I know there was a recent thread on “what to charge” …… here. I can’t find it.
I have a good friend that’s laid off … and looking like he’s finally gonna make the jump from employee to self-employeed …. and I said I’d send him the “what to charge” thread as soon as I found it.
I seem to remember someone taking the time to layout the basic “percentages” as to what goes into figuring out what U should be charging … they had a whole list of what not to forget ….. nice and detailed.
I think it was in the biz section?
This ring a bell with anyone?
I’m trying to help my buddy hit the ground running ……
all I get in the search is proper pipe sizing!
Jeff
Buck Construction Pittsburgh,PA
Artistry in Carpentry
Replies
It was here somewhere . Proper pipe sizing huh? I thought they were going to fix that .
Tim Mooney
I gotta make sure my buddy prices himself right...
as he's gonna feed me a ton of work!
JeffBuck Construction Pittsburgh,PA
Artistry in Carpentry
message.asp?webtag=tp-breaktime&msg=37882.1
Carpenter and helper wages general discussion
Tim Mooney
Jeff: This could be a pretty sobering exercise, and many of us should do it regularly. I think many of us fail at proper pricing. I know I do.
Think about it: How many "billable" hours can we actually work in a year? (I'd be willing to bet it's less than 40 hours per week.) Now, look at overhead: Truck, office, insurance, computer, FHB subscription, tools, licences, etc. Then, think about what we want as "take home" pay, health insurance, dental insurance, retirement fund, vacation time, etc. Let's not forget profit, and taxes. Add that all up, divide by the number of billable hours. (Are you sitting down?) If we do this correctly, the per-hour charge will probably seem higher than anyone would ever pay. But guess what, if we don't get that, we are going broke.
Here at the end of the year is a good time to think about this. A little brutal honesty with ourselves can help us be better business people, and probably more valuable to our families and our customers.
This is an important topic, and I'm sure others have many valuable insights.
Al Mollitor, Sharon MA
Old rule of thumb " Work 50 to bill 45 "On a hill by the harbour
Why do I also ALWAYS get that proper pipe sizing crap too? Maybe theres money in it for someone..lol....Prospero's gotta work on that..right, uh huh.
BE well
andy
My life is my practice!
http://CLIFFORDRENOVATIONS.COM
Maybe they're tring to get wood replaced....
Who ever invented work didn't know how to fish....
funny, I can't seem to find that thread and I need to know the proper pipe sizing. Anyway a GC friend of mine charges $75.00 per hour time and materials for his most excellent journeyman carpenter. Said carpenter is also GC and a friend of mine, and at that rate he supplies tools and truck w/all the fixins including overhead and a small profit. I can't give you the breakdown of all details but theirs is a medium to small sized company. I am a much smaller operation, less overhead = more profit at that same hourly charge. We are on the fringes of a major metropolitan area, about 1 hour north of San Francisco.
who ever knew how to fish.should teach those that just work....how to fly fish........(andy<----)My life is my practice!
http://CLIFFORDRENOVATIONS.COM
Sounds like a plan....
Be
Hooked
Who ever invented work didn't know how to fish....
I'm gonna forceeeeeeee myself to get into yer neck of the woods this winner....and have you show me how to fly fish..sumpin' I always wanted to learn to do....course I'll have to ski too.
Be the Zen fly fishing in amerika
andyMy life is my practice!
http://CLIFFORDRENOVATIONS.COM
Jeff J. Buck - I know there was a recent thread on "what to charge" ...... here. I can't find it."
I'm not exactly what or which thread you're refering to since it I think it come up a couple of times here and there but the topic did come up recently in trim carpenter's wage . I posted a screenshot of the labor burden calculator I created as part of my software there.
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I've now have that BurdenCostCalculator published as a standalone piece of Freeware that will run on Mac or Windows computers (just make sure you download the correct version). It doesn't quite tell you exactly what to charge since it really only a Labor Burden Calculator so it just tells you what you Cost. To figure out what to charge you still need to add on something for fixed Overhead and Profit but I think it gets you most of the way there. (Comments, suggestions, ideas for improvements on it are always welcome too.)
A while back I also posted some links to some other different kinds of calculators too and they are just as useful although in a different way. I'll post links to them again too:
rom the MasterPlumbers.com web site there is the Business Owners' Cost Calculator.
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Jeff - we could maybe do your friend a greater service by talking our way through how to figure out what to charge...you know that old saying "give a hungry man a fish, he'll be hungry tomorrow. Teach a hungry man to fish, he'll never go hungry again"? Or something like that?
