“You can’t sell construction services like you do shoes.â€
How about a “Variable Pricing Structure†(VPS).
Just got back from taking a stress test this morning. Last week it was an ultrasound on my carotid arteries. One hour after that was a bill (to my insurance company) for $445. 15 months prior to that I had two stints put in my arteries at $4000 for the doctor’s “labor†bill only for the procedure and $3000 each for the actual stint “insertions.†His total was $10,000 for what ended up being about 4 hours of his expertise. My attorney charges one rate for “office†work (Mmmm. Charges for office work!), and another for “production†work – in court.
OK, here’s my point about the above. Many other “service†industries such as lawyers, CPA, auto dealerships, etc., use a variable rate structure based upon the expertise, importance, safety, hazard(s) required to perform the service. For years the public has been getting a real deal with reference to our rates. This was also mentioned by one of our peers in a trade magazine a few months ago.
I just figured an estimate to install cabinet door panels and the related trim on two walls of a peninsula. Before I called the client with a price I changed the rate from $85/hour to $125/hr. She said OK. I figured I had to lay it out, determine the proper door sizes and trim combination and then the “custom†installation so it’s not like just installing baseboard or casing. This “procedure†requires a lot more “expertise†and therefore justifies a higher charged rate.
I decided that today I will crate “categories†for the various types of jobs I perform and the various types of “applications†that are performed within any give project, than apply the appropriate VRS to each of the applications to be done within each future project. Caulking cracks in a stucco wall is not the same as locating the source of moisture or a leak.
Even a framing contractor uses much more expertise & incurs more safety issues in framing a hip roof with multiple roofs and/or dormers as well, than the expertise needed & lower safety issues incurred when in framing a wall.
In other words, what’s utilized “up here†mandates being compensated based upon the knowledge and experience needed to perform specific tasks, not entire projects, but specific tasks that occur within a project, and with additional “allowances†made for safety and other issues.
Am I off the wall here or not?
Replies
No Sonny,
I think that's a good idea and very appropriate.
Reminds me of a job I did last week. The customer had a couple of problems created by other people ( tradesman ) that she had hired. Intuitively I adjusted my rate upwards. Not only was I fixing someone elses screwups and unfinished work, but I was asked to solve problems that two other people who had provided goods and services to her could/or would not. It also involved taking down some expensive cabinetry, modifying it and reinstalling it. I still let it go to cheap.
Tom
I'm glad you agree. Earlier this morning I did a small job replacing about a 4 sq. ft. section of drywall that was damaged from the wax ring leaking from the toilet above. The drywall was replaced at my normal rate, but blending in the skip troweled texture into the surrounding texture was done in 1/2 hour w/clean up at the rate of $120/hr. Then the priming and painting was back down to my normal rate.
I should have started doing that decades ago.
Sonny,
I do that. I'm still not getting anywhere near as much money as you, but I do charge more for some repairs than others.
Makes perfect sense to me. If I can do it quicker because I know that the job is one of my strengths, then I charge more per hour. If it is a job that I am not so confident of, and I think it's going to take me longer than it should, then I charge less.
Good for you, Rich. Just make sure that your "charge less" rate is no less than your basic rate.
I talked to a couple of interior decorators a few days ago and asked them about their prices. They said that even when they have to spend more time finding furniture or accessories that "they" want to use, they still charge the same rate for any wasted time. One said, "What we do is all a 'custom' service, which by nature, includes some wasted time. So regardless if the time is wasted or fruitful, it's still charged to the project."
I do the same. Go to a local supplier for an item and they don't have it in stock so I have to go to another; both trips are charged to the job, which is usually T & M.
Decorators do "custom" work. We build "prototypes", including those repairs. Either way, wasted time as a given for both.
I couldn't agree more.
Trim carpentry is a different rate than framing. Setting marble mosaic tile costs more than 4x4 white.
