I have a bit of a survey here to try and assist me in making a judgement regarding a business transaction and for how I’ll conduct future business. I have been taught to upcharge my labor on every job from various business sources as I learned how to grow and make my business more profitable.
I’m doing a very large job where I agreed to work for $x/hr based on T&M. I received approval to proceed. I have 5 guys working for me, including myself makes 6. Two earn $20/hr, the remaining were earning $12/hr and my hourly rate was higher. I have been billing the owner each week for the labor and deducting it from the funds he’s provided. Part of the labor rate was a $5/hr upcharge per hour on all my labor (excluding myself). This was to cover any administrative functions I would be performing as well as cover my time on other things in the project that is difficult to keep track of thru time recording such as time on phone calls, supply houses, etc. The average total weekly upcharge is about $800 additional, which I was leaving the remaining balance I did not use of it and leaving in the business bank account as future capital for the busiiness.
The owner became aware of the upcharge on labor and feels that based on T&M no upcharges are appropriate and feels my decision was an unethical one. The owner feels I was dishonest when I agreed to T&M with my hourly rate set at $x/hr, and views the upcharges as additional funds to me to which he did not agree. Up front we never discussed the definition of T&M. My definition was one which included labor markup on a project this size since I knew I’d be hiring people on to do the work. I believed this to be standard in our industry, and after all, we don’t disclose upcharges in our industry, they’re given to a given project is how I’ve been taught. I doin’t view it as additional funds to me per se, but funds paid to the business that the business will pay to me for the incidentals that I do not track by time and whatever remains is future business capital.
Thoughts?
Replies
Well, I agree that you should (and I do) markup "subs" or "temps". Although your logic seems a little convoluted, as though you're trying hard to justify it to yourself or rehearsing for a conversation. Bottom line is that every solvent business marks up the cost of their employees. My only misgiving is that I think you should have had a more clear understanding, but part of the learning curve ;) What I've done is write up the contract that I bill my time out at X, and each assistant, helper whatever is billed at Y (which includes my markup), and all subs are billed out at cost plus 15% (or whatever). Hope you can smooth this over...
PaulB
http://www.makeabettertomorrow.com
http://www.finecontracting.com
......right on on the money Paul.
"When the spirits are low, when the day appears dark, when work becomes monotonous, when hope hardly seems worth having, just mount a bicycle and go out for a spin down the road, without thought on anything but the ride you are taking." — Sherlock Holmes, 1896
PaulBinCT — "Well, I agree that you should (and I do) markup "subs" or "temps". Although your logic seems a little convoluted, as though you're trying hard to justify it to yourself or rehearsing for a conversation."
That's how it came off to me too. Like he was saying inside his head "I
knowthink I am right on this but I just need to figure out how to say it better."The problem is I don't see how he can possibly continue on with this job especially if it is a "very large job" as he desribes it with his numbers the way they are right now.
As you seem to be saying I think he needs to sit down and figure out just what his billing rates are and then bill at those rates without the rigamarole he's cooking up.
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Part of what I was taught about the "upcharge" on labor rates is that it can help you recover some costs that are otherwise hard to measure on T&M. For example, time on the phone with others related to the job, as well as some emails back and forth to the homeowner, are examples of things where you don't always decide to record time for. If you did, you'd be spending as much time recording time as you would to just do a markup and call it a deal. Other reasons I have been taught is that the upcharge helps by retaining money into the business account which is already low, and also to help defray the tax bill I'll get for 1099 processing on my subs at end of the tax year.If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
about the "upcharge" on labor rates is that it can help you recover some costs that are otherwise hard to measure on T&M. For example, time on the phone with others related to the job, as well as some emails back and forth to the homeowner, are examples of things where you don't always decide to record time for.
There's a simple remedy for that, charge for all your time, same rate. You might decide to limit it to time on the job site, even though you may spend an hour or two at home every night, unpaid. That depends on how efficient you believe you are at the paperwork and how efficient you think you should be, for the rate you're being paid. I always gave some time back because I knew that I had much to learn about organizational skills.
I found that, on average, my time on a T&M renovation job was about 50/50 between carpentry and supervisory work. Of course, the larger the scope and/or the more subs on the job, the less time I had to work with my tools. But I didn't try to keep a log of how I spent my time, only a brief description of daily activities.
Edited 10/26/2009 1:22 am by Hudson Valley Carpenter
I'm a little confused. Maybe you can clear things up with a simpler explanation.
How much are you charging for your $ 20 help? Are you charging $20 or are you charging $25.
If you told me you going to charge 20, and then billed me for 25, I'd only pay 20.
Obviously, your sales presentation was flawed. There should have been zero questions regarding rates of skilled labor and office labor. There should have been discussions about supervision labor too.
When you sell, you are wearing one hat. When you run your office, you are wearing a different hat. When you work onsite, you have put on a third hat. When you figure out how to pay all three a living wage, you have finally started running your business in the "right" way.
jimAKAblue — "I'm a little confused...."
You're confused? I was unclear that he was ever really talking about covering any real "office" type labor. It sounded to me like this upcharge was to cover his time spent managaing the project per se which should really just be billed at his marked up Billing Rate.
