So,
Competent Carpenter, worked for myself for a few years. Mostly as a sub. Paid the bills but never really made any profit. Too much time thinking like a carpenter, not a business owner.
Daughter comes along and is very sick. Can’t keep health insurance so I end up taking a job. Pays about $50,000 a year and has excellent benifits. Don’t really like it. AND Just paid off the last of her $80,000 bills
Now for the tough question. I still own a truck and all my own tools. I still have some contacts and work a few weekends here and there. Thinking about walking away from the job and starting over.
Here are some of my big mistakes last time. Never charged enough. I never took the time to figure out what I want to make and what my overhead was. Spent too much time as a sub for a few places that kept me busy. They also took me out of circulation, away from my own jobs and out of the selling mode. soon a few place were setting my schedule. I passed up larger profits and the chance to grow in exchange for always being busy and making a paycheck.
New plan looks like this. stay away from becoming too dependant as a sub. Charge more. Set aside one day a week to hunt new work until i’m turning work away. That means working every Saturday for some time to come and selling one day a week. tracking what comes and goes and making adjustments.
Took some time to figure out what I want. Figure 40 hours of work a week on the job. Need to cover overhead at about $12 per hour. I’m looking at using $45 per hour as my starting point. that leaves me $33 per hour. I have a good idea of how long things take me and can convert that into a total bid. Then ad a few bucks on for the business. That is not my target rate but is a place to start and be competetive.
I’ll start by trimming for a few mid price builders as well as doing some finished basements for one and some odds and ends and punchout for another. I plan to hit up all the bigger builders and Architects in my area and start looking towards framing and trimming larger additions and remodels for some. as well as marketing directly to the homeowners in some areas. there is another Carpenter in my area who I could use to fill in on bigger jobs.
Long term goal? Have two or three employees and build two maybe three upper mid-range homes a year. Do some additions and renovations. Enjoy the work and be happy.
Almost forgot I’m on the western side of New Jersey.
Any thoughts?
Replies
My first thought is that with only $33/hour, you're better off staying at the $50k/year job- unless it's totally unbearable. Why take all the risk of running your own business just to make an extra $10k/year (assuming you stay busy 2000 hours/year, and make that much)?
And are you sure your $12/hour figure covers all of your overhead? That's only $24,000/year based on 2,000 hours, which seems low if it covers truck, tools, fuel, insurance, maintenance, taxes, phones, office supplies, and all of the other things "overhead" is supposed to encompass.
BTW- I'm in central NJ, and I don't know of many legitimate businessmen billing themselves out at only $45/hour for the kind of work you're talking about doing- you're shortchanging yourself.
Bob
$12.00 would cover the truck, Fuel,Tools, insurance ( health and business) as well as a phone and any business fees. The $33.00 would be my pay before taxes. No it wouldn't be a whole lot more at first. I also wouldn't Charge private customers that fee. Working directly for the Homeowner I would look for more like $55.00 per hour and up.
What kind of business are you running. To you have a few employees or just working by yourself? And what trade Starting out I'm not sure to many builders would Bite if I wanted $55.00 per man hour to frame a 500 sqft addition. Of course I would give him Price not a per hour rate.
I would be curiouse to know what other one or two man companies are charging per hour.
Hey Bruce I've got to agree with Bob $45 per hour sounds really thin for this region. I'm in Westchester County NY but it close enough for some comparisons.
For one thing thinking you're going to work 40 hours a week is sort of unrealistic unless what you really meant to say was you expected to work 55 hours a week and bill for 40. You will have both billable hours and un-billable hours that you need to account and plan for that ratio (see the other topic here Billable hrs to non-billable hrs ratios)
You might want to plug your figures into the BurdenCostCalculator I've created to see how things look and work out but keep in mind this calculator only accounts for "Burden" or what also know as Variable Overhead and on top of the figure it comes up with you would then need to add a percentage for your fixed overhead and profit. I think you may be very well able to come up a "burdened" rate of around $45 but adding 10% for OH and another 10% for profit on top of that brings you to $54.45 and even that 10% for Overhead figure is probably a minimum!
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re: "And what trade Starting out I'm not sure to many builders would Bite if I wanted $55.00 per man hour to frame a 500 sqft addition." Well that depends on what you mean by starting out. There is starting out in the trades and starting out in a business and they are not necessarily the same things. Sometimes they are and in those cases sure you right no one is going to pay a new "kid" $55 per hour to frame but if I was to start a new framing business today (I'm 47) I would charge what my production, knowledge, and experience are worth. Yeah I guess you can charge a "bargain" rate to help you break into the market I guess but you have got to be really really carefully in doing that.
re" "Of course I would give him Price not a per hour rate." Excellent smart intelligent thinking.
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Maybe I should throw a little more information out. If I was in the position to hire a few People and start what would be a construction company, I would want every bit of that $71.00 per hour.
The reality is that I need to Build a cash flow and Network to get a few bigger jobs. To start I'll be Sub'ing some smaller framing,a few small additions or the trim for some new homes and working hard to dig up my own work. I'll be working alone or with a friend or two.