We have been using variable pricing for calculating all fixed price jobs. When we quote jobs at an hourly rate we try to get the circumstances of the work before quoting a rate. It is hard to say to a customer that the same guy, on a t&M job, costs 60/ hour for basic stuff and 90 or more for fancy stuff. That's what is nice about a fixed price job, that customer never sees the different rates that are applied to the parts of the job.
We also do location specific pricing. A middle class neighborhood of detached single family houses costs less than downtown in a high rise of multi million dollar condos where parking is 3 block away.
It is not so much what something costs that sets the price, but what it is worth to the customer.
J, location pricing is smart. I have a list of several items to consider if:
1. I even want the job.
And another list for:
2. Things that effect the VPS.
Another example is if I'm to install very high end cabinets, even if it's just 1-3 vanities, the more expensive the cabinets, the more I charge. I base that on how diamond cutters charge. The larger the size and more pure the diamond, the value of the price increases so they charge more accordingly. It's the "risk" factor.
We get some clients who want us to start at 9 am and quit at 5. Taking a 1/2 lunch and a couple of breaks leaves us only 7 hours to "produce." WE normally work 8 - 5. So I take the total of 8 hours times the rate and divide it by 7 hours and use that revised rate for those people.
I didn't start doing that until many years ago. The longer we're in business, the smarter we get. Hopefully some of the newbies here will not make these mistakes and learn these "nuances" early on.
people: on the old board, there was a thread on the subject of starting a handyman service -- unfortunately, i didn't pay it too much attention; however, this current discussion has brought me back to the subject of pricing for said service. that is, what the heck does a handyman charge??? hourly? daily? job-ly?
a little help/advice/counsel would be greatly appreciated ...
stephen
We run a handyman division
basic hourly rate is $60/ hour plus expenses like parking, materials and supplies. With a 30/ job fee to show up
We prefer to charge by the job/task. Usually the hourly rate that is realized in better.
Local competition gets between 45 and 75, as near as I can tell.
Clock starts at the time we get to the house, ends when we start the truck to leave. Cust pays for store time at the hourly rate, with materials marked up 20%
Jim
jim: thanks very much. not sure i would be comfortable charging $60 per at this stage -- i am just starting out after having been laid off from previous job -- but it's good to know that the much-lower rate i was thinking of charging isn't outrageous at all ... now, if you could just tell me how to deal with people who have no clue that, believe it or not, it takes a bit of time to replace that silly little pane of broken glass in that sash window that i can't remove ... ugh.
stephen
Stephen,
I charge $40 an hour T&M. If I bid a job I bid it at $55. I try to educate customers to the advantage of T&M but some insist on bidding and dislike shared risk. So be it. I mark up any material purchases under $50 100% and any over 40%. I live in a small town (40k) and have no problem selling the rate as what I am selling is trust, timeliness, being neat and honest. DanT
Some of you misunderstood my original post. The important part of what I said was:
"In other words, what’s utilized “up here†mandates being compensated based upon the knowledge and experience needed to perform specific tasks, not entire projects, but specific tasks that occur within a project, and with additional “allowances†made for safety and other issues."
In other words, figure on charging a higher rate for those parts of the job that require special talents. Another words, while you might normally charge say $45 per hour, if the job entails fancy trim work, or matching a textured finish on a wall or ceilng after you've done a drywall patch, charge more for that talent. If the texturing took 1/2 hour, charge that at a rate of $80 per hour - or $40 for that texture matching.
I don't explain anything about my rates to a client, or specifically that I'm going to charge more for that texturing "blending". If questioned, I just tell them that they can hire a handyman, and if he's good, he can cut out and patch in another piece of drywall and tape and sand it. Then they are still in the situaton of not having someone else to do the actual texture blending, or call me just for that. And getting a drywall contractor just do a small patch will charge them an arm and a leg because it's a PITA job to him.
Or, they can hire me to do the plumbing end by changing the wax ring of the toilet upstairs , repair the drywall, blend in the texture and then if they have the paint, prime and paint that area - all within a few hours - on the same day. So you take your $45 per hour for the rest, PLUS and extra $18 for that half hour spent on that texturing.
Pick up that extra $18 about 10 times per week and you continually put an extra $180 of well deserved money in your pocket - every week.
And if you go even further, you can do as appliance service men do. Charge $40 for a trip service call. They get it just to walk into the house - no services rendered yet - just getting paid for the trip. Time is money. Spend 4 hours each week traveling to these small jobs and at $45 per hour, that's $180 each week you just lost - unless you charge a trip charge.
Now that 1st extra $180 by using the VPS and the trip charge fees totaling $180 and you just increased you weekly income by another $360 again - each week.
One more example is the auto mechanic or car dealership. Let's say they charge $60/hr for labor rates. If you needed a jump start while your car is in the garage with a dead battery, does anyone here really think that dealership or mechanic would really drive to your house jump start the car and give you an Invoice for only $15 for the 1/4 hour it took him to jump it?
Does ther attorney or CPA go to their home? Does the doctor? Does the clothing retailer? Even furnture and appliance retailers now charge for delivery - why?
Time is money. Vehicles cost money to operate. Professsionals charge by the hour - regardless of what they are doing, and you called me because I'm a professoinal. And since the above are all businesses, they act accordingly, otherwise they would be operating at a loss - every day.
I've told that to a few of my clients. "Yea, you're right. I guess I never thought about it that way."
Edited 3/28/2002 9:41:37 PM ET by Sonny
dan: i think we're on the same page -- one of the primary reasons i think i can make a decent living at this is that so few people already in the field are terribly conscientious (in my neck of the woods, at least [northern new jersey, suburbs of nyc]). i've seen countless examples of absolutely crappy work for which people have paid what i consider to be ridiculous sums. i'm hopeful that people will appreciate honesty, reliability and quality work. time will tell.
stephen
Stephen,
One of the keys (and I learned it here from Sonny, Mike and Keith) is to know ahead of time what you need to make per hour to live the life style you want to. I have, and probably will again work for less but as long as I am busy the rate needs to go up. I am $3 an hour under what I would like right now but feel that I can't go up until I get a little busier. I calculate all my expenses for the year at a realistic number and divide by a conservative number of billable hours to get the number I need.
If I am real busy I simply quote higher rates on jobs I bid and if I am slow then I reduce it a little to keep working. I have only reduced my rate twice in the last year and each time I did I wished I had been more patient as a week later I got numerous calls for work at my regular rate. Another area of profit is to connect with reliable folks that do work of the type you don't do and if you have a customer sub to them. I am very selective as I don't want to jepordize the trust area but I have a roofer that I can use as I don't do roofs other than a small gargage or something like that. (crappy knees) I mark his work up 20%. DanT
Dan, you've got the right attitude. In the same book I mentioned in my previous post, the author talked about a company called Dial-A-Mattress (DAM) and it's "partnering" with 4 different trucking companies. The author went on about alliances with such partners and the tremendous coup with respect to their competitors. The CEO of DAM wanted to provide deliveries within 2 hours of a purchase. Everyone within this company thought it's CEO was nuts.
At the time that DAM made the alliances with these 4 trucking companies, each trucking company only had one truck. Now each has more than 10.
The same thing applies with exceptional partnership with our subs. When they think alike and have the same attitude about servicing the public, I'ts amazing the market that can be captured from competitors, and while at it, allow increased margins - all part of a VPS system.
The innovation "thought stream" should be perpetually exercised. As the title of one book states: "Differentiate or Die!"
Or remain just another guy busting your rear end off, day after day, month after month, year after year - for wages. We must 1st be business people. Trade skills is 2nd, not first, as too many have found.
Sonny,
I agree. I think the keys to working with other contractor are as you suggested, making sure you have the same goals in mind. I also think it is important that you make sure that everyone makes money. I set a price with my subs and pay it. Whether I make money or not. If a job is tight and I need a good price I say so but also don't hesitate to say "give me your regular price on this one". I have also upped my subs price once as I didn't feel he saw some of the potential difficulties, turned out I was correct so he came out ok. In the end the guys that have done work for me like working for me and want to do it again.
This whole situation is great as it expands my market while keeping my fixed overhead down. I also have a union electrician available at time and although I do electrical that relationship allows me to have more than one job going at a time. He also has extensive background in commercial electric so that has been helpful on occasion. He's wiring my new shop as we speak as I wanted it all done in conduit and except for simple bends it is not my strong suit. DanT
Dan: my continued thanks. While I agree with everything you suggest about proper rate and billing procedures, I find myself in something of an interesting position. You see, it's like this: after 11 years trying (and succeeding to a reasonable degree) to make it in publishing (I was a writer/editor/reporter) in NYC, I have finally decided to give carpentry/cabinetry/handyman stuff a shot. Well, "decided" might be a little generous: I was laid off on 12/27, and the publishing market being what it is and my willingness to kiss the asses of people I neither like nor respect being what it once was, my wife and I figured what the hell, let's give carpentry a shot. Now, that isn't to say I am some carpentry naif or woodworking dilettante who figures 'this seems neat, I bet I can do this...' During my very-checkered college career (the Stroh's 15-pack and the willingness of Kimbark Liquors to accept my Visa in lieu of actual cash truly revolutionized my life), I would periodically drop out and do rehab work; after college, I briefly worked new construction in Philadelphia -- or until the point at which the small crew I had hooked on with learned that I was a "college boy." Forgive my defensiveness, but I find myself, like Jeff Buck (on another board), slightly defensive about my "ability" to either participate in these discussions or embark on this career change. That said, I will match the quality (if not the speed!) of what I can and do do against most.
Now, the preceeding (and there is a point!) leads me to this: if I sat back and calculated the amount my wife and I need to maintain our quality of life (bear in mind that publishing allowed us to buy a modest house in a very affluent suburb; and because my wife's family lives oh-so-nearby, there's virtually no way, changed employment status notwithstanding, I can move to a lower-cost-of-living area), the rate I might charge would be, I think, too high. In the short term, I am willing to receive a bit less for a job if doing said job will go toward proving my capabilities and help spread my name as a dependable, conscientious, etc., etc., etc. person to have work in one's house. I know what I'm capable of and I know what my work is worth; however, I need to get my sea legs as it were before I go whole-hog. Still, and this was the reason I first posted a question about rates a few days ago, I absolutely do not want to be taken advantage of to a complete and embarrassing degree ...
But, what the hell, I do play the fool so well ...
Stephen
Stephen,
No, I understood that you may start out at less. I started 22 months ago at $20 an hour. You do need to build a following of sorts. But if you don't know from the beginning where you are going I believe you will not be agressive enough with your rate. Not knowing, in my mind, simply reduces urgency. Just an opinion.
Also if your rate is too low and stays there you will end up working for people who can only afford the lower rate. Ok if that is what you are shooting for but no if in the end you would like to make more. A few guys have posted here that talk of the difficulty changing markets so I am suggesting that maybe it would be better to start off there right away. Again, my opinion only and some side effects may occure. Nausea, vomitting, diareha and crossed eyes. ( too many medicine commercials) DanT
Dan: another good point and one sure to make my wife (the accountant) happy! I'm thinking somewhere in the range of $25 to $30 per, figures which are still well below what people around here are accustomed to paying.
stephen
Stephen,
Comments from the peanut gallery
If what you are charging is well below what others are charging, some may believe that the work will not be up to par (get three bids never accept the low bid syndrome)
just for thought, what if you "gave" a first time customer a discount? Pick the number you belive covers your cost etc, then "short time" discount it as new to the area.
yes this is a marketing ploybobl Volo Non Voleo Joe's cheat sheet
bob: i go back and forth on the low-rate issue (relative to others, that is). there's a part of me that is almost offended by the ridiculous rates that some people charge for crappy work. me, i kinda just wanna pay my bills for a bit -- mortgage, health care, ice cream for the kids. not looking to make a killing, necessarily. thus far, still very early in the game, i've been dealing with acquaintances and friends of friends and the like so i figure the good rates are worth whatever extra will accrue to me in good word of mouth. but the discount idea -- now that i like!
thanks, peanut gallery.
Steve....to give you an idea....here in Pittsburgh...there is a franchise ...the Handyman Connection. They charge $50/hr......no up charge on materials. I believe they have a 2hr minimum. They "bracket" the time estimate....a 3 hr job...the customer would be told.....2 to 4 hrs. They try to hit the 3.
When I was doing more handyman/repair stuff......I would charge $45 hr...with a 3 hr minimum....but I was selective......I wasn't trying to do repair work only...actually trying to avoid it...and would only take it when I thought it would lead to more work/bigger jobs....then I explained....my normal rate was $35/hr. Most people seemed to understand that doing a job here...driving an hour...doing another small job...that you had to charge more to break even. The others were just looking for a cheap fix...and that's who I was trying to avoid. Jeff * Jeff J. Buck/ Buck Construction/ Pittsburgh, PA *
2nd Generation Buck Const, 3rd generation Craftsman
gentlemen: everything you've said makes sense and the suggestions are even things i've been thinking about implementing. the primary issue for me will be to stick to my guns. that is, while i like the idea of minimums and the like, i can see myself staring at some annoyed housewife and caving. no, ma'am, i guess you're right, fixing that leak, reframing,sheetrocking, taping and tiling...yeah, i can do that in two hours...
stephen
Belt loops Steve! Keep yer beltloops! If ya can't recall the original post that was explained....just ask.....me....or maybe this time Mike Smith.....will tell ya. One of the all time sales stories! Jeff * Jeff J. Buck/ Buck Construction/ Pittsburgh, PA *
2nd Generation Buck Const, 3rd generation Craftsman
Let me do some just basic calculations:
1. Average about 40 hours per week doing production work, and I mean just production work, for 48 weeks per year, and at $25 per hour.
2. Add to that 40 hours per week, another minimum of 20 hours looking at jobs, selling them, figuring the estimating and typing up the proposals. That totals roughly 60 hours per week.
3. Income is 40/hours x $25 equals $1000/week.
Well, not really.
4. 40 hours per week PLUS that other 20 hours per week comes to 60 hours per week, divided into that $1000 equals $16.67 per hour.
Well, not really.
5. An absolute minimum of $20,000 in annual overhead expenses. Divide that by about 1920 annual hours worked on jobs (and I'm being very, very, generous and unrealistic with that 1920 hours), and that comes to $10.42 per hour.
6. Deduct that $10.42/hr from the above $16.67 (item #4) and the grand total is:
$6.25 per hour.
Mmmmmmm. That also means that even that extra 20 non-production hours per week, spent evenings and week-ends, is being paid at straight time of $6.25/hr also.
Before taxes.
Does it seem like something is wrong here?
Ya got the wrong guy Sonny! Wan't me at $25. I'm back at $35 ...and that's still too low......but being laid off and deciding at the moment to thro myself to the consumer wolves....that figure keeps a little money flowing.
The tops I could charge around here.....especially to sub....is $45-50. The company I just left...with all the overhead and custom designing...doing 1/2mil additions...was only charging us out at $50. Which I though low for their reputation....but if big reputable company that wins awards every year is topped out at $50......not much I can do......yet.
I've been out of the loop for over a year........I gotta get my foot in the door and build referals.
But.......I read and take note of the "divide by and subtract" posts like yours. Very useful info.
The former company has offered my the chance to big on some jobs.....I know one former employee does work for them at $25/hr. I told them straight up....if he was gonna bid the same job...or they expected the same rates....not to bother.....it would be just a waste of both our time. Said figure on $35 to start...and moving up to $45 as some bills get paid. At $45...I could do pretty well.......low overhead...and sub the stuff I'm not proficient at...and just pass that cost along. Jeff * Jeff J. Buck/ Buck Construction/ Pittsburgh, PA *
2nd Generation Buck Const, 3rd generation Craftsman
Sonny...that 20K seems a bit high......I'm looking at about half that. Bus Ins, health Ins/van expense/tools/bus card and flyers.
What's your breakdown so I can tell what I'm leaving out.
Also....I know you use the Proof System.....and have a bit of a grasp of the concept......how/where I would I find enough info on it to use it? This a whole package/seminar type thing...or in books or what?
How do I find the magical formula...proof system that is....Jeff * Jeff J. Buck/ Buck Construction/ Pittsburgh, PA *
2nd Generation Buck Const, 3rd generation Craftsman
Jeff, here's my list:
Major Medical - Sonny
Office Equipment Repairs
Office Supplies
Postage Stamps & Shipping
Professional Fees (Acct./Atty)
Magazines/Books
Business Taxes on profit
Telephone
Cellular Phones (Nextel) - 1
Travel/Entertainment
Seminars/Trade Shows/Assoc. membership.
Uniforms
Small Tools
Software & Upgrades
Marketing/Advertising
Gas & Oil changes
Truck payment
Vehicle Depreciation
Vehicle repairs (brakes/tires, etc.)
Vehicle Insurance
Office Equipment depreciation
Liability Insurance
Workers Comp.or Disaibility Insurance
Bad Debt ( 1/2% of sales)
Guarantee Work (1/2% of sales)
Owners Weekly draw
Bookkeeper - part time (wife)
Future Capital Expenditures (for you younger guys)
Notice my weekly salary is part of the operating expense items. In my scenario of my post I didn't include it. If you want a copy of my actual list with numbers let me know and I'll email you a pdf file.
BTW, my list includes about $10,140 annually just for my pick up, including depreciaton.
Proof Management Consulting is at (www.proofman.com). They used to sell a binder with the system I'm talking about.
I've always had a problem telling people what I actually charge for an hours service and therefore charge a set price for a specified service. "I will charge you 100.00 to do this" (itemized) anything else we renegotiate." if it's something small (really small)I use the 25.00 per hour figure and forgo O&P. (people would faint around here if I said 60.00 per hour) I still make the same money, but in my experience a set price works better than an hourly one.
I also do like Sonny said.....the more talent it takes...the more money I charge. Once you become popular you can sell your name also. (like an artist) It's amazing what people are willing to pay for a name.There are fast carpenters who care..... there are slow carpenters who care more.....there are half fast carpenters who could care less......
J.J., you said it all in two sentences:
"Once you become popular you can sell your name also. (like an artist)Â Â It's amazing what people are willing to pay for a name."
And once established, that name represents one heck of a lot.
I'm reading a book entitled "Discovering The Soul of Service" by Leonard L. Berry. In it he states under a section entitled "Trust of Company":
"Trust is the glue that enables a company to organize and use resources effectively in creating value for stake holders." (Change the words "stake holders" to clients AND business owner, above and in his statement below.)
He continues to say:
"An unseeable force, trust is all-powerful for companies that depend on their credibility to survive. Yes, companies can substitute contracts for trust, but contracts do not produce the level of stake holder loyalty and involvement that trust engenders. Contracts specify obligations and constraints; trust elicits dedication. Contracts are a matter of legality; trust is a matter of the heart.''
The above is something that should be the basis for each of our businesses, for without that, everything else we do is moot.
Build your brand name (you!) and judiciously protect it since it does represents your life.
Many years ago I took in a partner. At the time we were doing a lot of large insurance fire jobs, and around that time I needed to take out a 60 day "note" from my banker for a large job. I took that opportunity to introduce my banker to my new partner. The banker said to him:
"What Sonny is now signing, (the note) means nothing to me. It's strictly a legality. I would not even approve it except for my knowledge of Sonny's character."
A couple of years earlier Barb & my kids I were in Boston and I forget why, but we ran out of money. I walked into a local bank, told the person who helped me my situation and asked her to call my bank at home to see if they would certify a personal check for me to cash for $500. The person helping me came back and said that my banker told her he would guarantee my check for any amount I made it out for. Think I walked out of that bank with my chest sticking out?
Your brand. Your name. They are synonymous. While protecting it, use it's value to the benefit of your staff, clients and yourself.