I’m going into business for myself very soon(doing all the work myself) and need some opinions. I’ve done some figuring on what I would need to charge per hour to replace my current salary and benefits plus overhead and profit(my wife and I feel we have figured business expenses,etc. pretty accurately). That number comes out to around $40 something an hour.(This covers all of my expenses so it’s assuming no markup on materials or subs.) Others on this forum have said that this is reasonable and still others have said that this may not be enough!
A little background. I’ve been a carpenter for 10 years and have been a lead carpenter/superintendent for 3 of those years on everything from 1200 sq. ft. houses to 7000 sq.ft. multi-million dollar houses. I was self employed previously for 1 year doing small projects and charged $25 an hour + 20% on everything(I didn’t pay for many materials or subs and was an arbitrary number I stole from the builder I used to work for, not based on cold hard facts).
I’ve have the skills, I have the drive, I am learning the business side of things and I intend to be a customer service oriented, honest, dependable and quality minded contractor.
I would like to start out with small projects like room remodels, interior trim, built in furniture and unique projects(I once built a chicken house on top of a trailer). Eventually I would like to move into doing larger projects and maybe eventually into a design/build setup.
Can I confidently charge this kind of money in the mountains of Western North Carolina(Asheville area)? Or is this the kind of money people in New England or California are getting because of cost of living standards(It’s not exactly cheap to live here either). Presumably my rates would continue to go up over time as I gain more experience and can offer even more to my customers. Is this insane?
As a side note, what do you include in an estimate for a client? Is it just scope of work and a dollar amount or do you break out anything to help the client understand why the dollar amount might seem high? I guess I’m afraid sticker shock will lose me jobs but also feel like it’s none of there business how I came up with my figures.
Thanks for entertaining my insecurities.
Replies
Our rate is 50 an hour in central Ohio, small town (40k) for handyman work and light remodeling such as bathrooms etc. We have some that won't pay it and enough that will so we feel we are right on the top line for the moment.
In your calculations for your hourly rate don't forget that when self employed don't figure on a billable consistant 40 hour week or 2080 hours a year. You simply can't get it in every week with paper work, material shopping, sales calls etc. I figure my rate based on billable hours of 1500 for me and 1700 for my hired guy.
Also don't forget to include your wear items. Tools, trucks etc all wear out. Gotta replace them somehow. And finally, when I first started I found a couple of land lords that would hire me anytime I was slow for eating money. $20 an hour cash. The got better quality work than they would usually get for $5 more an hour and I at least had something coming in. Big help when I first started even though I really didn't use it that much. DanT
Yea, I figured 1800 billable per year and I did include an amount for tools and a truck which seems like a real luxury because right now I would be making that truck payment out of my salary rather than having my clients pay for it.
Thanks for your input!
Yea, I figured 1800 billable per year
Way too high!
look more at 1500 unless you are already booked solid.
Jeff Buck Construction
Artistry in Carpentry
Pgh, PA
Don't be afraid of "the number" when you're done totalling up your proposal. Just because you couldn't afford to have the work done, doesn't mean that your client can't. The number is the number... period... calculators don't lie. Tough lesson to learn and I struggle with it every time I price a job.
In my first year of business I read (in Mark up and Profit, maybe) that I should raise my prices by 10% right across the board and the author promised I wouldn't see ANY difference in the number of jobs I won or lost. Looking back, I'm not sure why I trusted an author I never met, but still, I did it. He was right. I gave myself a 10% raise as a reward for reading a book!!! Lucky me.
I'm don't know a single thing about the area of the country you live in, so I can't offer any help in telling you whether or not your $40/hr is too high or not. But I can tell you that if it is too high.... there's not much you can do about it, is there? You can either cut back on overhead somehow (fire the wife... I dunno) or give yourself a demotion before you even start your first job! That's no way to start a business, now is it?
I say go for it. Don't expect miracles the first year.... but it'll happen. And stick to your guns regarding your pricing. It ain't a hobby and you don't need the practice, right?
I'm betting Sonny or Jerrald Hayes or Piffin will be along shortly. They've got "the good stuff" when it comes to the business questions. Pay attention cuz they always have some good battle-tested advice. I'll be watching anyway.
EDIT: I think it may have been "The E-Myth Contractor" that I read that 10% thing in.
