Class is in session
Class is in session
Electricians, Doctors, Lawyers, Accountants, all are professionals in their own field. Why are Electricians not charging accordingly?
Below is how it ?should? be for a one tech operation and owner selling jobs and building the business. Why is it not?
130K ? small shop: receptionist & O/H
100K ? owner (You are a professional w/ the knowledge and have taken a financial risk, you deserve a professional wage)
65K ? 25 per/hr tech pay - w/ burden(FICA & 401K) is 31.25 per/hr company cost
295K Total
295K X 10% NET = 29.5K (should be 20% for a contractor to realistically cover everything and have enough for growth)
295K + 29.5K (NET) = 324.5K Total Gross
Service:
324.5K / 1500 (billable hours per year) = 216.33 per/hr. (1500 hours is tops, so less would drive pricing up)
31.25 per/hr (tech) x 6 (times tech pay rule of thumb for service) = 187.50 per/hr.
* 216.33 billable per/hr. / 31.25(tech cost w/ burden) = 6.92 (service needs to be billed at 6.9 times tech cost to meet budget)
Construction:
324.5K / 1800 (billable hours per year) = 180.27 per/hr
180.27 billable per/hr. / 31.25(tech cost w/burden) = 5.77 (construction needs to be billed at 5.77 times tech cost to meet budget)
The difference between service and construction is only 1.15 (6.92 ? 5.77) times tech pay.
You are selling your time which is actually you selling your knowledge. Equipment profits from sales should be added icing, not figured in to make your numbers. People have over the years lowered what they charge per hour to be more competitive and started relying on equipment sales to meet their budget and have allowed this to chip away at their ?bottom line NET? profits. You never know how much equipment you will sell from year to year. This is why you build all of your O/H and profit into your billable per/hour cost. The profits you make from equipment sales just pays for time to round up the equipment and other associated costs, etc.
Actual labor cost is a small amount percentage wise, or should be when figured properly, of what you really need to bill out per hour to be a profitable business and run it like any other business runs an operation with a shop and Office Manager.
Doubling your tech pay and burden only puts you, as an owner, working for a paycheck and barely surviving. This is the reason for so many one/two man shows, which is typical in the overall construction arena, not making anymore and many times actually less than they would be just working for a business at going wages after factoring in actual time spent working in the field and on office tasks.
Ninety percent of small businesses in the construction trades ?do not? know how to figure what they need to bill per hour in order to be profitable and actually make a bottom line NET so they can grow their business.
Chasing the ?guy next door? by offering free quotes etc has lowered the trades down to just working for wages even when operating your own show. It has come down to who can perform the work for the lowest amount so they can make some coin this week to pay some bills.
When was the last time you observed a Doctor giving away office visits for ?free? when you went to see what was wrong with you so he/she could have an ?opportunity? to get some work ?hopefully?? Is your professional knowledge worthless, or is it as valuable as a Doctor?s, Lawyer?s, Accountants, Engineer?s etc.?
Did the Doctor not have a receptionist?
Did the Doctor not have an office?
Why do you not have an office or receptionist to answer calls and run your office? If you allow for it in your financials it will show you what you really need to be charging so you can have what Doctors, Lawyers, Accountants or any other business owner who deals with the public has. What are you afraid of, a customer telling you your business has ?no? right to have what other legitimate businesses utilize to run an operation? Why are Doctors, Lawyers, Accountants and Engineers fees where they are? They are what they need to be because they have run the numbers to see what they need to charge in order to have what a business needs to have to prosper. Why does the appliance service companies like GE charge $276 per/hr. but it is told to the customer $46 per/ten minutes or why does the phone service guy charge around $276 per/hr for service? They too have ?run? the numbers.
Now are you starting to see why Lawyers and Accountants get minimum 250-300 per hour?
Why is it in the trades everyone thinks they have to work out of their home, not have a receptionist, not have a technician running calls so they can have ?no? overhead basically just so they can compete at the lowest price and work twice the hours during and after work hours performing paperwork and trying to figure out when they will have time to actually work on the business to build it instead of working ?in? the business for just a paycheck?
Did you start a business to build something of value with the risks you took financially, or just to have a paycheck? You deserve a return on that investment in training, schooling, tools and risk.
When you ?act? like a business, you can bill like a business. If you act like a part-time show, you have to bill like a part-time show.
In residential, you can offer ?flat rate pricing? so you can receive the proper billable per hour charges. In commercial, well, what can you say when they require a breakdown plus it is difficult to use flat rate in estimating commercial. There are just too many variables. The only comeback you have to get the highest amount possible in commercial is to relate your charges to a high end automotive dealership?s hourly shop charges which is up around $125 ? $135 per/hour and they do not have trucks to pay for and run down the road. Busy automotive shops are able to bill out minimum eight ?book? hours a day per tech. This is roughly 1920 hours per year. They have ?no? rain days etc. If they could only bill out 1200-1500 hours per tech, their charges would be higher to meet budget, but being able to bill out more hours than a service truck operation allows their charges to be lower.
Automotive: 1912 hours x 135 = $258,120(per bay/tech), and this is with several garage ?bays?(electrical trucks) if you will spreading out overhead.
Electrical truck: 1500 hours(max) x 216 = 324,000 per/ truck. See the closeness of 258K(automotive) compared to one truck needing 324K that runs down the road with windshield time etc?
Use this formula and see what you would get on residential service change outs with this articles information.
Material cost / .75(markup 25%) = ?
8 Hours labor @ 216.33 per/hr = $1,730.64
Total job cost = ?
Manipulate your mark-up divisor (.75) to obtain higher job pricing in different sectors of your business locations or seasonal business swings, not your labor charges.
(.70) 30% mark-up
(.65) 35% mark-up
Etc.
That is around what you should be getting. Obviously different regions of the country will charge different labor because of different insurance and overhead costs which track to the bottom line, but they would not be that far off. Also, additional trucks will spread the overhead costs across more trucks and therefore lower burden per truck some until you hit that point and need additional office support for the additional trucks. Industry average in all service sectors is one office support person per 3-4 trucks.
You guys here really need a business forum that is out of the ?public?s eye? for people who can prove they are owners in the electrical trade so business owners can discuss business matters such as this. The public doesn?t need to see this. With all of the moderators here, you easily could send out an email to everyone to send proof like a copy of electrical license or DBA etc and let them review the questionable ones, but put the regulars who participate here behind the curtain into a ?true business area? right away and others as you review the proof. Other forums in the trades have done this for the owners and actually have made a separate technical forum out of the public?s eye too.
Nice board here my fellow Lemon heads. :grin:
Hopefully I opened your eyes with this ?wake-up? call? If this post didn?t move some electrons, then I give up.
How?s that for a first post? :grin:
