Need some additional ADVICE for starting a small service oriented business.....

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threephase

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I'm thinking of starting my own company primarily dealing with service related calls, remodels, generator sets.

When dealing with generator sets, I've got an idea of a pricing strategy.

When doing remodels, I'm assuming the homeowner, GC will require a more detailed bid/proposal as opposed to a flat rate?

My main question is how to exactly approach the residentail service call market. I have a full time job which means this will be a part time business used to supplement my primary income. (Yes it will be legit, licensed, insured, and bonded).

I've had long talks/thoughts about the approach of using 'time and materials' approach or giving. My thoughts are this.......
--------------------------
If using the T&M approach.
--- Homeowner has an idea of what to expect (if giving them a rough
est. of time)
---You can ensure yourself a profit (if labor rate set high enough)
---Homeowners may be skeptical with the idea of per/hr. charges for
obvious reasons.
--- You can't maximize profit when the labor rate is set. No possibility
of making $300 for 2hrs. work when charing T&M.

Set price approach.
--- Possible to make better margins than using T&M.
--- Homeowners might be more inclined to receive multiple estimates.
--- If problems arise and the time involved doubles, you might lose
money on the job.

What have others experienced? What seems to work the best? What's the general publics perception of charging by the hour? Please share any ideas/thoughts you may have.

One last thing.......what exactly is wage burden?
 
T&M versus fixed fee is a mixed bag of sorts. Contracting is not the only industry that uses it, consulting also uses variations of it.

I don't think there is a right or wrong way. A combination of both would probably work best. The advantages of T&M is that you will make a reasonable profit, but won't lose money. Doing service call work at T&M is probably the best. You use a flat fee for the first 30 minutes. This is just for showing up, whether it takes 5 minutes or 30 minutes. Then it becomes that same fee for each additional hour, plus any material used. You'll need a laptop with pricing so you can do quick invoices, because you make it clear that you get paid when the work is done, no billing later. Don't forget your 25% mark-up for O&P. Down side is you will need a pretty good variety of stock items on your truck for standard residential work. I've seen light commerical done this same way.

Then if you have a larger job, go ahead and bid it, that way you can possibly maximize your profit, but certainly there is more risk. You blow the bid, you could go broke. This may also be difficult by working on the side, because the schedules could be such that they will not wait til your day off to get there. Coordination with other trades would be tough, and GC's may not want to risk working with you, because their butt would be on the line for schedule delays.
 
threephase said:
I'm thinking of starting my own company primarily dealing with service related calls, remodels, generator sets.

When dealing with generator sets, I've got an idea of a pricing strategy.

When doing remodels, I'm assuming the homeowner, GC will require a more detailed bid/proposal as opposed to a flat rate?

My main question is how to exactly approach the residentail service call market. I have a full time job which means this will be a part time business used to supplement my primary income. (Yes it will be legit, licensed, insured, and bonded).

I've had long talks/thoughts about the approach of using 'time and materials' approach or giving. My thoughts are this.......
--------------------------
If using the T&M approach.
--- Homeowner has an idea of what to expect (if giving them a rough
est. of time)
---You can ensure yourself a profit (if labor rate set high enough)
---Homeowners may be skeptical with the idea of per/hr. charges for
obvious reasons.
--- You can't maximize profit when the labor rate is set. No possibility
of making $300 for 2hrs. work when charing T&M.

Set price approach.
--- Possible to make better margins than using T&M.
--- Homeowners might be more inclined to receive multiple estimates.
--- If problems arise and the time involved doubles, you might lose
money on the job.

What have others experienced? What seems to work the best? What's the general publics perception of charging by the hour? Please share any ideas/thoughts you may have.

One last thing.......what exactly is wage burden?
Click to expand...

