Labor & Company Pricing

[FlyWhale]

Hey folks, I have a few general questions regarding pricing for a project. I would appreciate any advice.

For example, lets say I have a project that will take a total of 10 - 1 man hours. I have 2 guys for the job, not including myself. The job is now 5 total hours. Let's say their hourly rate is $20 each and my company hourly rate is $100 per hour.

Would I charge the $100-per-hour to the 10 - 1 man hours? or to the 5 total hours?
Would the total hourly rate for labor for the entire project be (($20x2x5=$200)+($100x10))=$1200?

 

[ramsy]

In my state either way is legal, if your methods are historically consistent.

During a declared disaster, or FEMA operations, my state sets a 10% limit on contractor-price gouging, based on the contractor’s historical use of a standard price formula.

(Labor + Material) / (% Overhead + % Profit - 100)

§7123.5. Disciplinary action for violation of overpricing following emergency or major disaster

If a contractor is convicted of violating Section 396 of the Penal Code or any substantially similar local ordinance in connection with the sale, or offer for sale, of repair or reconstruction services, as de- fined in Section 396 of the Penal Code, the Contractors State License Board shall take disciplinary action against the contractor, which shall include a suspension of at least six months or the permanent revocation of the contractor's license.

—See Penal Code Section 396, Unlawful Price Increase Following a Declared State of Emergency, in Appendix.

 

[Omid]

I am not sure if I got it right or not. If the company's hourly rate is $100 and the tech receives $20 per hour, then you bill for 100 x 10 = $1000 for labor. But your labor cost is 20 x 2 x 5 = $200.

 

[FlyWhale]

I am not sure if I got it right or not. If the company's hourly rate is $100 and the tech receives $20 per hour, then you bill for 100 x 10 = $1000 for labor. But your labor cost is 20 x 2 x 5 = $200.

The company rate is just overhead and profit. There is no labor factored in the company rate.

I thought about that method and I'd have to take a risk that 1 laborer may not be able to make it to the jobsite or maybe I'll send a 3rd laborer if available.

 

[FlyWhale]

In my state either way is legal, if your methods are historically consistent.

During a declared disaster, or FEMA operations, my state sets a 10% limit on contractor-price gouging, based on the contractor’s historical use of a standard price formula.

(Labor + Material) / (% Overhead + % Profit - 100)

§7123.5. Disciplinary action for violation of overpricing following emergency or major disaster

If a contractor is convicted of violating Section 396 of the Penal Code or any substantially similar local ordinance in connection with the sale, or offer for sale, of repair or reconstruction services, as de- fined in Section 396 of the Penal Code, the Contractors State License Board shall take disciplinary action against the contractor, which shall include a suspension of at least six months or the permanent revocation of the contractor's license.

—See Penal Code Section 396, Unlawful Price Increase Following a Declared State of Emergency, in Appendix.

I see. So which way would you say is best practice?

 

[Omid]

The company rate is just overhead and profit. There is no labor factored in the company rate.

I thought about that method and I'd have to take a risk that 1 laborer may not be able to make it to the jobsite or maybe I'll send a 3rd laborer if available.

In that case, I would say which method you better choose depends on how you come up to (or what rule you set for) that $100 for the company. If you choose pure labor-hour as your driver to calculate overhead (and profit), then it seems (($20 x 2 x 5 = $200) + ($100 x 10)) = $1200 is the price. I never thought about applying overhead to a crew-hour, although there seems to be some logic in it.

 

[ramsy]

I see. So which way would you say is best practice?

I agree with Seven-Delta's method of paying yourself as a manager, rather than using a corporate rate.

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