how the sausage gets made," but some do and that number is growing. One could also argue that if you advocate for consumers being well-informed, which I do, that we should ALL "care how the sausage gets made."

Sometimes I catch flak. When they ask, "what is this 20% O/P that you're billing me for?" Sometimes it's annoying to have to explain that every business has a mark-up on raw goods such as material and labor... and other times I enjoy teaching people about it so that they can be better informed the next time around.
 
electrofelon said:
I would never add O/P as a line item on a bill
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Yea I know. I've gotten guff for this. But I'm pushing a model of transparency to protect both myself and the customer. This way no one can say I'm playing games with my numbers because it's all right there out in the open... and the customer is fully informed as well.

The idea of just writing $300.00 and nothing more on a carbon copy invoice from Office Max annoys the cr@p out of me.
 
Jerramundi said:
Yea I know. I've gotten guff for this. But I'm pushing a model of transparency to protect both myself and the customer. This way no one can say I'm playing games with my numbers because it's all right there out in the open... and the customer is fully informed as well.

The idea of just writing $300.00 and nothing more on a carbon copy invoice from Office Max annoys the cr@p out of me.
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So how many times have you eat in a restaurant and got the bill and it said 20% O/P, or been to Walmart and saw that on the bill?
Customers know (should anyway) that you have to make a profit, they don't expect to see that on a bill.
 
Little Bill said:
So how many times have you eat in a restaurant and got the bill and it said 20% O/P, or been to Walmart and saw that on the bill?
Customers know (should anyway) that you have to make a profit, they don't expect to see that on a bill.
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Yeah, not the first time I've heard that argument. One of the guys I used to work for used to say, "the doctor doesn't explain his costs to you does he?" As if that was a discussion ending bombshell.

Being more politically and socioeconomically well-informed now then I was back then as a bright-eyed and bushy tailed apprentice, I would point him in the direction of all the recent reporting on "the charge master" and how for profit healthcare is bending us all over the salad bar.

Just because the industry doesn't do it presently, is not a valid ethical or moral justification either for continuing on the same path or against exploring different ones.

Transparency = accountability.
 
Little Bill said:
Yea but commercial/industrial know this is an item and it's normal. You should never do that on residential jobs. Customers will nickel and dime you to death if you itemize much on an invoice.
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I get customers asking me about it all the time when they see it on my bill. I just stand my ground and explain to them that EVERYONE charges them this, that it's built into their, what is in my opinion, "overly-simplistic" hourly cost and that I'm just being transparent about it. I also explain that a 20-30% net profit margin is nothing in the business world. That usually does the trick.

The goal is to be accountable via being transparent about my costs and to help educate and create informed consumers. For me, it's about more than just how much of the proverbial bacon I get to take home. We live in an interdependent universe and every action is like a ripple in a pond. Teach one customer how to fight against being taken advantage of and you can create a foothold in the market for more ethical companies, which benefits all of us.
 
electrofelon said:
Personally I would be MORE suspicious if I saw O/P as an item on a bill.
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Most people are. To them it just seems like an "added fee," but only because they aren't used to that level of transparency. I would rather see a complete list of every and all fees being charged then get a nice, neat round number. When I see a nice, neat round number I get suspicious... but I'm an idealistic cynic who lives by such creeds as - "feet on the ground, head in the clouds" and "hope for the best, prep for the worst" etc.
 
electrofelon said:
It's not like the hourly figure is ever "scientifically" derived, it's just what you want to make.
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Ultimately, yes.. there is no "objective" measure of what your labor is worth. It is subjectively determined by yourself, others, market forces, value of the dollar, cost of living, etc. Objectively speaking, the dollar bill is nothing more than a piece of paper.

But there is government data available about hourly wages per occupation based on location. I utilize that to determine my hourly labor rate. There's also minimum wage data, which arguably is for less skilled occupations but should still afford the basic necessities to anyone working 40 hrs a week, but now I begin to digress into a political socioeconomic debate.

I sit right in between minimum wage and what the maximum hourly pay is for people in my field in my area. Maybe slightly on the higher side.
 