Anyway, I'd say there's no way anyone could know what to charge for their services unless they know what it costs them to operate, more commonly known as "overhead". I'd say that was the biggest eye opener for me when I tried my best to come up with an accurate number a couple years ago. Mine is in the neighborhood of 35k/year. Divide that by the 1500 hours/year I try to bill and the burden is pretty steep - about 23.33/hour. Of course, that doesn't include my wages or any profit.
if you're a sole prop. your overhead is already figured for you on your schedule C.. cool , huh ?Mike Smith Rhode Island : Design / Build / Repair / Restore
schedule C, schedule C...hmmm...gonna have to look into what that is...got a suspition it has somethin' to do with an Uncle of mine...schedule C...let's see...
a couple years ago.. i read this article ( probably jlc) about setting up your business plan based on your 1040 tax return... the basis is the schdule C if i remember correctly..
turns out ... every year you itemize all of the business expenses.... just line up about the last 3 years and you get a good snapshot of your general overhead... then tweak it from there..
tried it .. big eye opener.. unless of course you ain't showin unc. your real numbers..
but then .. honesty was always it's own reward...
Mike Smith Rhode Island : Design / Build / Repair / Restore
business plan, business plan...yeah, that rings a bell too...business plan...let's see...
how many pages you got in yours ?..
. i'll show you mine if you show me yours ...i think i know where it isMike Smith Rhode Island : Design / Build / Repair / Restore
Last thing I want to do is give anyone any bad advice, Mike. So I'm just gonna say I have never had a business plan, and I've never made much money in this business. 'Nuff said.
But seriously, I bet lots of people could benefit from seeing what a real life business plan looks like. That is, if someone were willing to post theirs, or walk people through what one is, how to write it, how to update it, how to use it as a management tool.
I'd be glued to every detail. I'll tell you that and mean it.
jim... i always start writing my business plans when there is no business... then when business starts picking up .. i leave it as an unfinished work -in-progress..
but , the exercise has always proven fruitful and worthwhile..
i'll see what i can dig up tomorrow at the office..Mike Smith Rhode Island : Design / Build / Repair / Restore
Tomorrow's Sunday, Mike. Please don't tell me you're going anywhere near the office on Sunday.
golf course is closed , jim... no footbal game until tomorrow nite..
end of the year rolling up...
yup... i might just go down to the office and pester youMike Smith Rhode Island : Design / Build / Repair / Restore
I gotta go thru and check all the links ...
the thread I was thinking of was maybe 3 or 4 months ago ...
someone posted the "average" precentages that are deducted from the average dollar. Maybe Jim's onto something .... I'm not sure if my buddy is online at the moment ... If he is .... I'll tell him to be the "test case" .... open book kinda review.
Might be helpful to all ..... most of all him!
That'd kinda be cool. He's been a lead/employee for the last 8 or so yrs .... laid off... company bankrupt ... and has been asked ny the stranded HO to continue the remodel he was formerly in charge of ... so he doesn't know his overhead yet .... but it should be basic enough to get a good handle on.
JeffBuck Construction Pittsburgh,PA
Artistry in Carpentry
Jeff,
I got the basic layout and information of how to do a business plan from the local chamber of commerce. It was free and you don't have to be a member. It gave you all the information of the basic business plan. I talked with the small business advisor and she got me started. Now my business plan was not done for financing or a SBA loan, just for me. But I really think it was the best thing I could have done to get started. Made me sit down and think of all my potential costs and where I needed to be income wise to cover everything. Kinda like doing a project in your head in order to bid it. Just my 2 cents. DanT
jeff...
not the whole Business Plan... but just as a start in getting a handle on "how much to charge"
most of us are talking about a "sole Prop" which files a Schedule "C" ( Profit or Loss from Business )attached to their 1040
a schd.C breaks down the whole business in terms of what you report to the IRS
Income less cost of sales = Gross Income of the Business
once you have the form filled out you have the basis of determining how much you have to charge.
if you have been in business for 2 - 3 years.. pull out all of the returns for those years... it's just one page for each year... what could be simpler?
start at the bottom.. line 31 .. net profit.. this is how much the sole prop. actually paid himself..
if you want to make more.. change the number to what you want to make.
then go back up to Part II : Expenses...review all of those items.. notice that some of the lines have nothing in them... real business have something in each box... if there are blanks , it means either the records are incomplete and the company is not taking all of the expense deductions it is entitled to... or the company is operating on a shoestring and is not spending money it should as an ongoing business..
try penciling in what it SHOULD be spending in those boxes.. and watch out for line 46 on the back... sometimes expenses are lumped in here..
add in your self employment tax as an additional expense to the business ( even though it is not deducted )
now go back to part 1.. look at Cost of Goods Sold.. this is compiled from the back also... notice , you can't include any salary paid to yourself.. so..
you have to decide if you like the profit the business made as a salary.. or do you want to add in YOUR salary to the cost of goods sold
Gross Receipts = SALES..
