Pricing A Job….

[Seven-Delta-FortyOne]

This is my method, and this is the other sort of lengthy post I put together for the FB Group.

I am a General Contractor as well as an Electrical Contractor, and as you will see, it was more geared towards the General’s, but I think it would apply equally to any type of Contractor.

Many ways to skin the cat, this is mine.





HOW TO PRICE A JOB!!!!

There is a lot of confusion about how to price jobs, what markup is, what it’s for, figuring profit, figuring overhead, etc.

I have another post here about figuring markup for overhead and profit.

First, terminology is vitally important. “Profit” is not owners salary, does not go into covering overhead, does not pay for direct or indirect job costs.

Profit is purely an amount that the COMPANY makes, primarily for future growth, surviving downturns, emergencies, etc.

Profit, in the construction industry, is around 8%. That is what most should be shooting for.

Overhead, on the other hand, is a far greater number. As I explained in the other post, the two methods of figuring it are time-based, and percentage-based. I went into detail about why I, and many other successful contractors, use a time-based approach to figuring overhead, so I won’t rehash it here.

Overhead covers possibly hundreds of items. Every single thing that you must spend money on, to run your business, must be recouped. Taxes, licenses, insurance, vehicle replacement, maintenance, tools purchases and repairs, shop and office space, paper, computers, cell phone, work pants and boots, on and on and on.

You need to total all your overhead for the year. This is a constantly moving target, and you will need to constantly be revising it, monitoring it, and working it.

Take every figure you have, some will be monthly, some yearly, some bi-yearly. Come up with an amount by the year.

Here a small sample:

Truck payment: $900/month (multiply this by 12)

License: $470/ every 2 years (divide this by 2)

GL insurance: $1,500/ every 6 months (multiply by 2)

You get the drift. Now, you should have a yearly amount for overhead. Let’s say, with all this figured, you find that your yearly overhead is $76,489/year.

Now, determine how many working days you will have per year. 253 is Monday through Friday, every week, with 8 holidays off.

There will be vacation days, and many days, as a business owner, that will not be billable. If you plan to recoup overhead every single day of the year, and you end up having billable work for 200 days/year, you will find yourself woefully short at the end of the year.

I use a figure of 200 days/year.

So divide your $76,489 by 200, and that is what you need to add to your bid for each day you expect to be on the job.

That’s about $382.50 per day, just to recover overhead.

Now to figure labor: Labor for yourself needs to be figured based on what it would cost to replace you. So if a lead would cost you $45/hour, that’s where you start. Then, there is labor burden. This is payroll taxes, payroll service, and workers comp. In my area, this is about 50%. So we have $45 x 1.5. Now, you, as the business owner, spent uncompensated time selling, bidding, and running the company, so you need to make more than what a lead carpenter would make. So if you would pay a lead $45/hour, add in an extra $20/hour for you to do all the admin work. That is an amount that would pay a part time office helper.

Then your helper: If you pay him $30/hour, multiply that by 1.5, then figure an additional amount that you want to make, for having an employee. Personally I want $20/hour per employee. If I didn’t make that, it wouldn’t be worth it to me to deal with employees.

So $30/hour times 1.5 + $20. That’s your figure for your employee.

Multiply both those figures by 8, to come up with a day rate. Remember, we want day rate figures, not hourly.

So your day rate for you is $700 and the helper is $520.

Now this number is low, because we haven’t put overhead and profit in yet.

Overhead is $382.50/day. Add that to your figure, and you’re at $1,082/day. You can round that up to $1,100 if you want. That’s what you have to make every day you go to work, to break even and pay yourself.

So let’s put this all together into a sample bid for a deck.

Materials (from your take-off, everything from footings to fasteners): Your cost with sales tax: $22,498

Add 20%: This covers your knowledge of what materials to buy, mis-cut materials, the supply house being out of stock and you needing to make an extra trip, etc. $26,997

Concrete pump: $800 + 20% = $960

Subcontractor for deck stain: $5,500+20% = $6,600

Permit: $436 permit fee, + 20%, plus time to draw and submit. Let’s say 1 day. So the permit is $1,623.