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Seems pretty simple to me. If you told him initially that you were going to charge him X dollars per hour for labor, then that's what he should expect to pay. Unless I'm reading you wrong, it sounds like you added $5/hr to the labor rate after you quoted him the first rate?? If you did that, I agree with the guy who is paying you. If that's not what happened, then how in heck did he find out about the $5/hr you added on?? If one of your employees told him that, he would be looking for a new job.
Never, ever !!!!!!!!! Discuss your cost breakdowns with the person you are working for. You figure out what you have to get, quote that figure, and stick by it.
If he doesn't accept the rate, then move on to another customer.
Lots of people can't comprehend why you would have to charge more than the amount you actually pay the employee. Obviously they have never run a business, but you still have to deal with that attitude.
Yeah, if $X/hour is quoted as the labor charge, that's what should be billed, unless there's an explicit separate item in the arrangement for an overhead charge. The $X figure should be pre-figured to include overhead.If you pass through subcontract costs there should be a pre-agreed overhead figure added to that.You shouldn't be adding in any numbers (besides, maybe, taxes) that aren't in your initial agreement.
As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
DanH — "I don't know how any rational person would believe that T&M shouldn't include overhead. But, then, many people aren't rational when it comes to opening their wallets."
Yeah but I'll bet ya that client figured the rate WillieWonka quoted him was that Loaded Labor Rate and not something that was going to get "upcharged" on top of.
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BoJangles I sort of generally agree with what you had to say except for where you say ".... how in heck did he find out about the $5/hr you added on?? If one of your employees told him that, he would be looking for a new job." You would really fire an employee for telling the truth to a client. (Or what that employee understood to be the truth). If a client asked any employee of mine "what 's this extra $5 per hour surcharge I see here" I certainly wouldn't want them answering "I dunno."
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I don't know how any rational person would believe that T&M shouldn't include overhead. But, then, many people aren't rational when it comes to opening their wallets.
[But the overhead charge should be part of the initial agreement (even if just implicit in the agreed labor rate), not added in afterwards.]
Edited 10/21/2009 9:27 am by DanH
Are you employing the guys that work for you or are you using them as subs with 1099s? Not that it really matters in your current dilema.
""I'm doing a very large job where I agreed to work for $x/hr based on T&M. ""
Doesn't matter how you arrived at what was agreed upon ,nor how much you added to the acual amount the employee is getting paid. Only matters that you don't change the agreed upon sum after the fact.
If you added it later then he has a right to gripe.
I work exclusively on T&M, so I have written very clear language in my contract to avoid any misunderstandings.
What I pay my people is not the client's business. All the same, some people don't understand about marking up labour, so to avoid having to educate them, my guys are told not to discuss their wages with anyone. If anyone working for me went to a client and said, Hey, he's only paying me $xx per hour, how much is he charging you, he'd be outta there so fast he'd have to send someone back to pick up his hair the next day.
Below is most of the 'fine print' attached to my estimates. Feel free to adapt it to your needs.
PLEASE NOTE THE FOLLOWING STATEMENT OF TERMS FOR ESTIMATES IS PART OF THE ESTIMATE. READ AND UNDERSTAND THESE TERMS BEFORE ACCEPTING OR SIGNING THE ESTIMATE:
IMPORTANT NOTE: Please understand that an estimate is not a fixed price quote. Your final bill will be calculated based on hours actually worked and materials used. During renovation or remodeling work on any building there is always a significant risk of uncovering hidden problems which can augment the estimated cost of the original job. While we endeavour to estimate as accurately as possible, we make no guarantee or representation of any sort as to what the actual cost of your project will be. You should therefore consider an estimate as an indication of the MINIMUM cost for completeing your project. As a COURTESY to you, all problems uncovered during the course of your project which could lead to a significant increase (more than 15%) over the estimated price will be presented to you as soon as possible. At that point, you will have the option of either abandoning the project or modifying it to include the additional work made necessary by the underlying condition of the building. IN NO CASE WILL YOU BE BILLED EXCEPT FOR WORK ACTUALLY COMPLETED.
CHANGE ORDERS
All change/add orders must be executed in writing. Any change to the specified work or materials in the estimate nullifies the estimated total. Hourly rates and mark-ups remain guaranteed.
RATE GUARANTEES
Labour rates as specified in the estimate are guaranteed for a period of 90 days from the date of the estimate. Skilled tradesmen with or without CCQ 'competence' cards, Apprentices, Helpers and/or other unskilled labourers will be billed at the indicated rates for the type of work done by each. Licensed personnel will be used where necessary as subcontrators. Materials, equipment rentals, fees, and subcontracts will be billed to you at our cost (gross) plus x%. Materials prices are subject to change without notice.
.
RATES AND MARK UP
The hourly rates and materials mark-ups are guaranteed as stated above. The rate for skilled tradesmen is $xx.xx per hour. For apprentices the rate is $xx.xx per hour. For helpers or other unskilled labour the rate is $xx.xx per hour.
