Flat Rate Contracting

[aline]

It seems to me that whenever someone says someone is charging too much for that type of work, they either used to do that type of work, only do that type of work part time or have never done that type of work.

Usually when people quit doing that type of work it was because they weren't making enough money to make it worth the trouble.

 

[petersonra]

Usually when people quit doing that type of work it was because they weren't making enough money to make it worth the trouble.

And it is not always becasue they were not charging enough. A lot of people just do not have a good idea what a business is really about and when they try to run one, they just don't do it very well.

 

[emahler]

And it is not always becasue they were not charging enough. A lot of people just do not have a good idea what a business is really about and when they try to run one, they just don't do it very well.

Holy Contradictions Batman....

 

[aline]

And it is not always becasue they were not charging enough. A lot of people just do not have a good idea what a business is really about and when they try to run one, they just don't do it very well.

I believe if you're charging enough to make it worth doing you'll keep doing it.
If you're not you'll quit.

The question is, how much do you need to charge to make it worth doing and can you get that much.

 

[ike5547]

In the end, whatever 'system' you use can be fundamentally reduced to man hours and materials and what you're charging for them. IMO, the virtue of the flat rate system is not so much the system itself as the 'sales presentation' which allows you to withhold this fundamental criteria (man-hours and materials) to any noticeable degree from potential customers.

I'm not saying this is the sum total of the flat rate system, but it's most effective aspect: Presentation.

It's all about raising your rates regardless of your system.

 

[petersonra]

It's all about raising your rates regardless of your system.

I would not obsess about the rates. Customers typically just do not care what burden rate you are using. Its about maximizing your longer term profits. Whatever system you chose to set your rates must reflect that goal.

In most cases, the end user, be it HO or GC, is going to be a big factor in how you present your prices. A lot of people are very leery of T&M even though most of the time it results in a lower overall price. They remember the few times they got a big surprise, and prefer not to get surprised.

 

[MJJBEE]

I was just wondering.
How did you determine this was in the ballpark?

What if it had been $95 per hour or $140 per hour?
Would it still be in the ballpark?

Did you come up with this based on some facts or was this just your gut feeling?

It seems to be in line with the costs I see as a regular customer of EC's. Want some more in depth well here is it

Prevailing wages in the area are 34.50/hr + taxes about 36%+Fringe of 15.50+Profit of 15%

Total Cost without overhead = $ 71.76

It's a large shop so Overhead is spread over multiple employees so $5.00 in overhead per hour seems reasonable. Since I don't run the business I don't know what it actually is. Also, there was markup on the materials of 15% per contract. Also as a side note to deal with gas prices the truck charge is based upon distance from their shop. I honestly have no clue if they are making a profit but I suspect that they are because they have been in business for a long time.

 

[emahler]

It seems to be in line with the costs I see as a regular customer of EC's. Want some more in depth well here is it

Prevailing wages in the area are 34.50/hr + taxes about 36%+Fringe of 15.50+Profit of 15%

Total Cost without overhead = $ 71.76

It's a large shop so Overhead is spread over multiple employees so $5.00 in overhead per hour seems reasonable. Since I don't run the business I don't know what it actually is. Also, there was markup on the materials of 15% per contract. Also as a side note to deal with gas prices the truck charge is based upon distance from their shop. I honestly have no clue if they are making a profit but I suspect that they are because they have been in business for a long time.

$5/man hour for overhead? so long as they aren't paying for trucks, cell phones, tools, stock material, office salaries, owner salaries, etc....

my guess? artificially low t&m rate, the going rate, (hoping they break even) but they make up for it with time minimums or on project work...

 

[Tiger Electrical]

Really Roger, you can't claim to have a business model that pays the electrician without benefits. It's absurd to think that any professional would work a career for anyone without health and retirement benefits. With that model if you ever hired an electrician (with benefits OF COURSE) you would have to raise your prices to your clients while providing a less experienced electrician. Any thoughts you have on correct pricing are invalid.

Dave

 

[petersonra]

Really Roger, you can't claim to have a business model that pays the electrician without benefits. It's absurd to think that any professional would work a career for anyone without health and retirement benefits. With that model if you ever hired an electrician (with benefits OF COURSE) you would have to raise your prices to your clients while providing a less experienced electrician. Any thoughts you have on correct pricing are invalid.

Dave

I don't know. A lot of men these days have working wives and you really don't gain much by having health insurance from two sources. I might just as soon take the health insurance money as salary. Same with retirement benefits. I can invest the money directly into an IRA. Why would I want someone down at the hall screwing around with my retirement benefits?

If this country went away from the model of employers providing health and retirement benefits to one where employers paid a fixed amount into a medical savings plan and an individual IRA, a lot of things would make a lot more economic sense. The current scheme is probably unworkable longer term. the only reason it has survived as long as it has is because of the tax favored aspects.