I'm used to working 50-55 hours per week. I know that every week will be made up of billable and non-billable hours. been down that road before. I can eat 10 hours a week until I'm in the position to pass that cost on to the customer.
I figure my overhead as: A truck, it's insurance, fuel and upkeep. My cell Phone and it's bill. The business insurance, and health insurance. My computer and some office supplies.I figure that to be what it costs me to go to work. Not what I would charge on someone who worked for me. I did however miss tool purchases and Retirement. I would put 10% on top of my total estimate for profit.
I must add that I'm in my mid thirties. I'm also familiar with the area I'll be working in. I ran a framing crew there for about 6 years. Did the lumber lists, time estimates and managed the crew.
The problem in the area is this. there are plenty of one, two or three man companies who work for between $40 and $55 per hour. until I am re-established they are my competition. For example, I can hang and case a 6'8" solid core door(3 1/2" poplar casing) on hardwood floors in about 40-45 min. The price ranges from between $60.00 per door in some parts of somerset and morris counties, to $30 per door in the Easton PA area 35 min away. In the vicinity of the the Deleware river there is a contractor who hangs and cases hollow cores for $22.50 a peice.
I've got maybe $25,000 liquid and can come up with 20 more from the inlaws if I need to.
I see the wisdom in your burden calculator. I'm sure it is an Eyeopener for many. It was for me. I would be curious to hear from someone who has applied it to a one or two man team just starting out.
Ever have any luck using Means to estimate a job.
Bruce-
Stossel brings up a good point about small business classes. The Greater Newark Business Development Consortium runs a free program for small contractors that covers a number of topics- estimating, markup, lead generation, safety, etc. I taught the estimating seminar for them last month. It's a good program, and for free, it really can't be beat.
Bob
Hello,
I think one important way to look at your pricing is not to consider your competition, the facts are that alot of the guys in the trades are accustomed to a lower quality of life than you seem to seek or are used too. People drive into metropolitan areas from 120miles away every single day to work for half of what you make, the real key to making a reasonable living(in my opinion 90K and up in urban areas) is courting a certain class of customers, getting lots of repeat business at the exclusion of chasing a large quantity of bids, and maybe doing some commercial work.
I am specifically speaking about a situation where you are doing the work yourself with a very small or non-existent crew, obviously you can make some serious money as a paper gc or can attempt to grow a large company where high volume negates low profit percentage.
As someone in the process of still establishing their own fledgling company I've found that I am underbid on pretty much everything because anybody can open the phonebook and rent a crew of clowns, but that isn't the point. Being able to converse intelligently with a customer, referrals, and your manner will mean a lot. Alot of the guys in this forum are experts at identifying their homeowner market or their developer market and taking care of exactly what they need done in a prompt manner. I struggle with the pricing issue daily myself as I've wasted alot of time on bids that didn't work out but I'm confident in the work we do and the repeat business we've received as being worth the cost.
-Ray
Ray-
I couldn't agree more. Pricing based on what the "competition" is charging is a surefire way to end up broke. Like you, I'm not happy making the wages most of the guys in my area are. And, like you again, I wasted a ton of time bidding against the "level-in-the-gunrack" guys, and grew tired of it. I chose to follow a different path, and found a niche where there was little competition, and where the clientele was willing to pay well for my services, and it's worked out very well.
Bob
Bruce, it sounds like you made many of the same mistakes I did as a contractor, in the same area (I'm from Belvidere, and I cut my teeth hanging doors in the Warren Lumber and Millwork shop). Heck, we've probably even worked for the same builders. From what I see when visiting down there now, there's a ton of work for subcontractors and the readily available work would be tempting. But your initial post said it all -- subbing to a couple of regular paychecks limits your growth. I used to go nuts trying to satisfy three regular customers, to the point where I turned away potentially better paying homeowner jobs. If I were ever to go back to contracting, I wouldn't go near builders. I'd look for remodels, additions and so on where I dealt directly with homeowners and could charge for quality and service. Don't sell your talents short.Andy Engel, The Former Accidental Moderator
Hung doors for Warren lumber? Great doors, Best quality and the easiest to hang. Too bad the company isn't all that. When did you leave?
A long time ago, in 1985. I stay in contact with a few of the people there, and did lots of business with them right up until I signed on with FHB in '96. A lot's changed since those days from what I hear.Andy Engel, The Former Accidental Moderator
Bruce- "Ever have any luck using Means to estimate a job."
Well, yes and no. Generally speaking I find that Craftman's National Renovation & Insurance Repair Estimator is a better source of data for the kind of work we get involved in I have used Means in the past and will continue to do so too ( we don't do any insurance repair work so don't let that mislead you, there's just a real good set of data available in that particular book that I found is closer to the real world than most other books). But given that I been around for a while now building up my own data and modifying the data that I get from sources like Means Craftsman and HomeTech I tend to trust our own data and judgment first and take anything that I develop strictly from a book with a grain of salt.