Materials, subcontracts, equipment rentals, and administrative/municipal charges will be marked up x% on our gross cost.
DEPOSIT AND PAYMENT
A deposit of 50% of the estimated total is required to schedule the job. On large projects, we may require progress payments on a weekly or bi-weekly basis. Final payment is due on reception of the final invoice and statement, which will be rendered as soon as possible after completion of the job.
GENERAL CONTRACTOR, PROJECT MANAGER, AND WORKERS
You understand that you are the general contractor for the project and you specifically authorize __________, d/b/a ________________, to hire any such workers as in his judgement are necessary for the completion of your project, The hourly pay rate for each worker, plus service charge, shall not exceed the labour rates guaranteed by this estimate. All workers' labour shall be billed to you on our invoice on an hourly basis at the guaranteed rate. Mr. ____________, as your project manager, will take such measures as he judges necessary to see that all work will be done in a professional and workmanlike manner according to the standards and practices adhered to by licensed professionals operating in the region in which your project is located. We reserve the right to subcontract all or any portion of the work to licenced entrepreneurs when necessary.
THEFT OR DAMAGE OF MATERIALS AND RENTED EQUIPMENT
We are not responsible for damage to or theft of materials stored at your worksite. If you have reason to believe that such loss or damage may occur, it is your responsibility to provide secure storage for the materials. You also accept responsibility in the event of theft of rental equipment that must necessarily be left in place outside, such as scaffolding. We will be responsible only for our own equipment and tools if left outside at our discretion.
INEVITABLE DELAYS
We are not responsible for delays caused by bad weather, or by the intervention of municipal or provincial authorities, or by back-ordered materials where a suitable replacement agreeable to both you and us cannot be found.
INCIDENTAL DAMAGE
We will make all efforts to perform the work in or on your house in a professional and workmanlike manner, and will take all normal and reasonable precautions so that your house and its contents are disturbed as little as possible. You understand and agree even so that construction or renovation work by its nature involves a risk of staining or flooding by water or other liquids, damage to floors or furniture caused by falling objects, dispersion of air-borne debris such as sawdust, concrete dust, or plaster dust, and may dislodge objects hung on walls or placed on shelves. We advise and warn you to remove or protect any fragile objects or objects of particular value to you that could be broken or damaged in such circumstances. WE ARE NOT RESPONSIBLE FOR INCIDENTAL DAMAGES OF THIS SORT.
CHOICE OF LANGUAGE
This document is available in French. Ce document est disponible en français. The present document is tendered in English at the specific request and with the approval of the party to whom it is addressed.
Dinosaur
How now, Mighty Sauron, that thou art not brought
low by this? For thine evil pales before that which
foolish men call Justice....
I may steal your wordingI also note that you know how to spell labour
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
I'll send you a pdf of the whole thing if you like.
Dinosaur
How now, Mighty Sauron, that thou art not broughtlow by this? For thine evil pales before that whichfoolish men call Justice....
I would be glad to accept that offer. Will send you an email on the side
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Thanks for posting your contract working....I've been thinking of making up a contracto for T & M jobs.
If you have the time, could you send me a copy also?
Many Thanks, Fred
you'll need to send him your email addy. Attachments can't be sent thru here
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Fred,
As a result of posting an older version of my terms in this thread, I've been prompted to go over them at some length and as a result have re-written a few things that seemed too vague or scrambled, and added in a few things that seemed to be missing. (I don't mind; it should have been done a while ago.)
However, I assume you'd need the text in both English and French; I have the English version available right now but I haven't revised the French version yet. I might be able to get it done next week if the weather doesn't clear up enough to start on a siding job that's waiting.
I also don't know if you've got your cartes de compétence and entrepreneur général ticket and all that CCQ jazz, or are running under an RBQ number for non-structural remods only. Or neither. I'm semi-retired (hah!) and only do this half the year so I don't bother with either; as a result my terms are written to cover that contingency. If you've got a number and only hire guys with cards, you can cut out all that language.
The other provisos I must make are: (a) I am not a lawyer; and (b) my contract has (fortunately) never needed to be tested in court. For both those reasons, you use it at your own risk.
Go to my website at http://www.chaletservice.net and click on the 'contact' link on the home page.
Or you can e-mail me through the board here at BT. Click here and my profile will pop up; click on 'send E-mail' in that box and send me a message.
Dinosaur
How now, Mighty Sauron, that thou art not broughtlow by this? For thine evil pales before that whichfoolish men call Justice....
Dinosaur,
Thanks for the response and the info.
English will work, I'm not sure how you thought I could use French, but it's not the case. I'll get it off you website.
Many Thanks! This message board is realy cool. I'm going to use it more.
Fred
The contract terms aren't on the website yet; but you'll find my business e-mail addy there.
If you're publishing any kind of legal contract in this province, you have to have a French version of the contract available, and you need to say so right in any English version you publish. Even if all your clients are Anglos.
At least that's the way I understand it. Every contract I've ever signed here has had that language in it. Something like, "This document is available in French / ce document est disponible en Français. The present English version is tendered at the express request of the person to whom it is addressed."