If your sales were $ 250K.... less COGS of $150K but it didn't include $50K for your salary.. then add the $50 K
so Gross profit = $50K
from Part II we see total expense ( OVERHEAD ) is $25K, so the Business makes $25K... 10%...
now you can adjust these numbers to suit either your history... or your PLAN
... next you have to figure out how much to charge..
make some assumptions... how many field employees (one.... you )
how many production hours... lets say 1500.. (50 hrs/week x 50 weeks = 2500 hours total )... that's 30 hours of production per week.. the other 1000 hours is non-billable.. estimating , sales, maintenance, sicktime, holidays, warranty work )
so... all of the overhead has to be recovered in 1500 hours ($25K / 1500 = $16.67.. call it $20 / hr.
and the profit and your salary also has to be recovered in 1500 hours ( $50K + $25K business profit + the self employment tax on $75K @ say 8% [$6K] =
$83k / 1500 hours = $55.33 call it $56
so salary + profit + overhead = ($56 + $17 = $73... ah , hell.. call it $75 /hour )
so ... how much to charge?... if those are your numbers you have to charge $75 / hour to the job for every hour you estimate you will be working on it..
which is pretty damn hard to do..
but it is done all the time...
how can you sell $75 / hour ?... the average contractor can't .. not on an invoice..
but .. THAT is what the job has to be figured on if you want to make that kind of money in a year..
you can reduce this number by using multipliers... (also called employees )
you can increase this number by increasing your overhead expenses..
anyways... the schedule C method is nice because it's hard to lie to yourself when you look at those numbers
same thing holds true for a Corporation.... all the numbers you need are pretty much listed on your 1120S or 1120C
so... whadda ya think ?
NOT A BUSINESS PLAN.. but it will help get a handle on how much to CHARGE
edit: you can also decrease this amount by marking up matl's and subs
any markup on these either goes to defray overhead or salary & profit
and of course .. you can do both... recoup some in your hourly rate , and some by marking up mat'ls & subs
Mike Smith Rhode Island : Design / Build / Repair / Restore
Edited 12/21/2003 11:00:50 PM ET by Mike Smith
ya i'm right there with ya buddy. according to david gerstels book there are a few different formulas to get at about the same spot. $75. per hour is what the medium (8-15) size company has to charge to stay in business, so if you can be a little more efficient (3-7) you can work for a little less and still make a profit-depending on your area
Jeff,
I think that particular post was from Sonny Lykos to NannyGee in about September. I believe it was a thread Nanny started with his theorem about us builders making too much money. don't believe that it was in the business folder. But I can't get Search working tonight.
But the better thing for your buddy would be a copy or an article in JLC a year or so ago detailing how to do pricing with formulae taking in total yearly salary, labor burden, overhead, etc.
Actually, I think I have seen two versions of that article, one was more like four years ago.
I'll take a look see..
Excellence is its own reward!
june '98
Judith Miller
Tracking your own Labor
JLCs Strictly Business column
if you don't have it, email me directly.
Excellence is its own reward!
Piffen
JLC: June '98 "Strictly Business" is " How to Find Good Employees"... nothing about what to charge or setting up a business planMike Smith Rhode Island : Design / Build / Repair / Restore
Looked again - musta been cross-eyed. It was October..
Excellence is its own reward!
october ?.... what's it say ? i have to wait until tomorrow to look for itMike Smith Rhode Island : Design / Build / Repair / Restore
While I think Judith Millers article (Strictly Business: Tracking Your Own Labor ) is great the JLC articles knowing what to charge that I think are the best are two written by Shawn McCadden ( and they are both Free so you don't need to be a JLC online suscriber to read them:
Margin Math 101 December 2002
Calculating Labor Costs February 2002 (4 Pages)
While when I first set out to create my own Labor Cost Calculator I was trying to create something that incorporated what I saw in both the MrHVAC.com Price Calculator and MasterPlumbers.com calculators that I mentioned above but after discovering and reading the second of those Shawn McCadden articles last winter (Calculating Labor Costs) a year after they were published (geez how did I miss them when they first came out!) I changed direction slightly and followed his model and thinking since it worked with what I had learned in the PROOF Markup seminars.
Did you look at my BurdenCostCalculator yet? Really I'm always looking for comments, suggestions, ideas for improvements on it. The Fixed Overhead Calculator (aka OverheadAnd Profit) which is really more about what he cover in the Margin Math 101 is what I working on presently and any ideas you (or anybody for that matter) have on that will only help it along too.
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That reminds me, this bibliography wouldn't be complete without mentioning the Hometech online site. I'm pretty sure Walt Steppleworth has some articles over there by someone on the subject..
Excellence is its own reward!
Interesting I was looking for something else and I think I stumbled across the post you were referring to Piffen. Helping customers understand From: Sonny Lykos To: NannyGee. I think it also sort of interesting that there was this 135 post topic that went on for a week and I have no recollection of ever seeing it before stumbling on it today.
The post that Sonny was responding to was apparently deleted so I not seeing what he wrote in the proper context but there was thing he wrote there that I think is not only wrong but diametrically or dangerously wrong.
A contractor is actually much better off, safer and more secure placing his markup on labor only.
I'm really surprised to see Sonny writing that but then again maybe not. Once upon a time he was a student and vocal advocate of the PROOF markup methodology (I recently learned it's also called "Indexed Markup" or another variant "Distributed Markup") which is all about recovering a company's overhead as a factor of labor only and including materials in a project at their cost or with a markup just for profit. But since the Markup & Profit forum appeared on JLC and Sonny became friends with Michael Stone (author of Markup & Profit) who moderates there a couple of us who use the PROOF method have described him as going over to the dark side.
It is precisely because predicting what you will spend on labor (and it accompanying burden) in the course of a year can be done with with reasonable precision (within the range of what Deming calls Common Cause Variation) that its a worthwhile relatively stable index for applying markup whereas what you spend on materials and subcontracting tends to vary widely if not wildly (materials and subcontracting costs can be described as Special Cause Variation).
There are condition where the "Blanket" or "Across-the-Board" applied markup that Michael Stone, Walt Stoppelwerth, and now Sonny advocate works and certainly applying some kind of markup is better that none but there are situations where that blanket applied markup can be tragically wrong. I know, it happened to me.
I had taken a few Walt Stoppelwerth seminars to learn markup basics and was doing just that when I started out on my own for the first time. Things were going pretty good for us and pretty predictably too. That first year we (eleven guys) were framing, siding, roofing, and finishing off additions that were pretty much all the same standard thing with maybe a deck in the mix here or there. I don't remember the exact mix but I don't think I would be that far off saying our volume was 40% our labor and 30% materials and 30% subs.
Then one day this architect/builder called me up and wanted us to look at doing the finish work for a whole bunch of houses he was developing. I thought gold mine. I wouldn't have to look for any work for a year and a half if not for years plus he said he would be supplying all the materials so i wouldn't have to deal with that hassle either. Great!
Well we got the job and started off on our way and we thought it was great. The houses were a big step up the scale both in size and quality of the materials being incorporated in them so we were having a ball but then after about nine months of this I noticed things were starting to get really tight money wise. Then things went really south as Black Monday hit ( the stock market crash of October 19, 1987 ) and all of a sudden in addition to my already tight financial woes I had clients that were having trouble paying too. By next summer I was wiped out in debt like I had never in my wildest dreams imagined possible.
While the effect of the Black Monday crash was the finally nail in my coffin I was already well on my way to dying before it ever hit. Remember I said I was using the Walt Stoppelwerth-Michael Stone "Blanket" or "Across-the-Board" applied markup method? Well since starting that great interior finish contract for nine months I had no revenues what so ever in the way of materials or subcontractors to markup up so they weren't contributing in any way to help cover my overhead! I had lost the volume that supported 60% of my overhead!
The Black Monday problem wasn't what killed me it was just a mercy killing. I knew from the HomeTech seminars I took and the Walt Stoppelwerth that I was in the range of what I thought I was supposed to be using as a markup but I didn't understand or see the mathematical relationships that were going on. Until that is that I took a PROOF seminar that following July that taught me and illustrated to me exactly what went wrong.
The Walt Stoppelwerth-Michael Stone "Blanket" markup is okay under certain circumstances but as increasing variation enters into the mix and ratio of Labor-to-Materials-to-Subs it becomes increasing dangerous and ineffective.
I think it okay and even important to look at and have Walt Stoppelwerth and Michael Stone in the so called "bibliography" of markup as "Basic Markup" or "Markup 101" but I absolutely recommend the PROOF method over what they say and I couldn't possibly make their methods work for the kind of project mix we do in the companies I am associated with today.
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Edited 12/22/2003 5:13:30 PM ET by Jerrald Hayes
You've got some good points and the conclusion I always take from these kind of discussions is that every contractor needs to understand and keep an eye on HIS OWN NUMBERS. I modify Sonny and Walt's recommendation by using more markup on labor than on materials asa general rule. I'm sure that I don't understand all the mathematical details of what you are saying. My point in bringing all this out here was for a newbie to reference and toi be sure he understands that the wages you want to take home is only the first step in a basis for determining what to charge customers, something probably two thirds of subs do not begin to get until their first money losing season.
They work hharder and harder to keep ahead of the losses and get too tired to step back and see the waterfall that is washing the funds out of their pockets
But there are also times when it is more important to make the markup on materials than on labor. For instance, a plumnber who spends two hours installing a thousand dollar faucet set. He may have had three hours tracking, finding, and ordering it, and his secretarty will spend another hour or two billing, paying for it, and collecting for it.
Then, it is probably a foreign made specialty item that will have aproblem in three years and he will be expected to go back and adjust it to keep his reputation intact. It might have evn come in late after being backordered for the third time, setting the whole schedule off to where he had to spend an hour on the phone apologizing and BSing the customer for something that was not his fault.
Ninety dollars an hour charges for two hours to install is no way enough to cover that kind of crap.
Understanding your labour markup means understanding the efficiency of your business. I was talking with the propreitor of a stove shop the other day. He pays his help a little less than I do but charges the customers about 50% more. The main diff is that his instalations are only about 3-6 hours each. There is a lot is shop and road time for each. I am job oriented and guys show up directly to the job, hit the portapotty and go right into productive work..
Excellence is its own reward!
Well, right there, in your example of the thousand dollar faucet, you touch on what I believe is the problem with not marking up everything - every nail, every sub, every hour of labor, both on the job, and related to the design, coordination, execution and expected warrenty of that job. You are responsible for anything that goes wrong, from initial payment through whatever warrenty period is specified in your contract (or for a period of 12 years here in WA for those without a warrenty clause in their contract).
THAT'S what mark-up is for - to insure that you'll still be in business 5 years from now to stand behind the goods and services the customer pays you for today. Any customer who can't understand that...just doesn't understand standard business practices.
Not to mention the liability issues builders expose ourselves to every single day. Think charging ANY amount in labor is going to cover the lawsuit when that cabinet you afixed to the wall with drywall screws in the beauty shop falls on a customer whose getting her hair washed, breaking her neck and paralyzing her for life? Or how about those two kids jumping their bikes over that footing, using your wall forms for a ramp, fall and crack their heads open on the edge of the footing you just poured?
Nope, reward has to be commensurate with risk, or it's just a matter of time and luck before...well...I don't even have to say what we put on the line every day.
Wanna hear more about the plumbers warrantee nightmare?
He installed a toilet that the HO bought and did not stipulate that he assumed no liabilities in his invoice or work order. Two years later ( maybe it was three) he turned on the water for the season in early spring for the whole house. A week after that, I was in the house for othe5r reasons and there were no plumbing problems then.
Another two weeks went by and the caretaker discovered that the toilet had been leaking. ( broken gasket at bottom of tank supply infill)
The water ran down to pretty well destroy the wood flooring and some sheetrock in the living room below.
The owners insurance company lodged a lawsuit against the plumber and his liability insurance company. I testified in an affidavit that a week after he had worked there, no leaks were present. I don't think it is all settled out yet.....
Excellence is its own reward!
This is why my plumber always prefers to supply the fixtures, and if he doesn't, he increases his labor charge as if he had supplied the fixtures and got his usual mark-up. I always encourage my customers to let the subs (and me) supply all materials. That way, there's no question about who owns any problems that may crop up.
Us carpenter types could learn a lot from plumbers.
Al Mollitor, Sharon MA
He has started charging an extra 15% on his bill including an assumed base price if fixtures that clients provide, and notifies them that they own the liability when they provide the materials.
Plumbers have a lot in common with the military.
Keep your head down and your butt behind you.
Excellence is its own reward!