Edited 1/14/2005 7:02 pm ET by dieselpig
Shortly you said???You've got some pretty good stuff to report your own self. the sky is the limit for good men with self confidence - as long as it is not misplaced confidence
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Wow... was that like telepathic or something?
Ok.... you're telepathic..... I'm just psychopathic. Or something like that.
Cocky or self confident......is that what you're getting at? The way I see it... self confidence turns people on while cockiness turns people off. People like to be turned on.
Great way to put it - not that I'd say it that way in front of a customer - for fear of sounding Cocky! orsumthin like that
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
You read that in the Markup an Profit book because I just got done reading that part and I'm going to read the E-myth Contractor book next based on the reccomendation of someone on this forum. You guys rock!
I can't speak to that local area, but I will speak. That is a common figure around here, and I was told it was close to that in some parts of Colorado for similar.
But here is when it will not be enough - if you do not also charge a markup on materials and other associated costs, you sre still only working for wages, and no way to cover for risks.
Also, when you grow, and grow you will do if you perform the kind of quaklity you aspire to do and people are not starving all around you, then you will be doing more and more management and less of billable produiction. So you also have to make some bucks off the guys who you hire or sub work out to, to cover for your time in the office and the extra risk that entails.
So if the wages and labor burden run you $43.45 while you are char4ging $40, and losing billable time to manage it all, you will be burning out and going in a hole at the same time.
Welcome to the
Taunton University of Knowledge FHB Campus at Breaktime.
where ...
Excellence is its own reward!
Yea, as my business grows I will definetely have to shift the way I "pay" myself depending on how much management I'm doing. Right now I'm just trying to sell my craftperson skills, keep food on the table and get my foot in the door and build a reputation. And right now I am including all of my overhead and profit in my hourly rate because I may not be buying a lot of materials or hiring subs on small jobs. I don't want to have to feel the need to "sell" a certain amount of materials or labor at a such and such a markup to cover my overhead and risk. Eventually i will convert to doing it that way but I think the most valuable thing I have to offer right now is my time and hands on skills. Does this make sense?
Edited 1/14/2005 8:33 pm ET by dogfish
Keep it in mind when you bid a big enough job that you know you will need helpOr to look at tianother way, keep tabs on the going rate for subs. If it is going to vcost you $26 and the labour burden with OH will be 45%, then you will be OK at 40, but if the rate is hhigher or your burden greater, then you will be introuble.My first time in business, my accountant told me that for the type of work I was doing, I had to double rates paid as a rule of thumb. He said that if i was paying help ten bucks, I had to charge twenty...Long story short-
I ignored him
He was right
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
I live in Pittsburgh Pa ....
lotsa old mill guy/turned carpenter around here ...
I shoot for $45/hr.
I'll bid less per hour if it's a job that'll keep me at 40/hrs week for months at a time.
Some will pay ... some won't.
I face myself in the mirror before giving my price by remembering this fact ...
every hear of the Handyman Connection?
They're a place that does a ton of advertising ... all handyman stuff .... all their labor is hourly subs .... they charge $50/hr with I think a 3 hour minimum.
If they are worth $50 ... so am I.
btw ... I've upped my rates to $50 this year ... just happen to be working a job I bid last year.
When I sub cabs/trim/tile .... I charge less hourly .... if it's a one trade sub and they don't really want me to do their job and GC instead .... I'll drop to $37.50/hr ...
figure it's work that is just handed to me .... no leg work ... no "responsibilities" ...
just guaranteed money ... plus ... most guys sub for $25/hr around here.
Low cost of living.
When I get my rate ... we live pretty good. Must be right.