Labor: you and the helper for 10 days each: 1,100 x 10 = $11,000 + 520 x 10 = $5,200, so total labor is $16,200.

Disposal costs for old porch: $200 + 20% = $240.

Let’s put it all together:

$26,997 + $960 + $6,600 + $1,623+ $16,200 + $240 = $52,620.

But we’re not done yet. We haven’t added profit. This one IS a percentage, unlike our overhead. Remember that we are shooting for 8%. So $52,620 x 1.08 = $56,819.60

Personally I drop the change. I round either up or down to the nearest $5, but that just my personal choice.

So I would submit a bid for $56,820.

I would not break anything down, I would not show overhead or profit figures, or markups or costs on materials, etc. I have done the work to figure out what it takes to run my business, and what it’s worth to me to go build your dream house, and that is proprietary information. It is my “business” alone, both literally and figuratively.

The price to do the job is $56,820. The price to not do the job is $0.

Hope this helps.

 

[Eddie702]

excellent information

 

[OK Sparky 93]

No matter what, as you said Seven-Delta, the OH is there and has to be covered. A multi-crew shop may or may not have more OH than the one-man shop, and they most likely could have a lower rate than what a one-man shop would.

This is my method, and this is the other sort of lengthy post I put together for the FB Group.

I am a General Contractor as well as an Electrical Contractor, and as you will see, it was more geared towards the General’s, but I think it would apply equally to any type of Contractor.

Many ways to skin the cat, this is mine.





HOW TO PRICE A JOB!!!!

There is a lot of confusion about how to price jobs, what markup is, what it’s for, figuring profit, figuring overhead, etc.

I have another post here about figuring markup for overhead and profit.

First, terminology is vitally important. “Profit” is not owners salary, does not go into covering overhead, does not pay for direct or indirect job costs.

Profit is purely an amount that the COMPANY makes, primarily for future growth, surviving downturns, emergencies, etc.

Profit, in the construction industry, is around 8%. That is what most should be shooting for.

Overhead, on the other hand, is a far greater number. As I explained in the other post, the two methods of figuring it are time-based, and percentage-based. I went into detail about why I, and many other successful contractors, use a time-based approach to figuring overhead, so I won’t rehash it here.

Overhead covers possibly hundreds of items. Every single thing that you must spend money on, to run your business, must be recouped. Taxes, licenses, insurance, vehicle replacement, maintenance, tools purchases and repairs, shop and office space, paper, computers, cell phone, work pants and boots, on and on and on.

You need to total all your overhead for the year. This is a constantly moving target, and you will need to constantly be revising it, monitoring it, and working it.

Take every figure you have, some will be monthly, some yearly, some bi-yearly. Come up with an amount by the year.

Here a small sample:

Truck payment: $900/month (multiply this by 12)

License: $470/ every 2 years (divide this by 2)

GL insurance: $1,500/ every 6 months (multiply by 2)

You get the drift. Now, you should have a yearly amount for overhead. Let’s say, with all this figured, you find that your yearly overhead is $76,489/year.

Now, determine how many working days you will have per year. 253 is Monday through Friday, every week, with 8 holidays off.

There will be vacation days, and many days, as a business owner, that will not be billable. If you plan to recoup overhead every single day of the year, and you end up having billable work for 200 days/year, you will find yourself woefully short at the end of the year.

I use a figure of 200 days/year.

So divide your $76,489 by 200, and that is what you need to add to your bid for each day you expect to be on the job.

That’s about $382.50 per day, just to recover overhead.

Now to figure labor: Labor for yourself needs to be figured based on what it would cost to replace you. So if a lead would cost you $45/hour, that’s where you start. Then, there is labor burden. This is payroll taxes, payroll service, and workers comp. In my area, this is about 50%. So we have $45 x 1.5. Now, you, as the business owner, spent uncompensated time selling, bidding, and running the company, so you need to make more than what a lead carpenter would make. So if you would pay a lead $45/hour, add in an extra $20/hour for you to do all the admin work. That is an amount that would pay a part time office helper.

Then your helper: If you pay him $30/hour, multiply that by 1.5, then figure an additional amount that you want to make, for having an employee. Personally I want $20/hour per employee. If I didn’t make that, it wouldn’t be worth it to me to deal with employees.