I've heard of people giving T&M for doing things such as remodel and things along those lines. It just strikes me as unprofessional, but I'm not the consumer, so I can't speak for them along those lines. If your going to tell them how much per hour, and how long it will take, why not give them a set price. I don't think its good business to tell them how long it will take, than take twice as long to do it. Others may feel different. I figure an hour per device on open studs, 2 for fished. I think it wouldn't matter if you give a set price or T&M price as to whether they get additional prices or not. It has a lot more to do with salesmanship.
Wage burden is the costs associated with paying a wage. I may pay the man $21 per hour, but I also have costs associated with the hourly pay, SS, Unemployment, health insurance, etc.
 
My take is that you are going from industrial electrician to doing service and remodel work. You are probably not as experienced in that style of work as an electrician who does that work regularly, and probably won't own all of the specialty tools and know the tricks of that trade. Therefore, you will probably be less efficient (more hours for the same job) than those who do that work all the time.

You shouldn't expect your customers to pay for your training by charging Time & Materials for that kind of job. Uncertainty in material pricing is a small part of that work and is not a significant risk. Give them a competitive price for the job and take your lumps on the labor until you become efficient in your work and accurate in your estimates.
 
I recently moved my EC business to part-time status since I just started a full-time job last month. As an EC, I do both service and remodeling work. They are two very different animals.

Service work almost has to be T&M. Most of the time, you have no idea upfront what you are dealing with, so there's really no way to know how much time the call will take. You also have to have a very stocked van because customers aren't going to pay you to drive to the store to buy parts. Service work can be lucrative if you show up loaded for bear and you are able to find/solve the problem on the spot.

You might want to reconsider remodeling work, though. Those jobs usually demand "free" estimates, and it's rare that someone would be willing to pay T&M on a remodel. The main catch is that if you're working on a fixed bid and problems arise, you get to eat the cost. That's happened to me on more occasions than I care to remember. Now my policy is that if someone wants a fixed price in advance, I want as few surprises as possible. That means the walls are gutted before I will give an estimate, or I qualify the estimate with language saying that the price only applies if no surprises appear.

Most people don't want to pay by the hour because they think you're going to take your sweet time and run up the clock. Hourly has been more lucrative for me than fixed bids, but I haven't done a lot of hourly work. You might be able to get higher margins with a fixed bid, but that means you have to bid high, and that makes it less likely you'll get the job in the first place.

Since my EC business is part-time now, I doubt I'll do much, if any, more work involving free estimates. I don't want to spend any time on the EC business now unless I'm making good money at it. That means no more free estimates, and anyone wanting a fixed bid up front is going to get a high one with the caveat that any surprises will add to the cost. I'm not eating them anymore.
 
Thanks so much for all the solid advice.

As was mentioned above, I'm only going to have small windows (1-3 days) in which I can work on any one job which basically writes you off for any job dealing with GC's.

Someone also brought up an excellent point which is true. Even though I've been an industrial electrician for 15 years, doing service/light install work for residential customers is an entirely different animal that will take time to learn. In the interim, the customer shouldn't be charged for my learning on the job so to speak.

I think everyone has encompassed the pros/cons of both approaches. I think I'll try a hybrid of both pricing strategies. If it's truly a SERVICE call meaning you are there to FIX something as opposed to install something, it will certainly be T&M. However, anything involved with installing electrical devices/equip., I'll try my hand at the fixed quote for now.

Like the last poster mentioned, because this is part time, I'll make sure my fixed bids are high enough to ensure my labor/profit/overhead costs are covered. In doing so, surely I'll lose a few jobs but I'd rather swallow that than losing money on the job.

I just have to find a way to keep from giving tons of free estimates without gaining any work from them.

Again THANK YOU.
 
"My main question is how to exactly approach the residential service call market. "
"I'm only going to have small windows (1-3 days) in which I can work on any one job"

It isn't clear how you can do residential service call work on that basis unless you have someone to take your calls and set up appointments for your available hours. You can't be taking calls at your current employment to deal with customers. Service customers who have a problem want it fixed as soon as possible and may not want to wait.