Jeff
Buck Construction
Artistry in Carpentry
Pgh, PA
One pays himself $30 per hour. A reasonable rate, if not actually cheap. To that $30, add about $43% to cover labor burden, which includes all taxes, vacations, holidays, liability, workers comp, medical insurance, etc. That 43% is about $13.00, added to the $30 comes to $43.00 - not including overhead and net profit.BTW, it's my opinion that any of us who does not cover himself with workers comp, or a separate disability insurance coverage is simply nuts. You're going to save a few bucks and risk your financial future as well as your family's - for a STRANGER? If you get seriously hurt or are disabled for life, where will any money come from? Do not treat yourself like a 3rd class citizen!Now, if your going to do small jobs and repairs, the net profit must increase in ratio to those small jobs. Why? If you get one $20,000 job, you might have to meet with the owner 2-3 times before you get a signed contract. In addition, you'll get a deposit, maybe 2 payouts and a final payment. To get the same sales amount in say an average of even $1000 jobs, means 20 jobs you must look at, 20 jobs you must estimate, 20 jobs to type up, 20 jobs to invoice, and 20 jobs as opposed where any number of things can go wrong, technically or legally. It's the "risk" vs. "reward" reality.I just hired a guy at $35/hr. My labor burden for him is 43.6% or $15.26 - plus overhead and net profit. We specialize in small jobs and repair work so my markup is a minimum of 70%. That means I charge a minimum of $85/hr for him, and my standard rate is $92.50 and sometimes higher using a Variable Pricing Structure (VPS). Now before anyone here says: "But Sonny, you live in Naples, FL - a big bucks area."
I will say that about 90% of my competitors charge between $30 and $55 per hour. - in this big bucks area! So if most of my competitors are charging much less that I do, how in the world am I able to get what I get? Guess that throws the "big bucks area" rationalization right out the window.I've been there where if you don't think you can get more than $40/hr - you wouldn't. I've also been there where if you don't think people will pay for a detailed Proposal - they won't. But if you believe in yourself, what your worth, know how to sell yourself (and the project) instead of "buying " jobs, and have self-confidence, the sky is the limit. As I've stated here many times before, it's called "Branding", what should be the #1 priority of any business regardless of the industry it's in, and if it just started or has been in business for decades. And one of the keys to branding is to target the appropriate market. Think of Nike - a company that gets upwards of $100 per pair for - "gym shoes."Think of high end restaurants that get $3.50 for the same cup of coffee that McDonalds sells for 89¢.Think of a pair of jeans at Wal-Mart for $12 that also sells at Dillards for $25."Branding!"And the "experience" enjoyed by your customers from retaining your services not as a as "contractor", but as a "service provider".
I think that the other guys have set you in the right direction, but I must comment on one thing. That is, are you able to accurately bid work, or do you plan on only doing time and material. Bidding work is one area that I had struggled with over the years, especially since must of my work was the "off the wall" type(radius work). I never seemed to do two similar jobs in a row. I would go from doing arch. woodworking to kitchen cabinetry to trade show booths. It took quite a few years before I got really good at estimating work. Now, that I have been away from it for a while, estimating time puts my brain into a fog
Another thing is that if you don't mark up materials, you are shooting yourself in the foot. That is where your excess inventory is bank rolled. I finally got to the point where I would add 20% to my hardwood calculations just to be able to be able to order extra material and have it in stock.This was over and above adding for overhead and profit. This meant that I would spend less time ordering additional materails or having to do a quick run to the supplier for an extra 10-20b/f of lumber. More time means more labor = less profit/$per hour. It also helped me save on material costs because, as an example, I would be able to buy 250 hinges at a 25% price deduction, when I needed 125. I would just put them in inventory for a later project.
As of right now, I have a good personal stock of walnut, cherry, oak, hardware, etc. to do my own house
I guess it is all realative to where you live
around my parts a builder charging that much is a dreamer.
trim guys maybe, sparkys and flushers ........yeah easy.....those guys are mafiosa , well thats what uncle vinny told me
but a non union builder..... no way
Im not union
around here three years ago I was high at 32
today Im still considered high at 33
If you are high and keeping busy, it is because they know you are good. That means you are positioned.
That means you can charge up from there.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
So... Where is around here that you can only charge $32 per hour? Im charging $60 per hour in Central Indiana.
Unlike the fellow that posted here the other day (knowing when to go solo) I have a lot more confidence in thinking you'll be okay and you'll probably make it. There was a lot in your post about what you don't know and your saying you're "learning the business side of things and I intend to be a customer service oriented, honest, dependable and quality minded contractor." says to me your being humble and smart about all of this. I think the healthiest thing we can have as business owners is knowing what we don't know.
As to your question "Can I confidently charge this kind of money in the mountains of Western North Carolina(Asheville area)?" I can only say if you really have solidly figured out that you need "around $40 something an hour" to make it and you can't sell yourself at the price then the only real solution is to move somewhere else or find another line of work. If that number is correct and you can't sell yourself at that price then you are in reality paying the people who hire you to give you work.
