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Individual Cost-Plus rates/ Simplify??

10ACjed | Posted in Business on January 10, 2009 07:28am

With the new year upon us, I am strongly considering restructuring my Cost-Plus billing approach.

I have a new light construction/ remodeling outfit with 3 full-time employees, besides myself.

I act as contractor/lead carpenter/ supervisor, etc. on each job, and we try to have two jobs (usually under $20K each–sometimes much smaller) at any given time.

My current rates are as follows: $45/ hour for my lead, who is job superintendent in my absence–which is often, as I try to run the second job, (and the business) while my lead and primary helper work job A…

with me so far?

My main helper–a good all around, but with minimum experience and needs constant supervision, is $25/ hour.

I currently run the same $45/ hr. rate for my time, and again, $25/ hr. for my second helper. My second helper is a tile setter by trade, and he is $30/hr when he runs tile…

Now this is where it gets sticky:

I have a sliding scale when I and my lead are on my jobsite at the same time. I assume the $45/ hr. when we’re all on site, and the lead takes the $25/ hr. slot, while all additional helpers grab a $20/hr. rate at this time. When I leave the jobsite, the scale slides back up, with the lead back at $45, helper #1 at $25, and helper 2 at $20/ hr, if applicable.

The tile wage is a constant regardless of other factors. My time with client meetings, billing, etc. is always $45/hr.

Needless to say, this sliding scale makes my end-of-the week billing a huge headache, and I want to simplify this whole system…

-What are the going rates for leads/ job supervisors in your area for quality licensed and insured construction?
-I would like to move my time into a weekly flat rate–say $750/ week with up to 10-15 hours committed to that job of my time. Is this feasible and/or sell-able?
-What do you charge in your area per hour for journeymen helpers, straight helpers (labor), and craftsman wages?
-What do you charge for your time as contractor/ supervisor?

I know that this is a heavy entry, and any thoughts on streamlining my cost-plus billing AND keeping it reasonably competitive are appreciated.

This system has worked so far for This Young Company, but I need to cover more ground (make more money for the company) in the new year, and still be viable and competitive in this stagnant and over-saturated remodeling market. (Every jackass with a pick-up truck and a tool belt is waiting around the corner to take my jobs and/or force me to drive my prices down just so I can stay busy and keep my team in tact…)

Thanks,
Jed

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Replies

  1. jimblodgett | Jan 10, 2009 08:14pm | #1

    Well, the thing that jumps out is you have an employee you charge 45/hr for SOMETIMES, and you charge 25/hr for other times. 

    Does that employee take a 20/hr pay cut when your billing rate changes?

    Do you know what it costs you every hour that employee works?

     

    1. 10ACjed | Jan 10, 2009 08:42pm | #2

      I use the sliding scale to sell homeowners on the value and affordability of my cost-plus scheme--especially because many homeowners are skeptical of cost-plus.Asking me if i know how much I pay my own employees is not the useful feedback I had in mind--with all due respect.

      1. jimblodgett | Jan 10, 2009 09:16pm | #3

        I'm not asking if you know how much you PAY them.  I'm asking if you know how much they COST you.

        I think some people refer to it as "labor burden".  But it costs you far more than their wage every hour they work for you, right? Taxes.  Insurance.  Overhead.

        That's all I was asking.  Have you calculated what it costs you per hour to employ someone?

          

  2. gzajac | Jan 10, 2009 09:16pm | #4

    Jim, asked the most important question" Do you know how much each employee costs you? His numbers, my numbers, anyone's numbers are not going to be the same as yours.

    I learned the hard way, it doesn't make any difference what other people charge, its what you need to charge to survive in your business.

    I would read the books "How Much Should I charge? by Ellen Rohr, and then "Markup and Profit by Michael Stone, two excellent books that will point you in the right direction.

    On another note, Jim Blodgett has been a successful contractor for many years. You could not ask for a better mentor than Jim............