You might consider specializing in a narrow scope of work. My brother was with the LA County Fire Department for many years. He built up a tremendous part-time business doing service entrance upgrades in LA County. There is a company selling service upgrades on EBay; get a Square D QO 200 amp service upgrade for $1000.

Another lucrative area is installing the electrical equipment for hot tubs and spas. That is not a job that most DIYers are ready to tackle. Up-sells for lighting can add to the income. Sell yourself to the people who sell the spas and hot tubs.

Those kind of things fit right in with your generator plans. Generators, serivces, and transfer switches all go together.

With limited scope you can give fixed prices and become very efficient in the business.

Those jobs all have a bit of flexibility about timing and require only a fairly limited stock of supplies. You could also advertise electrical service specializing in those areas.
 
Been there, done that!

Been there, done that!

You have already received the best advice I've heard, just want to reinforce, from my experience, a couple of points. I usually do service work T&M with a "not to exceed" limit, and a specific written proposal detailing what I will do. Any "surprises" become additional expenses according to the contract, but I have NEVER exceeded the "not to exceed" cost, and that brings a lot of clients back as what I write is what they get, and coming in under estimate is refreshing.
Installations are usually flat fee, as product failures and operator problems may require an unpaid call back.



Motors run on smoke installed at the factory. If the smoke gets out, the motor won't run!
 
problemsolver600 said:
You have already received the best advice I've heard, just want to reinforce, from my experience, a couple of points. I usually do service work T&M with a "not to exceed" limit, and a specific written proposal detailing what I will do. Any "surprises" become additional expenses according to the contract, but I have NEVER exceeded the "not to exceed" cost, and that brings a lot of clients back as what I write is what they get, and coming in under estimate is refreshing.
Click to expand...

the downside to T&M with a NTE is you now take all the risk (NTE) but share the reward with the customer (T&M)

In a true T&M situation, the customer takes the risks and reaps the reward. If you finish quick, they get it done cheap. If you take a long time, they get a big bill. Either way, you basically have a job with a paycheck and a lot of overhead to worry about.

In a fixed price/flat rate/etc situation, you take all the risk and reap all the reward. Customer has zero risk. It's going to cost them $x, no matter what. You get done quicker, you win. You take too long, you lose. But the customer gets the job they want at the price they agreed to.

T&M with an NTE now shifts all the risk to you. If you exceed that NTE, you lose. While it gives the customer the rewards. They know that they will not pay more than $x, but if you are good, and get it done quick, they will only have to pay $y. If you are under your NTE, you leave money on the table and are in the same boat as a purely T&M situation. If you exceed the NTE you lose money and are on the bad side of the flat rate situation. But the customer can not lose in this situation.

Now, I can't speak for anyone else, but I do this to make money. If I'm gonna take the risk, I'm gonna take the reward. My goal is not to cut my own throat to save the customer a few dollars.
 
Just remember the only free estimate is the person who doesn't hire you always figure your estimating time into the price someone has to pay for that van your driving around. Also there is no such things a half hour if you go over and hour no matter if it is 10 minutes charge the full hour because you still have to get to the next job and someone has to pay for it.
 
Doing work for Friends/Acquaintances ???

Doing work for Friends/Acquaintances ???

I know this is purely subjective and no answer is right/wrong, but I'm just curious how much you reduce your labor rates for friends? acquaintances?

I'm interested to hear your experiences.......
 
You never reduce you labor rate only reduce your profit if it is a small job i will usually do it for free but a bigger job i will do this

Regular rate: $5,000.00
Discount $1,000.00 when the see discount they get happy
Total $4,000.00 you will know where your profit margin is and you adjust profit only remember no one can hate you like your friends and family can sometimes they are the worst to work for and if you are droping you labor rate you might as well do it for free.
 