So $30/hour times 1.5 + $20. That’s your figure for your employee.

Multiply both those figures by 8, to come up with a day rate. Remember, we want day rate figures, not hourly.

So your day rate for you is $700 and the helper is $520.

Now this number is low, because we haven’t put overhead and profit in yet.

Overhead is $382.50/day. Add that to your figure, and you’re at $1,082/day. You can round that up to $1,100 if you want. That’s what you have to make every day you go to work, to break even and pay yourself.

So let’s put this all together into a sample bid for a deck.

Materials (from your take-off, everything from footings to fasteners): Your cost with sales tax: $22,498

Add 20%: This covers your knowledge of what materials to buy, mis-cut materials, the supply house being out of stock and you needing to make an extra trip, etc. $26,997

Concrete pump: $800 + 20% = $960

Subcontractor for deck stain: $5,500+20% = $6,600

Permit: $436 permit fee, + 20%, plus time to draw and submit. Let’s say 1 day. So the permit is $1,623.

Labor: you and the helper for 10 days each: 1,100 x 10 = $11,000 + 520 x 10 = $5,200, so total labor is $16,200.

Disposal costs for old porch: $200 + 20% = $240.

Let’s put it all together:

$26,997 + $960 + $6,600 + $1,623+ $16,200 + $240 = $52,620.

But we’re not done yet. We haven’t added profit. This one IS a percentage, unlike our overhead. Remember that we are shooting for 8%. So $52,620 x 1.08 = $56,819.60

Personally I drop the change. I round either up or down to the nearest $5, but that just my personal choice.

So I would submit a bid for $56,820.

I would not break anything down, I would not show overhead or profit figures, or markups or costs on materials, etc. I have done the work to figure out what it takes to run my business, and what it’s worth to me to go build your dream house, and that is proprietary information. It is my “business” alone, both literally and figuratively.

The price to do the job is $56,820. The price to not do the job is $0.

Hope this helps.

Using this information, and you as the boss, never or rarely had tools on, but you still have to live, are you still paying yourself that $700 a day?
Which could be more than that depending on how many employees you had. Or are you only taking the $20 per employee?

This is the boss' salary. more if he straps on the tools, and less if he doesn't.

I have heard others say even if you don't have any billable hours, and you do happen to have an employee (someone that can replace and may also work beside you), you should have a way to pay them for a full 2080.

I can see this for bidding the job, however if you take this same information and apply to T&M or service call work or flat rate, would this not make the rate on the high side. Especially on those days when the load is light.

 

[sbirnbaum]

Love the details. Thank you for sharing! @Seven-Delta-FortyOne, I would love to join your Facebook group. What is it called?

 

[OK Sparky 93]

So $30/hour times 1.5 + $20. That’s your figure for your employee.

Multiply both those figures by 8, to come up with a day rate. Remember, we want day rate figures, not hourly.

So your day rate for you is $700 and the helper is $520.

How did we arrive at the day rate of $700

 

[jonsparky360]

How did we arrive at the day rate of $700

he was at 45 times 1.5 + 20$ then multiply that by an 8 hr day

 

[Omid]

Now, determine how many working days you will have per year. 253 is Monday through Friday, every week, with 8 holidays off.

There will be vacation days, and many days, as a business owner, that will not be billable. If you plan to recoup overhead every single day of the year, and you end up having billable work for 200 days/year, you will find yourself woefully short at the end of the year.

I use a figure of 200 days/year.

So divide your $76,489 by 200, and that is what you need to add to your bid for each day you expect to be on the job.

That’s about $382.50 per day, just to recover overhead.

What I cant figure out is how much we spend for admin/estimate. I think 253 days minus 8 holidays, 6 sick days and 14 vacation leaves 225 days. is that 25(225-200) days is for the admin? If billable days is 200 (and the OH/days calculate based on this) and 52000 job would take 10 billable days then the gross sales should be 1,040,000 for a tech and a helper. I am not even close to this figure. If the actual billable days is less than 200 then OH/day would be different.
Also 200 billable days leave only about one day between each job with assumption that a 10 days job is the average job size and we working 225 days/year.