Dinosaur
How now, Mighty Sauron, that thou art not broughtlow by this? For thine evil pales before that whichfoolish men call Justice....
I don't want to hijack his thread but I have a question for you regarding workers comp. Had an audit today and in Ohio they say that anyone whom I pay hourly cannot be considered self employeed and i have to pay workers comp on them unless I could produce a contract for every job claiming otherwise(company letterhead, workers comp # ect.) I know Canada is probably different but seeing your contract and how you do everything T&M hows it work for you?
It depends on the mood of the judge. ;o)
We have a lot of 'autonomous workers' up here. This is a tourist area and about 70% of the permanent jobs are seasonal. People fill the gaps in unemployment with informal day work or do part-time contracting like I do.
If I understand what my advisors have told me, it actually depends on intent. If there is no intent to provide a regular job on a permanent or seasonal basis, the worker may be considered an autonomous worker and paid on that basis: No WC, UI, or withholding. He is responsible for all of that. We don't have the equivalent of your 1099 form; however if my tax return were audited, my understanding is that I'd have to furnish the social insurance number of every autonomous worker or the tax weenies would disallow the deductions for their wages.
If I were busy enough to guarantee a guy work for several months in a row, 40 hours a week or more, I'd probably have to put him on regular payroll. I came closer to that this season than I have in many years...but still the longest continuous period anybody worked for me was under a month, what with summer vacations and so forth.
Dinosaur
How now, Mighty Sauron, that thou art not broughtlow by this? For thine evil pales before that whichfoolish men call Justice....
Mike,
If they are making a blanket statement that anyone who is paid by the hour is an employee, I think they are treading on thin ice.
Most businesses that hire consultants are billed on an hourly basis. Ask the person if they are reclassifying them also. If not, they are selectively picking on contractors.
My personal experience, while dated, I had an inemployment insurance auditor try that. I asked for a hearing and won, because I had my ducks in a row, met the IRS guidelines!
I unserstand the need to properly classify employees, subs, but I think some states have not given thought to just simple enforcement of the IRS guidelines works.
Dave
That was my arguement and in the end she let it go but said next time she wants signed contracts etc.
she did make me back pay for my MIL who cleans our house and added house cleaning to my policy.
Go Figure!
Nice language, but I would be a little concerned with the part about notifying the customer of changes >15%. That implies that you'll cover things <15%. What happens if you find a 10% change this week, and a 12% change next week?Not being a smart ####. I got burned once by very similar contract langusge.
Yeah, I'm probably going to rewrite that section for next season. Nobody's ever called me on that, but it is supposed to indicate that the actual bill can exceed the estimate amount by up to 15%, without change orders, and without notice. If during the course of a job I see that I'm gonna go more than 15% over for reasons that are not change-order related, I'm supposed to inform the client and wait for his instructions before proceeding. (If I don't, I've gotta hold the total bill to no more than 115% of the original estimate total, plus change orders.)That gives me a reasonable amount of wiggle room, and him some assurance that he won't wind up with a bill way bigger than the estimated amount without being given a chance to bail out.
But reading it over last night, I saw it seems to refer to change orders totalling more than 15% above the estimate total, which isn't what I had in mind at all. For one thing, there's no 'top' on change orders; they are whatever they are, and have nothing to do with the original estimate total.
The version of my terms that I posted isn't the newest one; but I'm not on my office computer right now and don't have the new one on the hard drive in this notebook. I rewrite them whenever I think of something new, or, like now, when I notice something that's not clear and needs to be straightened out.
When I do estimates I use software that produces PDF's, and the terms are sent as plain text in the body of the e-mail. The estimate form itself has a bold notice at the signature line that the terms form part of the estimate, and the client is instructed not to sign the estimate or give me a deposit until he has read and understood them.
If I print out hard copy, the terms are printed on the back of each page.
Dinosaur
How now, Mighty Sauron, that thou art not broughtlow by this? For thine evil pales before that whichfoolish men call Justice....
this comes under the heading of define and communicate before starting. What you describe is more of a cost plus rather than T&M.
Welcome to the
Taunton University of Knowledge FHB Campus at Breaktime.
where ...
Excellence is its own reward!
this comes under the heading of define and communicate before starting. What you describe is more of a cost plus rather than T&M.
And the real difference between cost plus and T&M is about the same as the difference between 9 and 3x3.
Cost plus: (labor + materials) x profit
T&M: (labor+profit) + (materials + profit)
Maybe...Which is why I said define AND communicate.Dino does it well on paper.I tell customers I bill them all labour at $X/hr and materials at invoice price plus 8%. my billing rate is same for myself (X), a sub working at .6X, or an employee working for .37X or thereabouts. There is higher burden on employees, and when they are less skilled or experienced, they are still using my tools and equipment and breaking, losing them, or wearing them out.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
"I agreed to work for $x/hr based on T&M. I received approval to proceed. I have 5 guys working for me, including myself makes 6. Two earn $20/hr, the remaining were earning $12/hr and my hourly rate was higher"
I don't really understand all of that, so I an see why he didn't either.