Most of my projects are t & m. I am usually recommended by a friend. If someone thinks my price is high, than I itemize everything I did using Craftmans (not Sears) 2006 National Electrical Estimator. (less than $50.).
I then show the home owner the comparsion. So far the 2006 NEE has been higher.
 
threephase said:
I just have to find a way to keep from giving tons of free estimates without gaining any work from them.
Click to expand...

Below is from the Best Buy website.

This sounds like what most electricians do for free.
Why are electricians afraid to charge for this service?
If Best Buy can charge for this, electricians should be able to as well.
Sounds like electricians need to provide in home consultations instead of estimates and charge for this service.

I charge a small dispatch fee to go out and provide estimates.
If I start calling it an in home consultation instead of a dispatch fee maybe I can charge more. :)

http://www.bestbuy.com/site/olspage.jsp?id=pcmcat99700050014&type=category

In-Home System Design and Layout
Our installation professionals will:

Sit down with you to determine how you envision your home theater system
Perform a walk-through of your home to determine feasibility in all installation areas
Discuss items that can and cannot be accomplished
Point out difficult areas and provide recommendations on how to proceed
Assist you with product selection and pricing, if desired
Provide you with a detailed estimate of work to be performed, including a diagram of the layout
Approximate time: 1 hr.
Price: $100
 
-marty said:
Most of my projects are t & m. I am usually recommended by a friend. If someone thinks my price is high, than I itemize everything I did using Craftmans (not Sears) 2006 National Electrical Estimator. (less than $50.).
I then show the home owner the comparsion. So far the 2006 NEE has been higher.
Click to expand...

A friend of mine did auto repairs at home, and just charged friends and church members his cost and standard time rates, not 8 hours to replace a rusted brake system if the book said 3 hours. When he complained about constant griping at his bills, I suggested giving a standard bill at list price and real time rates, and then listing the discount. He got a lot of more positive comments.

As my wife says, document, document, document; and keep good records also.
 
My brother was once the service manager for a garage. The garage charged and paid its mechanics the number of hours the book said it should take.

Most of the time he would schedule his mechanics about 10-12 hours of book time per eight hour day.

Speaking more as a consumer, I am well aware that no competent person is going to work for $10 an hour. I am also aware that someone has to pay the service guy to drive to where ever the service is being done, and somehow that has to be paid for. I also realize that the service van, tools, and parts carried around cost money, and somehow that has to be paid for.

I am thus not offended one bit by a trip charge. One electrician I have used here charged me a trip charge, which included up to 1/2 an hour of on site time. I think it was $75, but that was a few years back.

I don't see how anyone can estimate what a service trip is going to cost. believe me, I do enough of them myself to know that.

I also don't like open ended T&M jobs, and the customers I work for don't either. Its hard to get a PO for "whatever it takes". We often get a PO to evaluate what work needs doing so we can give them a better idea what the end cost will be. Not all that far off from charging for an estimate.
 
trouble

trouble

As a profesional electrical contractor, I do not mind you part time guys. My question is the following; Why keep your job? If you do business the way it should be done,then there is no need to keep your job! I found that the biggest problem with contractor is the they do not know what there break even number is! I meet a guy that is doing recess light for 70 each. I get +175 for access and upto 225 for non access. Do all you part time guy have all the insurances? Worker comp, unemployment, contents rider, and enough to cover not just the min? My suggestion is the following stay out,go for it or stay out. If you decide to do it then charge they right amount. Don't go out there and be like I did a 200a service for 1200 and walk out with 350 in my pocket, because you didn't. Solo service is a 9hr day +2hr to get material +2hr for est/proposal/phone calls/permits. so 350/13=26.50 per hour-33% for taxes =17.75 what about advertising? Fuel? Etc? Misc? So A great part time with flexible hour is just do the road at Home depote or lowes they have 401k and health ins. pus stock. With all that I am now hated but I beleive I speak the truth. By the way I have multipe vans and office staff and Ijust finished all my paper work it 1:57am welcome to the world of owning your own :D
 
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