    You could always do an online search- There is enough material for a months reading............

    Just my Two cents

    Greg in Connecticut

    1. 10ACjed | Jan 10, 2009 10:40pm | #5

      Of course I am aware of the cost of my employees in lieu of overhead and insurance. Nor I am not questioning Jim's credentials as a contractor. What I am asking for here is what the going rates for leads, helpers and contractors in your areas are being charged at in cost-plus. What if any flat rate are you able to charge for your company's services in your area in a cost plus scenario? I am well aware that everyone's numbers are different, but somewhere in there an average emerges. What's the hi-lo for your hourly rates? For instance, I hear 50 bucks an hour for a lot of leads/supervisors--thus my $45.Suffice to say my overhead is covered with my existing numbers but I would also like to see it become healthier while remaining viable/competitive in this distressed marketplace. That is what I am getting at and specific feedback to that end would be appreciated.Thanks,
      Jed

      1. Piffin | Jan 10, 2009 11:30pm | #6

        If you are billing at "cost-plus" (presumably plus a percentage) it does not matter one whit what the range is that others charge. What you need to know is the COST for your men. That is the basis of your contract.If all you want is an opinion, I think you are not charging enough.but to briefly walk you through how to figure your cost, I'll round off some things.Suppose you pay a guy $20/hr.
        And there is an average of two hours a week down time where you pay him for shop cleanup, loading, etc that the customer does not get billed for. On a 40 hr week, that is 5% so cost is up to $21 an hour.your FICA is 15% ( OK, half of that maybe, but figure 15 for now)
        and let's assume your worker's comp is 20%That added 35% means your min cost is now $32.60you have office overhead ( even if you do it all yourself, you need to account for the cost - otherwise, you are working for your helpers - for free)
        And you have tools these guys are wearing out, along with trucks and fuel to get to the jobs.
        And don't forget your contractor's liability costs. Mine is about 3%.
        Everyone figures all that OH differently, but let's say that gets you top a COST for a twenty dollar man up to just shy of forty bucks an hour.Now if you pay these guys vacation time and holidays, that is another calculation....When I first started contracting enough to hire help back in about '79, my accountant told me straight out that a ten dollar man needed to be billed out at at least 20 if I wanted to keep my head above water, as a simple rule of thumb.I couldn't believe it until I ignored him and learned the hard way.I think overhead is higher now than it was then 

         

        Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!

        1. MikeSmith | Jan 11, 2009 11:16pm | #14

          10... it would help if we knew where you work...

          but here's  some generic  input

          1)  i hate cost - plus

          2)  my burden is  62 %...  so.....if i had a $10 guy he would cost me  $16.20

          when we do  cost plus   i charge  $50 / hr  for everyone, incl. me

          AND   i charge       [ ( matls , subs,  fees )  + 25% ]  + ( labor )

          the 25%  is 15%  oh  &  10%  profit.... which is fine for insurance companies around here

           

          3)  your  charge schedule sounds like an invoicing nightmare

           

          i much prefer to work  fixed fee contracts.....  and i avoid  Change Orders......although the current job is already  up to 6.... and  # 7 looks  to  be a sure thing too

           

          look at this way.... a one rate  deal is easy to justify.... the  formerly high guy   comes down to the mean   and the formerly low guy comes up

          the journeymen  are more efficient  with the  high priced guy and the  laborer on the job

          hey... if i was your customer and you were explaing your rate card to me,

           i'd say   "WHA ?"

          but hey, whadda i no ?Mike Hussein Smith Rhode Island : Design / Build / Repair / Restore

          1. BryanSayer | Jan 12, 2009 06:08pm | #21

            Contractors who charge the same rate for skilled and unskilled labor are one of the reasons contractors have bad reputations. And not knowing how to schedule work so that the cheapest person who is qualified to do the work is doing it is one of the things that results in bids being too high and not getting the job.