Welcome to the
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I mark up my guys 20%. I just tell the client that they will cost xx.xx per hour to the client. Whether that is what I pay them not their business. I mark up materials and subcontractors 20% as well and bill that on a separate line as "contractor's fee (materials and services + 20%)" and explain to the client that is my business model.
Steve
I'm agreeing with what others have said.
My customers (general contractors) do not know what we pay our employees & benefits as well as what we pay for material.
We have a standard labor rate that covers overhead & profit, that does not change during the job & our material charge is based on a MSRP book.
I also work mostly cost plus
I mark up subs and materials 15%, then I mark up my help $10 an hour. It doesnt matter if I am paying a helper $12 an hour or $35 an hour I tack on the $10.
thats the least I should get for someone working under my direction and using my tools.
I keep an open book policy with the clients. I give them a statement about once a week and I offer the full access to my invoices and reciepts.
its an understatement to say you need to train your client first. the less surprises the smoother things go.
how does that work for you when typical overheads like FICA, unemployment ins, workers comp, contractor's liability... and such are all based on percentages?ten dollar an hour man with a 45% labor burden costs you 14.50, so you make 5.50 off him But a 35 dollar man with a 45% labour burden is costing you $49.75 while you are charging 45. You are losing money on the skilled man
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
I bill the mans hourly plus my cost plus my mark up. it works out well and the client gets an education as to what it costs to employ a man
on the flip side the client is the first to bust a guy for slacking off
Piffin Oct-22 To: maverick —"how does that work for you when typical overheads like FICA, unemployment ins, workers comp, contractor's liability... and such are all based on percentages?
ten dollar an hour man with a 45% labor burden costs you 14.50, so you make 5.50 off him
But a 35 dollar man with a 45% labour burden is costing you $49.75 while you are charging 45. You are losing money on the skilled man"
I couldn't agree with you any more.
When maverick comes back to you with (the emphasis is mine)"
I find two things wrong there. First of all if maverick's intent is to educate the the client as to what it costs to employ a man he needs to give the client the right kind of education and not the wrong information.
And secondly what the heck makes him think the client wants or needs and education in "what it costs to employ a man" anyway. If a contractor feels they have to rationalize and explain their labor costs to a client then they have failed miserably in delivering their value message to the prospect.
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It was confusing for me also, I always give the customer a labor rate on T&M. Now if the guy is on my books, which includes, comp.social security, unenjoyment, and all the rest of labor burden. Labor bills at $45.00/hr. skilled labor/ $55.0, my rate $60.00.
Their is no up charge, thats what it is and customer knows it going in, subs get markup 10-15%, materials 10-15%.
So if your only marking up your labor $5.00 a man its costing you money when you add all the govt. and insurances in. You are not making a dime off the people your in charge of. You might just as well work for somebody else.
The problem with this business is that we all know how to do the work, but a good precentage have not a clue that their not making any money just trading dollars.
I make more money off the general labor than I do off skilled labor, once had a client question that, my reply was yes your right but I could charge you $65.00 /hr. for that skilled man that is supervising that labor , pick your poision.
Danusan! How are things going up there in Northern Michigan? Are you still holding that piece in Oakland county or did the ex get it?
Funny you should ask just signed a deal, just short of a mill. for 3 acres. Still retain 1/3 of the highway frontage 130' and have access with a 37' entrance. So I have 7 acres left, with 800' frontage on secondary road. Just need to get some activity on the corner and the rest will follow, Jim my glass is always half full, its all about attitude project positive stuff and positive stuff happens, in business and life.Hopefully developer can pull it all together, apparently he has 2 national retailers already, and is trying to pull in a third. But who knows for sure could be alot of smoke and mirrors. I wont get to excited until after the 6 mtns. due diligence, and monies start to become hard. The buyer is a very big property developer and does work for alot of national retailers, so could be all good.I retained the majority thru divorce, go by the principle get the emotional stuff out of way, and its just a business deal, try to cut the best one that you can, as you can only do it once. I feel that it was fair and equitable for both parties.Been following the other threads, Jim all i can say if its working for you and your making money, and at the end of day you can still look yourself in the mirror and say I'm providing a service, giving value with quality. Then carry on brother cuz theirs nothing evil about profit
Thanks for the nod and congrats on pulling through.
I just picked up another check tonite from a client who couldn't thank us enough.
I haven't read all the replies so I'm probably repeating what others have said.
I've done a fair amount of T&M. My agreement with the clients about hourly rates for me and my employees always included all my costs and my profit. I didn't break it down for the clients, just gave them the hourly rates with the understanding that it was all inclusive. The hourly rate that I charged for myself was also all inclusive and my dual roles as carpenter and supervisor were defined in the agreement as well.
If I were your client, I'd expect that your hourly rates would be all inclusive too.
Here's another thought, about how to deal with the client at this point.
How about telling him that you've been taking advice on how to bill T&M from a bunch of contractors on a message board. And that, as this is your first T&M job doing it the way you've been advised, you did a poor job of explaining to him because you didn't have a good enough grasp of it yourself.
Then ask him how can it be resolved so that you don't go broke, paying for all the costs of employing these hourly wage guys out of your own pocket?