I definitely think using databook data is how anyone should start out but then again anyone using it needs to review it and modify it ASAP to fit your own companies capabilities and real costs. In other words it like productivity and management guru W. Edwards Deming used to teach you need to perform a PDCA cycle. Plan, Do, Check, Act. In it simplest form you need Plan what data you are going to use for a task. Do the task. Then Check the results against the data you planned with, And the Act to modify the data or the process so that they are more aligned with each other the next time you go to use them. (For anyone who reads this who by some chance knows Deming's teachings who wants to correct what I just said yeah I am saying that with a caveat in that the Act part without a solid understanding of what "Variation" is can be tricky and could lead to what called "Tampering" but certainly doing a PDCA review of an estimate is better than not doing it at all.)
Another big problem I find with data book data is that it doesn't necessarily reflect your real costs or the costs and markup structure of your subs so it is at best just a very rough average of what you might expect. And likewise when estimating work being done by a subcontractor if I'm not that experienced in all their processes how will I know for sure that I haven't left something out if I don't ask them?
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I think the biggest problem I am running into is this. I work very hard and expect to live a reasonable lifestyle. I'm not affraid to take a risk, but not a foolish one.
I see too many guys in the trades who are willing to accept $40,000.00 a year for running thier own companies. I'm not one of them. I can and have made a decent living as a sub. But that requires lots and lots of hard work. I have a good friend who will make about $80,000.00 this year. But, he is never home and is having a hell,of a time transitioning his bussiness away from being a sub contractor.
I feel at this point that i don't have the working capital to go after larger projects for homeowners or architects. So the question becomes, What sacrifices do you make until you reach the point where you can work directly for the homeowner and pick your clientel. I'm afraid that with three kids and house I can't hang out too long looking for work. I need to be busy everyday.
Thats why I planned to spend one weekday selling. Visiting architects and designers, putting out flyers and spreading the word. Until i could just work off of my own client list and refferals.
For those customers I think the answer is to charge what I want to make for the quality of work I do, plus profit for the company. I figure if I land every job My price might be to low.
Anyone have any insight on how to transition from the subcontractor thing to private customers?
Bruce, you just described my ownn situation to a tee. I just hired on with a big outfit and am already thinking about going out on my own again. Just like you I paid to little attention to the business side. I thought maybe this time around some small business classes would help me develop a solid business plan as well as what to charge. Good luck to you, I will be keeping an eye on this thread.
You can get an idea real quick about how to start thinking as a business owner by reading "The E Myth Contractor" By Michael Gerber. Its a quick read and will get you pointed in the right direction.
I will head to the library tonight to check it out.
I'm not sure you'll find it there. If you do, great. If not, you can get it from Amazon.com for under $20 shipping included and you'll probably have within 3 days. I'm an experienced business planner from the financial industry, so it wasn't that earth-shattering for me but it has a great outline to get you thinking - and thus - moving in the right direction quickly. Good luck! I'm in the 2nd year of a fine trim carpentry business and other than the back pain, I'm very happy.
Similar situation to mine, Bruce. Worked many years, on my own, prided myself on doing quality work for a low price. It showed in my income. Worked in engineering for a year and missed the reno work too much. Now considering reviving business or working as sub/ employee.
My take on it is this: As an employee I get 4%holiday pay, 9 paid stat holidays, Employer contributes to pension, unemployment ins.,and pays my worker's comp. When comparing a salaried position to an hourly rate to charge out at, I try to put a monetary value on each of these things that I must cover as a self-employed individual. Then add overhead (tools, truck, ins, office exp.) and 'time overhead' (sales, estimating, and administrative time). Finally add profit, because you have capital invested in the business and need to be paid for it, not to mention why be self-employed for the same $$ you can be employed for? None of this is news to you from what I have read.
As for working as a sub, my gut feeling is that it's not the way to go in the long term. To really make the $$ you need to be working for homeowners that trust you and only you to do their work. The trick is how to get to that point. Try targetting a few high end areas and work your *ss off to make the clients happy, then make sure they tell their friends how good you are, not how cheap you are. It is surprising how many nice people there are out there that will do that if you explain that you are just starting to revive your business - most people like to help small, local, family oriented businesspeople.
Working for other contractors is not a total dead-end, though, (I'm doing it right now) you can pick up tips from good contractors, and they may send you something they are too big to be interested in, plus you may be making some good contacts with other trades.
Sounds like you are on the right track. Best of luck.
Andy
Bruce:
Also Mark up and Profit by Mike Stone is a good reference to make sure you are charging enough.
Andy
Andy,
I think thats the plan we are going to go with. I'm close to Morris, Somerset, Warren and Hunterdon counties N.J. All have high end areas.
I'll still need some cash flow so I will end up subing for a while. I'll just have to hold my own feet to the fire about going out and selling. Any Idea on how to get a foot in the door in the upper end areas? I plan on Taking one day a week and just going out and making sales calls. I'll visit all the Architects and designers in the area. In the past I never had any problem staying busy. Once the word was out the referals came. I just never priced Myself right.
Looks like i'll have lots of reading to do. On my way to the bookstore now as matter of fact.
Thanks to everyone for the advice, both encouraging a nd discouraging.