Just how did you figure that "$40 something an hour" number? I've got a an Excel spreadsheet I developed that you can use to really help nail down the billing rate you need to charge. I've been calling it the "The PILAO Worksheet" which is an acronym for PROOF/Indexed/Labor Allocated Overhead. Geez I've really got to come up with a better name than that. And for you own edification on the subject you may want to read the free article by Irv Chasen of PROOF Management Consultants in last January's JLC called Allocating Overhead to Labor Makes Financial Sense for a quick overview of the method.
"...(This covers all of my expenses so it's assuming no markup on materials or subs.) Others on this forum have said that this is reasonable and still others have said that this may not be enough!" If you plan to recover your overhead and profit as a function of what you charge for labor (which I highly recommend) then in reality you don't literally or essentially need to markup for materials or subs as you would if you were using a Total Volume Based markup strategy (see my white paper Markup: Comparing the Traditional Volume Based Markup
vs. the PROOF/Indexed/Labor Allocated method as to why I recommend the PILAO or Capacity Based method over the Total Volume Based method). However I think you'd be crazy not to earn at least some Net Profit on those costs. Figure something in the range of 6% to 12% for Net Profit.
"Can I confidently charge this kind of money in the mountains of Western North Carolina(Asheville area)? Or is this the kind of money people in New England or California are getting because of cost of living standards(It's not exactly cheap to live here either)." That would actually be low for the NY southwestern CT area we serve but I wouldn't worry too much about comparing yourself to other regions. It best to forget about the comparisons and worry about getting the mechanics of how you figured out your rate down pat.
"Presumably my rates would continue to go up over time as I gain more experience and can offer even more to my customers. " That's very true. There is some very special work that I am able to do personally myself that I charge an additional premium for when it comes up that make the rate for that work worth around $220 per hour. The client however doesn't know that the labor rate they are paying. The just make a decision as to whether or not they want to pay $2600 for that particular handrail wreath turn. They don't know it only takes me 10 hours to make it. (If only I could line up 1750 hours of that kind of work all year round!) You might want to read the topic I started here years ago Pricing for ‘perceived value' for more on that topic. I am pretty sure you will discover areas of specialized expertise you can charge even small premiums for even now.
"As a side note, what do you include in an estimate for a client? Is it just scope of work and a dollar amount or do you break out anything to help the client understand why the dollar amount might seem high? " Well what I show really all depends on the project and the client but I can tell you what I never show them. I never show them my cost and markup for labor. In other words I would never show that an employee that is paid a wage of $25 is marked up to a billing rate of $75. I would only give the straight billing rate of $75 per hour. (Those numbers and the markup rate are fictitious and just for examples sake so don't anybody go using them.)
"...I guess I'm afraid sticker shock will lose me jobs but also feel like it's none of there business how I came up with my figures." Repeating what I e-mailed to another contractor I've been talking to the other day....Losing jobs because your price is to high is not necessarily a bad thing at all. Losing every job, that would be bad. But unless you are doing this just as a hobby the only jobs you really want to do are the ones that first of all cover all your costs and secondly are profitable. The difference in importance between one and two there is that if your company is just a vehicle so that you can have a job as a carpenter then all you have to do is cover your costs. If your company is a business then you also need to make a profit.
We've actually gotten the last six jobs we've bid on and that has me concerned. That could just be a statistical anomaly or it could mean either our price isn't high enough (which is okay we'll survive that) or our estimates are wrong. So Mike (an employee I have who also estimates) and I went over the estimates last Tuesday just to check our work. He did three and I did three of them.
We don't want to get every job we bid because then we aren't maximizing profits. However in your case and in the case of other contractors this really depends on just how many job leads you are actually getting. Right now we are getting way more than enough so we can pick which ones we want to bid on and that should allow us to push the envelope with our price. If however we only had a few leads then it becomes important to win more bids or even all of them if a contractor is just living hand to mouth.
How are you doing with job leads or how to you plan to generate job leads?
View Image
ParadigmProjects.com | Paradigm-360.com | Mac4Construction.com
I got a call out of the blue the last month from a woman who had a business card of mine from when I was self-employed about 5 years ago doing finish work. She does design work and remembered meeting me back then and apparently was impressed. She said she "checked me out" and heard good things about me. She had a small project she wanted me to consider but I wasn't ready at the time to commit to anything business wise(I'm still employed as a superintendent). She said she wanted someone who would charge a fair price, be honest and responsible. I called her back yesterday to let her know that I would be ready soon to commit to my first project in my new business. She mentioned a small project I'm meeting her about on Tuesday and possibly doing some work for her on her own house. She also said she would refer me to some builders she knows and a cabinetmaker that could use some help from time to time. She's been very supportive and I don't even really know her.
I know a couple of architects and have done some work for people who are connected in my community who have said they would help me find work so there's some of my word of mouth possibilities.
I intend to put together a simple brochure highlighting my capabilities and distributing it using the local homebuilders association directory of contractors/architects and designers. I will probably join the homebuilders association myself.
My wife is connected with some local real estate agents that she could put me in contact with that could possibly refer me to homeowners.
Do these sound like good possibilities for getting leads? Any other suggestions?
Dog, that shows you the power of marketing....getting your message out.
All the things that you said sound good. Since you are launching a new business, it probably is a good idea to do a mass mailing to everyone that you know. Tell them you are opening up shop and ask for their help to get the message out. Ask them to refer you to their friends. Promise them you'll hold up your end of the bargain by treating everyone fair and doing an EXCELLENT job EVERY TIME!
good luck.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
I think those are all good directions to pursue...
View Image...but even when you have all the leads you think you can possibly handle don't stop marketing. Don't desert and leave your good clients behind but you should always be culling the bottom 10% of your clients replacing with new ones who can potentially turn into good clients. You might want to check out Linda Case and Victoria Downings book The Remodeler's Marketing PowerPak for some more ideas too.
And keep asking questions here too. Talk about you sample marketing ideas like blue is doing.
But seek out the hard criticism. Not just the people who think what your doing is great. The hard criticism may be entirely wrong but even if it is it still brings up questions you'll need to think about and answer. The important thing is to keep on thinking.
I'm pretty sure I could just go on and on bablling about marketing but your in luck tonight. I'm burnt out exhausted. Had to spend the day with my niece and nephews being a kool uncle and that's got me all tired out. They like to make and build things with their uncle,... go figure.
View Image
ParadigmProjects.com | Paradigm-360.com | Mac4Construction.com
I agree jerrald!
When your busy, spend some of those bucks by bumping your marketing budget!
If your working, market some more!
If your not working, market 10 hours a day!
market, sell, market, sell, market, sell!
In the meantime, sharpen the tools. REad marketing books, read selling books, read self improvement books.
Understand this....the actual construction is the easiest part of the equation!
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
"...and possibly doing some work for her on her own house. She also said she would refer me to some builders she knows and a cabinetmaker that could use some help..."
Ah! Be careful of the donkey and the carrot syndrome; "You do this for me cheap and there will be that for you later..."
Stick to your guns and get your price now or you never will. Dont buy favors
View ImageAs an addendum I think I should add while the The E-Myth Contractor: Why Most Contractors' Businesses Don't Work and What to Do About It is right at the top of my Contractor 101 Going into Business as a Building and/or Remodeling Contractor list I think I may have another top book.
View ImageMichael Gerber has a new book out called E-Myth Mastery E-Myth Mastery : The Seven Essential Disciplines for Building a World Class Company. I bought the book just the other day and while I am halfway through it I just can't find enough time to read it fast enough so I bought the CD too so I could listen to is as I drive around between projects. While it's tough to make a rational judgment on this book yet I am really thrilled and excited to be reading and listening to it. Hope to be through it this weekend one way or another.
View Image
ParadigmProjects.com | Paradigm-360.com | Mac4Construction.com
I was reading through old article looking for info on billing customers and I ran across your message. I too am in Asheville. How did things work out? Did you go out on your own? I run a small company with 4 guys working for me. We do mainly rennovation projects, but we're starting a new addition next week.
dogfish,
you wrote:
>> I've have the skills, I have the drive, I am learning the business side of things and I intend to be a customer service oriented, honest, dependable and quality minded contractor.
I have no experience in charging...only paying. And from what I can tell if you work the customer service, and dependability characteristics, you will do fine. Around here it seems like either of those things have gone by the wayside for many.
Best of luck to you!
Rip