Edited 10/23/2009 7:17 pm by Hudson Valley Carpenter
"How about telling him that you've been taking advice on how to bill T&M from a bunch of contractors on a message board. And that, as this is your first T&M job doing it the way you've been advised, you did a poor job of explaining to him because you didn't have a good enough grasp of it yourself. Then ask him how can it be resolved so that you don't go broke, paying for all the costs of employing these hourly wage guys out of your own pocket?"Terrible idea IMO.Just accepting all blame and throwing oneself at the mercy of the client is about the same as laying the lamb in the jaws of the lion, and asking the lion "what do you propose to do now?"John Svenson, builder, remodeler, NE Ohio
John, I'm kind of waiting for willie to respond. I see he's read most of the responses and in those there's been some questions.
Maybe it really is just a survey.A Great Place for Information, Comraderie, and a Sucker Punch.
Remodeling Contractor just outside the Glass City.
http://www.quittintime.com/
John, I'm kind of waiting for willie to respond. I see he's read most of the responses and in those there's been some questions.
Me too Calvin. I love these guys who ask for advice, we can see they're reading the stuff on a regular basis, but remain in hibernation.
And Willie, if you're reading this, here's my two cents; I think you messed up. The rate you quoted to the client is the rate he should pay, not a penny more. And the rate should include any overhead you have to get the guy to come to work everyday as well as some profit for you.
Examples:
-When you go to your garage to get your car fixed and they say the mecnanics rate is such and such per hour and it will likely take X hours, do you pay more then the rate you were quoted?
-If you go into a fast food place and buy a $5 meal, do you get a bill of $6 to "cover FICA, vacations, benefits, profit, etc.?
You should probably just suck it up, chaulk it up to a learning experience and move on.
Runnerguy
runnerguy — "You should probably just suck it up, chaulk it up to a learning experience and move on."
While under most circumstance I would agree with you but from the sound of it he is just getting rolling on this "very large job." He can't really stand to suck up weeks of losses he hasn't yet incurred. He needs to staighten things out and renegotiate the agreement or just get out of the job altogether.
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Sorry, been busy. I have read the posts and decided to refund $2K to the guy and retain $750. I made the offer to the owner and he responded in kind that he felt it was a reasonable settlement. With that we move forward and appear to have emerged retaining our trust and respect for each other. I'm willing to admit my error here. It cost me, sure, but in the end, my question on this topic was made so that I could gather the info I needed and make the right decision. Morally, that is the most important thing I should do here, not take extra cash, given that the owner and I did not discuss my definition of T&M and other charges I planned to take. I'll take the hit and preserve my relationship with the owner and hope the rest of the project is mine to have for later on, and it appears that will be the case.If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
From that post and your initial querry you are obviously A "high road" kind of guy. That kind of attitude will serve you well not only in business but in every other aspect of life.
You certainly have my respect and the very best of luck!!!
Runnerguy
I'm hourly with this new job. Cost plus, I guess you guys call it. I wake up at 7:00 AM on a Sunday to go pick up lumber for the job. I meet the Homeowner, house-flipper, whatever you want to call him. We didn't start working until about 10:00. The guy shorts me three hours. I'm not writing down hours in a little notebook, he is.
If you can't show the guy what he's paying for because its a "trade secret" or whatever, then you are ripping him off. It's called skimming off of the top, and I'm the guy who comes in after you leave and takes home the rest of your money.
To me hourly sucks because someone is always crying about the time or the money.
I'd rather give a set price that way they don't know how much I'm actually going to make and i can do the job at my own pace whether that be fast or slow.
Yes, it does suck. I still can't figure out how i got sucked into it.
LOL!
excaliber32 — "I'm hourly with this new job. Cost plus, I guess you guys call it...."
Working hourly (Time & Materials) IS NOT at all the same as Cost Plus Fixed Fee.
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You can call it ballroom dancing, for all i care. It doesn't change what it is...................................honest work.
Edited 10/24/2009 7:39 pm ET by excaliber32
excaliber32 — "You can call it ballroom dancing, for all i care. It doesn't change what it is...................................honest work."
Well that is your choice if you choose to ignore that there is any difference between the two. But I think you might oneday find that working smarter will make your "honest work" more rewarding.
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>>I wake up at 7:00 AM on a Sunday to go pick up lumber for the job. I meet the Homeowner, house-flipper, whatever you want to call him. We didn't start working until about 10:00. The guy shorts me three hours. I'm not writing down hours in a little notebook, he is.
You should have gotten up at 9:30, met him at the house at 10, and asked him if he wanted you to go get lumber... then asked if you could borrow his truck.
<<<<<<You should have gotten up at 9:30, met him at the house at 10, and asked him if he wanted you to go get lumber... then asked if you could borrow his truck>>>>
>G<
... and at the end of the day, ask to see what's in the notebook. If it's not agreeable ask for immediate payment and quit the job.
You keep coming up with the right answers!
Just accepting all blame and throwing oneself at the mercy of the client is about the same as laying the lamb in the jaws of the lion, and asking the lion "what do you propose to do now?"