          2. MikeSmith | Jan 12, 2009 06:44pm | #22

            hah, hah, hah...  somebody put a bee in your bonnetMike Hussein Smith Rhode Island : Design / Build / Repair / Restore

          3. Piffin | Jan 12, 2009 07:10pm | #23

            That seems right, but it isn't. Another lesson I learned the hard way.There was a time my T&M billing for skilled was 44 and 27 for the unskilled.untill I spent some time traking and analysing things.So here are a few reasons I changed the billing to 44 for everyone way back then...The unskilled used more of my tools and because of lack of concern, attention, and experience, they were a lot harder on them, costing me a lot more in tooling. That is a higher overhead on the cheaper help.The unskilled had more injures so there was more paperwork, and the potential of them driving my WC rates higher for all the help, including the experienced skilled guys who had already learned to work safe. If also meant that I had to spend more time supervising the unskilled even on simple things that we often take for granted, making my time less efficient. That is a cost that had to be offset.except whgen you have a really big job, the unskilled guys wil spend more time leaning on their shovels, while the skilled help can always find something to do without being told.There are moretimes the unskilled will screw something up that has to be replaced or redone at no ost to the HO.So the only way to make money using unskilled help is to charge the same for all, with a heavier weighting to skilled 

             

            Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!

          4. Catskinner | Jan 12, 2009 07:22pm | #24

            OK, now I just learned something from this thread, too.I never looked at it that way, and right on the face of it, you are correct in your observations, they all conform to my experience.On the basis of your comments I am going to seriously re-think my rate structure right now.Man, when you're good, you're seriously good. <G>

      2. Scrapr | Jan 11, 2009 01:18am | #7

        jed you don't seem receptive to the contribution here. But just for grins... Our labor is paid $12-13.5/hr. Medical, Holidays We bill them out at $63 when doing T&M. We do about 20-25% of our work as T&M. I think your rates are way low. I think YOUR rate is low. $750/wk is 36k/yr. IF you work every day/week of the year. Highly unlikely. You are probably working for $15.00/hr. You need to make more if you are running a crew of 5. And since we don't know where you are this all means nothing. Different areas and different sub areas are able to do different value propositions. Are you able to sell high end remodeling? Then you can sell your value proposition.
        Are your men tooled up? Or do you supply the tools? Do they drive company rigs? Or their own? You supply consumables? Holiday? Medical? Christmas bonus? Do you pay Union scale? Do you work public projects? Do you advertise? How many phones/blackberrys/I phones you got? The range you are looking for could be $20 or $90. There is no going rate. That is what Jim and Piffen are getting at.

        1. Piffin | Jan 11, 2009 01:45am | #8

          You used the term T&M while the OP is saying CostPlus.I think that may be part of his problem....his discussion and questions and description seems to me like he is actually billing Time & Materials instead of at Cost Plus. So he is confusing himself. 

           

          Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!

          1. Scrapr | Jan 11, 2009 04:16am | #10

            Doh!cost plus vs T&Mnow I'm (more) confusedyou are right of courseI never use cost plus. Sometimes a not to exceed number, but the number is very high

          2. sledgehammer | Jan 11, 2009 04:33am | #11

            I just turned down 30/hour with medical and a company truck.

             

            Boy do I feel stupid.

        2. JeffinPA | Jan 11, 2009 02:11am | #9

          Re. the rate conversation

          Excellent summary and explanation.

          I almost posted to the op till I read yours.

          No need to.

  3. ubotawat | Jan 11, 2009 09:16pm | #12

    Why do we as general contractors/project managers/builders always sell ourselves short? Why do clients refuse to pay what our services are worth. We are the ones protecting our clients best interest, ensuring that all trades do thier jobs right, keep the project on schedule etc and yet plumbers, electricians,etc can charge upwards of $75 hr to work for us while we struggle to get $45-$50 hr to supervise and then pay them.