Yeah, this risk-reward ratio thing has long been on my mind. Sooner or later it's gonna bite you in the butt if you aren't prepared. I think that's one thing Sonny is right about, that we need to build a certain percentage into our overhead to cover warrenty work - of course, the percentage will vary from company to company - but we all should be planning for it.
Hey Mike - in your last post you mentioned working 2500 hrs (50 weeks x 50 hrs/week) to bill 1500 (50 weeks x 30 hrs/week). Were you just using those "hours" numbers because they make an easy example? Or do you think that's a typical ratio of billable/non-billable hours? Anyone else have an opinion(s) on that ratio?
Edited 12/23/2003 4:51:44 PM ET by jim blodgett
Huh?
jim blodgett -"Hey Mike - in your last post you mentioned working 2500 hrs (50 weeks x 50 hrs/week) to bill 1500 (50 weeks x 30 hrs/week). Were you just using those "hours" numbers because they make an easy example? Or do you think that's a typical ratio of billable/non-billable hours? Anyone else have an opinion(s) on that ratio?"
I thought from back in November in the Billable hrs to non-billable hrs ratios topic that Mikes ratio (assuming we are talking about Mike Smith) is that he figures it based on a ratio of "1600 hours based on 2000 available".
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I don't know how to link to a specific post, Jerrald, but it's a message addressed to Jeff Buck, earlier in this thread...I THINK it's #27, but it's been 30 seconds or so since I looked, and I could have easilly forgotten by now.
jim.... we're talking about two different examples... in my post to jeff
http://forums.taunton.com/tp-breaktime/messages?msg=37968.27
i was talking about typical "sole prop. with no employees".... i think that would be a good assumption.... most sole props will work more hours than my example... but i kinda doubt they'll get much more than 1500 billable
in Jerrald's quote of previous threads my example refers to assumptions i make for a typical employee who is NOT the boss.. 1600 production hours for 2000 paid hours...
those are assumptions... but i think they work for me on average
let's say i have 3 employees... so my production time would be (3x1500 = 4500 hours )... plus my production time.... about 4 hours a day = 1000 hours / year.. this is different from the single guy running a sole prop. company... i've also got 2000 hours wearing the other hats.....
now you get someone like Stephen Hazlett... their numbers are going to be a lot different , because.. he's different..he's a Specialty Contractor... the fog of war doesn't envelop him quite as much as it does a poor befuddled GC in remodeling..
Jerrald has some different numbers...
what do you figure for your available production numbers ?Mike Smith Rhode Island : Design / Build / Repair / Restore
Well I am a sole proprieter, no employees (usually), and I think I'm a lot closer to 3:1 billable/non-billable. But it depends on the jobs I happen to have going.
A few years ago I set 30hrs/week as my goal of "production" hours, as a way to reduce stress and an attempt to invest mental energy in my business. The thing I have noticed since then is that the more time I spend THINKING, and planning, and letting ideas sift through the old gray matter, the better choices I make, the more fulfilling the hours I spend wearing the tool belt.
BUT. And that's a mighty big "but", I am also convinced there has to be a ballance between the two - there is still a need for enough billable hours to cover all the living and business expenses I incur.
So I'm just thinking about that ratio is all. 3:1 seems a little high on the admin side to me. Seems like one person full time on admin tasks could keep more than three people busy in the field. So when I saw you give that example of 3:2 ratio it caught my attention.
Still reading, paying as much attention as I can, asking for clarification when I notice something of interest. That's all.
Jim, in your estimates, do you include time (to be charged to the customer) for that estimating time? And how about a "sales" expense. All of my estimates includes 5% of the total for sales expense - my time to visit the customer, second visit, etc.
That will help at increasing those billable hours by trying to recapture any and all time spend on a particular job.
Edited 12/24/2003 12:30:37 PM ET by Sonny Lykos
Yeah, I include bidding time in my bids, Sonny, it's the first line on my list. I have never thought about adding a % line for sales, I simply keep track of my time preparing the bid, add whatever time I think it will take in follow-up meetings, and total the hours across to the right.
I guess you could do it that way. I started paying myself by including that 5% after realizing the remodelers pay thier own salespeople anywhere from about 4% to 10% if the sales person covers his/her own expenses. Since my company (me) pays for my computer, truck the the rest of my "sales" expenses, my time is covered with the 5%. And my time even includes talking to subs or vendors, driving time to a customers house - anything related to the potential job.
In short, if I didn't get that initial sales incoming all, none of my time, regardless of what it is for, would be "spent" with or for, that customer. So I try to recoup that one of the only two resources I have: time and money.