Seems to me that, since the client discovered his "up charges", then questioned his honesty and integrity, he needs a plausible excuse with a built-in scape goat. I'm not saying that my idea fits this situation but maybe it'll give him something to chew on.
HVC,
I think your advice is plausable. It's what is known as being accountable for your actions; be they right or wrong. Not a lot of folks doing that these days.
"When the spirits are low, when the day appears dark, when work becomes monotonous, when hope hardly seems worth having, just mount a bicycle and go out for a spin down the road, without thought on anything but the ride you are taking." — Sherlock Holmes, 1896
Thanks Eric,
While my advice is based on being honest, it's also calculated to get the OP back in the good graces of the client. Kind of like going to court with a lawyer, you tell enough of the truth to save your behind but not enough to fry it.
BTW, I currently reading a book called "Riding Outside the Lines" by Joe Kurmaskie, aka The Metal Cowboy. He's a good story teller who writes about adventures he's had during bicycle tours in different parts of the world.
I've read Metal Cowboy at least once ;~)
Great story.
Sometime after you are back in these parts we should get together. I'd love to see your property and project.
"When the spirits are low, when the day appears dark, when work becomes monotonous, when hope hardly seems worth having, just mount a bicycle and go out for a spin down the road, without thought on anything but the ride you are taking." — Sherlock Holmes, 1896
I've been looking forward to meeting you and others from the area who post here. I believe that should become possible next summer.
Hudson Valley Fest here we come!
"When the spirits are low, when the day appears dark, when work becomes monotonous, when hope hardly seems worth having, just mount a bicycle and go out for a spin down the road, without thought on anything but the ride you are taking." — Sherlock Holmes, 1896
That property would be a fine place for a fest, four rural acres with a great view, but it needs a house on it first.
I have some ideas about bartering to build the house that may work for a few BTers. We'll see how that pans out when the time comes.
Kind of like going to court with a lawyer, you tell enough of the truth to save your behind but not enough to fry it.
I tell my clients they need to tell the truth and nothing but the truth, but not always the whole truth.
I tell my clients they need to tell the truth and nothing but the truth, but not always the whole truth.
I've always found that personal honesty works to my benefit, in relationships with people I'm close to, relatives and friends.
However, a little creative BS in business is often helpful, to smooth out problems, save face and get things up to speed again.
The key word there is creative. Most of the time the other person will expect a BS answer or excuse when things aren't going as planned, but they want to be treated with some respect too. If the BSer has made an effort to devise a good story, not just "the dog ate my proposal", he can use it to buy some good will and a little extra time to get back on track.
I've had this amusing conversation several times with other businessmen, talking about lame excuses versus creative nonsense. If the BSer can make the other person smile or laugh, he'll get a reprieve, at least once, maybe twice.
Keep America strong and independent! Put a little thought and energy into your story and your performance, you BSers!
Edited 10/28/2009 12:20 pm by Hudson Valley Carpenter
Just accepting all blame and throwing oneself at the mercy of the client is about the same as laying the lamb in the jaws of the lion, and asking the lion "what do you propose to do now?"
Problem is that it looks like the OP is wrong and the customer is right. HVC's suggestion may be the only one that will work. Sometimes we screw up and admitting it and appealing to the customer's sense of fairness is all we have.
Hudson Valley Carpenter — "How about telling him that you've been taking advice on how to bill T&M from a bunch of contractors on a message board. And that, as this is your first T&M job doing it the way you've been advised, you did a poor job of explaining to him because you didn't have a good enough grasp of it yourself.
Then ask him how can it be resolved so that you don't go broke, paying for all the costs of employing these hourly wage guys out of your own pocket? "
Ninety-nine times out of a hundred I would side with Svenny and disagree with you on that count but this job isn't just a dog if he continues on the way the client has every right to believe it is structured. It is a potential killer. WillieWonka would have to pay out of his own pocket to keep this job alive the way it is much less his business.
But he has to be tough and stick to his guns too otherwise the client can exploit him. I can think of several clients, really good clients in fact, that we have had over the years that if we had to tell them this tale they would have chewed us up and ate us for lunch.
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I'd side with Svenny too but it looks Willie has done something fraudulent already, and got caught at it. It probably wasn't his intention to take money which he hadn't earned according to their agreement but apparently the client has his doubts and District Attorney might not see it that way either.
That's why I'm suggesting that he backs up and claims ignorance, inexperience and stupidity, for taking advice from people who he's never met, off a message board.
Edited 10/24/2009 5:51 pm by Hudson Valley Carpenter
Fair warning: I am not going to soft pedal what I have to say.
Willie I seem to remember a conversation here maybe a year or two ago where I recommended that you should get How Much Should I Charge?: Pricing Basics for Making Money Doing What You Love and Where Did The Money Go?- Easy Accounting Basics for the Business Owner Who Hates Numbers. Reading what I am coming from you here I wondering if you ever followed through on that. I say that because it sounds to me (from what you didn't say) that you don't have a clue what your costs are.