Jerramundi said:
Ultimately, yes.. there is no "objective" measure of what your labor is worth.

I sit right in between minimum wage and what the maximum hourly pay is for people in my field in my area. Maybe slightly on the higher side.
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Are you saying you pay yourself a rate that you deem worthy of your skill level, then pass that cost onto your customers for the work you are doing for them, then add the O/P on top of that dollar amount as a separate line item amount on the invoice?

I can imagine a customer looking at that invoice and scratching their head about the appearance trying to add a charge that is questionable.

I think, in general, the trades overall have an hourly rate that the customers have learned to accept as already including that amount. That rate will vary depending on location in the country and the complexity of the work needed to be done, as well as the legality (licensing) of the business being able to do the job.

If a customer needs the services of some trade (plumber, electrician, auto mechanic, etc.) primarily they’re going to compare the bottom line of what various electricians are going to charge and they’re going to choose the one they feel “most comfortable “ with. That comfort level is going to be determined by not feeling like they’re being taken advantage of.
 
sw_ross said:
Are you saying you pay yourself a rate that you deem worthy of your skill level, then pass that cost onto your customers for the work you are doing for them, then add the O/P on top of that dollar amount as a separate line item amount on the invoice?

I can imagine a customer looking at that invoice and scratching their head about the appearance trying to add a charge that is questionable.

I think, in general, the trades overall have an hourly rate that the customers have learned to accept as already including that amount. That rate will vary depending on location in the country and the complexity of the work needed to be done, as well as the legality (licensing) of the business being able to do the job.

If a customer needs the services of some trade (plumber, electrician, auto mechanic, etc.) primarily they’re going to compare the bottom line of what various electricians are going to charge and they’re going to choose the one they feel “most comfortable “ with. That comfort level is going to be determined by not feeling like they’re being taken advantage of.
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Whether you're a one-man-band or running a shop with 50 employees, the labor rate is the labor rate. Now, maybe you rollup your profit into your labor rate or maybe you don't, but if sparkies are running $50/hr in your neck of the woods, you don't discount your labor just because you're a solo shop or fail to add overhead/admin/profit to the job.
 
sw_ross said:
Are you saying you pay yourself a rate that you deem worthy of your skill level, then pass that cost onto your customers for the work you are doing for them, then add the O/P on top of that dollar amount as a separate line item amount on the invoice?

I can imagine a customer looking at that invoice and scratching their head about the appearance trying to add a charge that is questionable.

I think, in general, the trades overall have an hourly rate that the customers have learned to accept as already including that amount. That rate will vary depending on location in the country and the complexity of the work needed to be done, as well as the legality (licensing) of the business being able to do the job.

If a customer needs the services of some trade (plumber, electrician, auto mechanic, etc.) primarily they’re going to compare the bottom line of what various electricians are going to charge and they’re going to choose the one they feel “most comfortable “ with. That comfort level is going to be determined by not feeling like they’re being taken advantage of.
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I pay myself a labor rate that is my take home pay as if I were an employee of my own business, yes. But per Illinois law, I am, and I quote, "the manager of the LLC acting in the best interests of the LLC," not an "employee."

I also charge an additional overhead/profit margin percentage of the total time and material, or cost of goods sold, as a separate line item that pays for company overhead such as licensing fees, insurance costs, continuing education, vehicle maintenance, tools, etc., etc.. as well as allows me to stick a little in the bank for the business itself.

If the customer scratches their head at this separate O/P % line item, and they often do, it's because they are ill-informed about how businesses operate and I simply stand my ground and educate them, informing them that every business does so, even your tradesman that charges you a "nice, neat round number," but that I'm just breaking it down transparently as separate line items.

I'm well aware of the "nice, neat, round number" that tradesmen often use. Around here, it's usually anywhere from $100-$150/hr. I could have adopted this method, but I chose not to. I chose to figure out how such a number is reached mathematically and then employ that formula.

There is nothing questionable about it. One could very easily argue that the lack of transparency in the "nice, neat round number" is what's really questionable.
 
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