 

[Tiger Electrical]

Does anyone really offer a job with no benefits at a higher pay scale?

Dave

 

[aline]

Does anyone really offer a job with no benefits at a higher pay scale?

Dave

I believe this is what happens when you become a contractor.
Except in some cases it's not at a higher pay scale.

 

[peter d]

Does anyone really offer a job with no benefits at a higher pay scale?

Dave

Not around here. An EC that does not offer even the most basic benefits will not be able to attract decent employees, at least not long enough for them to stick around.

 

[satcom]

It seems to be in line with the costs I see as a regular customer of EC's. Want some more in depth well here is it

Prevailing wages in the area are 34.50/hr + taxes about 36%+Fringe of 15.50+Profit of 15%

Total Cost without overhead = $ 71.76

It's a large shop so Overhead is spread over multiple employees so $5.00 in overhead per hour seems reasonable. Since I don't run the business I don't know what it actually is. Also, there was markup on the materials of 15% per contract. Also as a side note to deal with gas prices the truck charge is based upon distance from their shop. I honestly have no clue if they are making a profit but I suspect that they are because they have been in business for a long time.

That price is what some contractors will charge their commercial accounts that will provide a crew with year round work, it is usually not a net profit maker but allows a small study revenue stream, problem comes when prices have an upward trend, and contract margins are so close.

 

[aline]

It seems to be in line with the costs I see as a regular customer of EC's. Want some more in depth well here is it

Prevailing wages in the area are 34.50/hr + taxes about 36%+Fringe of 15.50+Profit of 15%

Total Cost without overhead = $ 71.76

It's a large shop so Overhead is spread over multiple employees so $5.00 in overhead per hour seems reasonable. Since I don't run the business I don't know what it actually is. Also, there was markup on the materials of 15% per contract. Also as a side note to deal with gas prices the truck charge is based upon distance from their shop. I honestly have no clue if they are making a profit but I suspect that they are because they have been in business for a long time.

Keep in mind there is a difference in labor efficiency for large construction jobs, small jobs and service calls. For service and repair work I've heard it's difficult to achieve more than 50% efficiency. So if the tech is available for 2,000 hrs this would mean billable hours would be 1,000. How will this effect your costs?

The average net profit for EC's is something around 5%. For some of the better service and repair companies, the ones overcharging, their net profit may be closer to 20%. Is this considered too much profit?

I know of a few businesses that were in business for a long time, big shop outfits that are no longer in business.

 

[romexking]

It seems to be in line with the costs I see as a regular customer of EC's. Want some more in depth well here is it


It's a large shop so Overhead is spread over multiple employees so $5.00 in overhead per hour seems reasonable. Since I don't run the business I don't know what it actually is. Also, there was markup on the materials of 15% per contract. Also as a side note to deal with gas prices the truck charge is based upon distance from their shop. I honestly have no clue if they are making a profit but I suspect that they are because they have been in business for a long time.

That is about the most absurd thing that I've seen in this thread yet. $5/hr overhead? What if they only had 5 guys in the field? Do you think that $50,000 will cover the owner's salary, a office worker, rent, insurance, ect. ect., ect?

You can't really be serious, can you?

 

[satcom]

That is about the most absurd thing that I've seen in this thread yet. $5/hr overhead? What if they only had 5 guys in the field? Do you think that $50,000 will cover the owner's salary, a office worker, rent, insurance, ect. ect., ect?

You can't really be serious, can you?

I think he understands that those costs are not included, I sure hope so.

 

[romexking]

I think he understands that those costs are not included, I sure hope so.

If they are not included, how are they going to be paid for? I guess it has to come out of the generous 15% profit.

 

[wasabivan]

Ive been operating as a EC for almost 10 years using the going rate (currently $70/hr.)thing for my pricing structure and marking my materials up 30%. i divide my cost by .7 which is 30% on the cost. not 30% of the cost. its a retail trick i learned. at the end of this last year my net profit was 8%.
this year ive been learning turbobid software. cost based bidding (what a concept!)
but i have to say i used this system to BID jobs. flat rate. i always quote a job. i tell the customer what i'll do the job for win or loose. usually i win. because i bid the same type of work over and over. (specialize). one of my specialties is Manufactured Homes. working on a T&M basis is a grind. If someone were to publish a flat rate bid book id buy it. actually thats what bidding software is.
on another note. i got into being a EC Cause i was a really good wire monkey, but i didnt know squat about running a business. programs like barebones business. are a must even if your doing ok. I highly recommend the E-Myth by michael Gerber. i read all three of his books and then bought the revisited on CD so i can listen in my truck.
cost based bidding works like this, labor cost plus material cost. multiply by a percent(approx 13% according to MIke Holt) to add for overhead and multiply by a percent for profit (lets say 15%).

 

[quogueelectric]

Does anyone really offer a job with no benefits at a higher pay scale?

Dave

Yes per diem workers.