That said it sounds to me like you also need a better understanding of contracting too. You seem to be terribly confused about the difference between a Cost Plus Fixed Fee contracting arrangement and a Time & Materials one (as Piffen has alluded to). They are not the same thing.
Reading where you wrote- "The average total weekly upcharge is about $800 additional, which I was leaving the remaining balance I did not use of it and leaving in the business bank account as future capital for the busiiness." I really have no idea of what you are talking about.
I agree with your client's understand and position. BUT the problem is you have made a terrible un-professional mistake in communicating what your pricing was. You are now jammed between a rock and a hard place. It sounds to me like the rate you agreed to was your employees wage and not even their real cost to you which is still below the real Loaded Labor Rate you really needed to charge to run a business.
I don't know who taught you but you've been taught gobbledygook. Your saying according to your "definition" that markup (what you call an "upcharge") was included in the rates you quoted. Was it or wasn't it?
And again with that last sentence I really have no idea of what you are talking about.
Listen I am going to make a stab at telling you what you should have told your client based on what little information and numbers you have given us here to work with (and I am going to guess out of the blue that you are paying yourself a wage of $30 per hour). Figuring that you Labor Burden is probably on the low end for a contracting business since you are in all likelihood not providing things like benefit, tool allowances, or vehicle compensation to your staff we can say you probably need to markup your employee's wages 25% to come up with what we call Labor Cost. That burden markup at it's minimum is intended to cover your Worker Comp FICA and other employer taxes.
You then need to markup again, this time your Labor Cost(s) to cover and pay for your costs of doing business. Again I am going to plug in a figure from the low end of what typical contractor business markup are of 33% to compute out your Billing Rate that you should have told your client you would be charging them.
(I happen to have a Shareware Excel spreadsheet I developed called The Capacity Based Markup Worksheet which figures out Billing Rates for you with both more accuracy and precision than the quick take I just illustrated for you here that you and others here may want to take a look at.)
If you take the sum of the Burden column that gives you $26.50 in Burden Costs per hour you need to generate just to cover your labor costs. That times 40 hours per week (assuming everyone is working 40 hours a week) comes to $1,060. So if this so-called confusing upcharge scheme you are working with now is netting you an additional $800 per week to help you cover your burden cost and general costs of doing business you are still falling $260 short of what I've roughly calculated to be the bare minimum of what you need just to cover your Burden. If you take the sum of the OH & P column and perform the same calculation you need an additional $1,749 to cover your general costs of doing business and turn a Net Profit.
My quickie analysis in regard to how you are running your business,.... you are trying to get an overloaded freight train rolling with the brakes on.
On the one hand I really disagree with Hudson Valley Carpenter's suggestion of:
but since you are so far off the mark on where you should be with regard to this your best bet might be beg for mercy from the court. As best as I can tell from your message here it's not that you didn't do a good job of explaining your pricing to him you also did a poor job of understanding and explaining it to yourself.
You absolutely can't continue on if the owner thinks the employee wages are all he has to pay.
And get rid of this phrase "upcharge" and start using professional business language and talk about this using the phrase "markup".
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You need to seperate "you" from your company. As an example perhaps a man hour charge would be 35/hr for a guy that earns 20.
Remember you got comp INS and other costs involved in having that person on site.
When you work for someone they're hiring your company not you and your company has overhead.
Family.....They're always there when they need you.
WillieWonka— "If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME"
Your quote in your tag line reminds me of an employee I once had.
One day he was installing window trim on a large remodel we were doing. The house had leaded glass windows and wavy old plaster walls. His plan to get the trim to sit well on the walls was to take a 24 oz framing hammer and a block of wood and to beat the trim down into the old ancient plaster. It didn't take me too long at all to hear that something didn't sound right down the hall and stop him and his insanity. It didn't take me too long at all to show him how to relieve the backside of the trim and then scribe the edge that sat on the wall to fit the waves in the plaster.
My own thinking is it is a far better solution to find the smarter way to do something than to apply more and more brute force. I find that holds true in both carpentry and the other trades as well as project and business management.
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LOL you're funny. The point in your story, however, is that even with all the hammering the employee did, he'd have still succeeded had you not stopped him. So I stand my ground, beat the snot outta it, get the job done, the fallout is merely fallout that a hammer can be taken to also :)If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
"all the hammering the employee did, he'd have still succeeded had you not stopped him. So I stand my ground, beat the snot outta it, get the job done,"Based on your principles and philosophy, it will take beating your skull in with a baseball bat to get any sense drilled into you.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
LOL, yeah well..... I was always told hardheadedness runs in my family. You shoulda seen my grandpa.If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
I think I get that. I have built residential and commercial for a lot of years and on my own for about 20. The time we spend going over plans, talking with subs, doing research, etc. is seldom realized by the potential homeowner. Worse yet, the time we invest in those areas on the jobs we don't get are more waste of time. Here's the thing, on T&M jobs, the homeowner almost always feels screwed in the end. Some jobs have to be T&M, but you said it was a big job. I say, yes it's appropriate to mark-up labor on T&M jobs, but those are normally smaller jobs and/or design as you go. Put it in the wording on the contract for your next job. It's a good point and I learned from this.