Money I can always get more of. Time, however is not infinete. And I think you'll agree that with each day we live in in and work in our businesses, we get more wisdom, smarter, and increased expertise. Therefore, out "time" actually increases in value each day.
Think about how today you are better equiped to serve your customers as opposed to 3 years ago, 10 years ago, or farther in the past. So you should get a "return" on your money, as for inflation for example, but also a return for your time, since with each day, the value of your time increases.
Edited 12/24/2003 8:38:59 PM ET by Sonny Lykos
Yeah, I can see how that would work on average, Sonny. Kind of like the difference between bidding work by counting hours and sticks (my method) or having square foot, or unit pricing (many other contractor's method). Either way will work, what's important is to get paid for the time you invest in each job.
But hey, now that I read your post a couple times, I wonder why you don't use the 10% figure, which you say is still within industry standards, so your company (you) gets paid for not only your time, but the equipment you have capital tied up in too?
Well, the capital is depreciated or otherwise if it's a smaller amount, just gets thrown in with the general OH. Plus, since I'm about the most expensive guy in town for what I do, I don't want to push the envelop to far.
I use a guy about maybe 20-24 hrs each week as a sub. So this year I'll do about $235K in sales, which means I recoup almost $12K in that sales percent, on top of getting paid for Proposals, trip charges and site inspection fees.
Geez. Just typing that last sentence makes me seem greedy. I went broke in this business once, thru my own fault. But I realize the tremendous amount of potential liability each of us incur, so one day I just figured if I'm going to stay in it I'm gonna get every damn buck I can.
Edited 12/24/2003 9:38:39 PM ET by Sonny Lykos
jim... is this how you got 3:2..?
paid hours (2000 + 2000 + 2000 + 2000 (or 3000) ) = 8000 hrs ( or 9000 )
production or billable hours ( 1600 + 1600 + 1600 + 1000 ) = 5800 hrs
admin & overhead ( 400 + 400 + 400 + 2000 ) = 3600
a single guy , even at 1:1 is fairly efficient and the overhead is low-- but either you have to turn away interesting jobs or large scale jobs, or rely on subs as the core of the work force.
then there is that never- never land with one employee.. plus the boss
it gets a little better with 2 employees plus the boss
it gets much better with 5 - 6 employees plus the boss.. but the problems also increase.. sales , work flow, cash flow......
the whole thing is a compromise... and personalities play a huge part in the whole plan...
my guess is that most companies are not very efficient, they just appear to be efficient
let's ask Jerrald.. he's got lots of numbers..
Mike Smith Rhode Island : Design / Build / Repair / Restore
"jim... is this how you got 3:2..?
paid hours (2000 + 2000 + 2000 + 2000 (or 3000) ) = 8000 hrs ( or 9000 )
production or billable hours ( 1600 + 1600 + 1600 + 1000 ) = 5800 hrs
admin & overhead ( 400 + 400 + 400 + 2000 ) = 3600"
Well, no. Maybe I misread your post (certainly wouldn't be the first time) but I thought you used an example something like 50 weeks x 50hrs/week worked (2500 hrs/year) but you doubted most folks could get paid for more than 1500hrs/yr - we all do math differently, but to me that example looks like a 3:2 ratio of "billable hours" (1500) to "non-billable hours" (the 1000 worked that couldn't be billed for).
When I read that I think maybe at my (approx) 3:1 ratio I'm not putting enough time/energy into admin. tasks. That maybe I could increase my bottom line by putting more time/energy into those type tasks, instead of increasing my billable hours - "work smarter, not harder" or something like that.
It's all very interesting.
You just saved me some typing giving your last post. I feel like there are a lot of different numbers out here reading because there are too many ways to do it differently .
I think Im a little like Jim in than Im reading and paying attention . Seems the ones talking here are simialar to trade and remodeling businesses. I know the numbers are different between Jerald and Jim . Scads of difference really . They both have there niche , but also have their hardships in comapny size.
I dont believe in harboring a crew full time. I believe in subs . Im standing here thinking Im standing alone. My numbers arent even close to whats posted . Im wondering why others arent talking that are different. Still listening ,..
Tim Mooney
Tim, I think what Mike was referring to when he said I have lots of numbers is not just that I have my own numbers but that I have a lot of numbers from other companies that I been looking at and working with as part of some research I've been doing.
From what I've been able to determine its not what your ratio of billable to non-billable IS, but what is important is #1 understanding that there is a relationship at work going on there and #2 you need to know what it is or what works for your particular company,...and perhaps most importantly...why.