    Something wrong with this picture! Always has been.....always will be

    1. Piffin | Jan 11, 2009 09:30pm | #13

      What's this "we" chit?;) 

       

      Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!

  4. webby | Jan 12, 2009 01:41am | #15

    Not to hijack but just a reaction.

    Huh! I would like to work for you. I am a helper and don't need constant supervision and get paid 12 an hour and  its under the table.

    In my situation, "the pain of the realization, is beginning to equal the pain of getting screwed."

    Webby 

     



    Edited 1/11/2009 5:45 pm ET by webby

  5. Dave45 | Jan 12, 2009 04:26am | #16

    I think that it would be money well spent for you to spend a couple of hours with an accountant or CPA and have them explain all the factors needed to determine your real costs. When you start figuring in overhead (taxes, insurance, benefits, PTO, etc), you can easily have a hourly cost structure that runs 2x - 3x your hourly pay rates.

  6. Catskinner | Jan 12, 2009 05:02am | #17

    You've just had a bunch of guys who are wiser and more experienced at this stuff than me all tell you basically the same story. I have learned the hard way that they are right on every single count, including the difference between T&M and cost-plus, and why cost-plus is almost always trouble.

    I will add only one thing, also learned the hard way.

    If you don't think you can follow their advice and stay in business, it is time to think seriously about quitting now.

    1. 10ACjed | Jan 12, 2009 02:09pm | #18

      A lot of good input here. Thank you gentlemen. That being said, I don't think I'll quit just yet... But I do appreciate good feedback from veterans beyond my experience.Again, as hard as it is for many of these posters to believe. The above-described billing rate has so far met my overhead--including an early, hard push to build up tools. This is is most often true when I am running a second job site with my second helper, and my team #1 is on job site A.I'm not building much of a reserve this way. Just making ends meet and paying everyone--zeroing all bills monthly--taking home a decent paycheck of my own.The billing IS a nightmare (as one poster pointed out)--as is explaining it to clients: Precisely why I want to change it--and especially now, plan to very soon.I was misplaced on T&M vs. Cost-Plus. I am running more of a T&M with a material mark-up across the board... My mistake on vocabulary, and I'm sorry to confuse the issue in that regard. Local vernacular meshes the two in some cases around here... To answer the last burning question I am in a small-to-medium metro area fairly close to the Smoky Mountains on Rhett Butler's side of the Mason Dixon.I hope you all have a great week.Best,
      Jed

      1. calvin | Jan 12, 2009 02:57pm | #19

        To answer the last burning question I am in a small-to-medium metro area fairly close to the Smoky Mountains on Rhett Butler's side of the Mason Dixon.

        Sort of a Where's Waldo location.A Great Place for Information, Comraderie, and a Sucker Punch.

        Remodeling Contractor just outside the Glass City.

        http://www.quittintime.com/

         

      2. rasconc | Jan 12, 2009 08:19pm | #25

        Fill out your profile, it will help others help you.

        Cheers, BobFor those who have fought for it Freedom has a flavor the protected will never know.

  7. VinceCarbone | Jan 12, 2009 04:24pm | #20

    If you're happy with your costs and they work you, just lose the sliding scale.

    Why make it more confusing when it doesn't have to be,move your leads rate to 35 and keep it there all the time.

       Vince Carbone

    Riverside Builders

    Franklin,NY

  8. 5150 | Jan 12, 2009 08:53pm | #26

    Suppose a property owner wants the exterior of his house painted on a cost plus basis. To do the project materials such as paint will be necessary. Equipment such as scaffolding will be necessary. And painters will be necessary to perform the labor in applying paint.

    If I were the property owner I would require some form of receipt, invoice or billing to prove what the actual costs were. The paint vendor can supply receipts. A rental bill for scaffolding can be obtained for rented scaffolding. And labor bills can be provided by the painters employed to do the work.

    If the property owner didn't hire a painting contractor these are the billings he would expect.

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