I'm going to break off from the online world for a while here for Christmas but when I get back I'll give you som emore information from what I've found talking and workign with other contractors on this. My interest in this was why I brought the topic Billable hrs to non-billable hrs ratios back a few weeks ago.
Merry Christmas to all and to all a good night....
ParadigmProjects.com | Paradigm-360.com | Mac4Construction.com
jerrald.. i've set out the cookies and milk... mebbe santa will get that cd to me of your beta programMike Smith Rhode Island : Design / Build / Repair / Restore
Ok. You and I again .
I think its very good reading . Im just wondering if its the construction with some hands gig why its working out this way . I certainly would not have thought business should be run this way , but its working for the people talking here including your self .
Side barr :
I bought a walk in business from my father . I bought business two from my father and let him have business three.
#1. family owned lumber yard
#2 A quick mart service station
# 3 A construction company
His construction company failed with out the lumber yard. Once the business lost the markup of all material , it went down . Ive always believed he didnt realize the true relationship.
Ive never figgured the sale of labor in construction a viable business for me. But others here are making a living off of labor billed out. Dad used to do it and yes , Ive done quite a bit of it , but Not for billable hours.
I questioned the quick pic . I said it doesnt look like to me this and that are making it . He told me it takes everything to make it . Even the coke machine out side .[I put three out there ] Now Im getting ready to lay my reason on you . I had department keys on the registers and I added a wholesale produce business behind with parking lot . All keys were hit on just one computer giving a read out by department with inventory data. My expenses by over head remained close until seasonal shift . By season different departments were always changing . Each department had different profits and losses. Right now I would be closing a wonderful business with all the churches on produce . A month before was my biggest month for brokering apples to schools . Now oranges dont compare to apples in this country and you cant just make a living selling apples . From this date on to March I depended on fire wood for an extra seasonal boost. However the same old business that had pumkins to sell in October , strawberries, in July peaches in August , is finally dead in March for one month .
The point to ALL that is that it does reinforce your experience time after time at least in principal. It takes as many factors as can be plugged in to make it work . I laughed at what Sonny says after this post . Hes billing everywhere he can bill . Hes trying to recover money left on the floor so to speak. His numbers though will be different than yours . I like to compare the
" percentage dollar to the bottom line " . I only pay attention to the bottom line figgure . Run for the roses . If you can get 20 percent to the bottom line you are knocking down barriers.
Tim Mooney
Edited 12/25/2003 10:34:34 AM ET by Tim Mooney
What if you changed your production costs figgures? Would your numbers remain the same if your profit dollar percentage shyrocketed? If a manager was born that was working for you and decided he or she wanted to run part of your business , making the profit to make it happen, would you not be richer? Owners of big companies dont run them. Successful owners are surrounded by good managers. This alone would change your numbers drastically .
Tim Mooney
tim.. 1st... Merry Christmas !
excellent point... a REAL business doesn't need the daily input of the Owner.. my goal is to actually create a REAL business.. or at least have fun in the attempt..
but there is always that olde chestnute... ve grow too soon oldte, un too late schmart
the traditional example is usually Ray Kroc & McDonald'sMike Smith Rhode Island : Design / Build / Repair / Restore
Jim ...
last time I actually sat down and tried to figure this stuff out for myself ....
I think I that going with the standard of 2000 hrs available ....
somewhere between 1200 and 1500 were more like reality.
That "off time" .... took into account all the time off ..... not working on site ....
all the free extra time to get the jobs rolling ..... wasted time thru out the day .... days lost waiting for one hold up or another ..... plus time just plain empty on the schedule .....
Probably about half that "off time" was really spent moving a project along .... or working on getting the next one set and rolling ..... but after going from self ... to employee ... to self .... and really expanding the scope of work I was preforming ....
Plus ... add in the fact last year .... about half my work was as a sub .....
I thought the only way to gauge "what I made hourly" ... was to go low .. as far as hours "worked" was .... then I'd be forced to go higher ... as far as "hourly rate" .... to still have the cash flow I need to pay the bills.
JeffBuck Construction Pittsburgh,PA
Artistry in Carpentry
Thanks to all ...
I just told my buddy there's too much info to print out ... and that he'd better get his computer back online soon .... got lotsa reading and math homework for him to do.
JeffBuck Construction Pittsburgh,PA
Artistry in Carpentry
The Journal of Light Copnstrucrion has some sort of related article almost every month. http://www.jlconline.com should get you started.
dickd