Figuring Out Overhead, Hourly Rate Etc..

ruskent

I'm ending my first full year in business. I know i worked my butt off this year but the money just isn't there. Yea i bought alot of equipment, but i still think i should of made more.

The last two days i took a course on brick pavers since they are about 60% of my business so far. Half the course was on the business side of things. The instructor really opened my eyes to all the things i am doing wrong on my pricing.

This afternoon i spend two hours in excell trying to budget next year. I came to the conclusion if i work solo i would need to charge 77 dollors an hour to make 45000 a year and for the business to make 15% net profit. This is based on 180 works days per a year at 8 hrs per a day. I have a feeling i left some misc expenses from the budget so i have a feeling i will need to be around 85 an hour.

Now i plan on adding 2 employees next year. I figure they will cost me a total of 38 bucks an hour for payroll, taxes, insurance etc. Do i charge them out at 85 an hour each also? Just by doing the math, it seems that theoretically i could personally make 800 bucks extra a day myself.

Am i going about this all correctly? It seems like if i hire 2 guys i'd be billing out 2040 a day a labor from the 3 of us and could make 150k a year if i estimated everything correctly.

Am i thinking of things wrong?

Matt

marc

You sound like a pretty hard worker. I don't know where you are located but if your in New England give me a call........I will pay you $60,000 per year with a paid vacation, 4 personal days, paid holidays, Health Insurance, 401K plan and NO headaches of owning your own business. I don't mean to sound like a smart ass but why would you do this for $45,000 per year?

ruskent

Marc- Thats if i was working solo. It seems if i hire two guys and acctually bill them out at the right amount, that 45k would triple.


Matt

Bob Kovacs

I'd say one flaw is that if you're by yourself, you should be getting in more than 180 work days a year- that's 15/month, which is around 75% productive vs 25% non-productive time. That's a conservative estimate (which is better than an aggressive one), and will probably work out to be truth when you're supervising 2 other guys too (and selling enough work to keep them busy).

It sounds like in general like you're on the right track, but I don't think your own income will necessaril triple just because you hire two more guys- something sounds out of whack with that math. If it worked that way, you should hire ten guys and make $450k/year, right?

Bob

ruskent

bob- i do landscape construction. My season is Basically March 1st-Dec 1st. I figure only 5 days a week work. Ofcourse i will work whatever saturdays i can but i wanted to leave room for raindays. Thats how i came up with 180 days. Also some seasons i might not be able to start until march 15th.

I'm not sure if i will be able to triple my pay if i hire two guys, but in theory it works out. How it will play out in reality i do not know.

Matt

dirt diggler

I dunno Marc ... $45K for the headaches of owning your own business
vs. $60K for the stomach aches of contributing to someone elses business ....

Gordo

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Gordo

Matt,
I applaud you for doing your math. IMO, your numbers are right on. We shoot for 220 working days, but the weather plays a factor and may reduce the actual days.

Note: The KEY to your numbers (specifically what you can charge per hour for your employees) is if they can produce like you. If they can do what you do AS fast and AS good (very rare).......you will be able to make those numbers. Usually, things go a little wack when you bring in employees because you will need to adjust your numbers.


Depending on where you are located, billing at $70-$80 man/hour is doable (if you are legit-insurance, taxes, licensed, good reputation).

Keep up the good work.

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marc

My company does Vinyl siding, Replacement window and sunrooms.

Here is an example for Vinyl siding.

Lets say 1 man can put up 3 sq. per day by himself.
If we give him a helper he will NOT do 6 sq. in a day.
At best he may do 4.5 sq. (that's a 50% increase)
If we give him 2 helpers they will not do 9 sq. in a day
They may do 5 or 6 sq. (A 2nd helper may only add up to 25% more)
I've been doing this since June 1986 and have never seen things double with 2 guys. We are currently running 5 siding crews, 2 window crew and 2 sunroom crews.
We find the same thing with replacement windows. 1 guy may be able to install 10 double hungs in a day but will not get more than 15 done with a helper...................Sometimes it may get worse. Depends on the helper. Usually the forman slows down with a helper (at least for the first month or two) because he either needs to train the helper or he's fixing mistakes that may be made. But even after years of being together the work done does NOT double.

ruskent

I know most employees won't be able to produce as much as me. This year all i had for an employee was an occasional day laborer here and there. When i hire two guys full time, that have experience, i think after working together for a while, we will be like a team. Everyone will know what to do at each part of the job, and hopefully push the guy next to him to work faster.

I don't think i will have a proablem getting the 80 bucks an hour in my area. The hardest part is going to be estimating the man hours per a job accurately. I need to start timing every aspect of every job and keep as much data as possible. Then estimating will be alot easier.

I think the main reason many people are not successful in the contracting business is because they have no idea what there cost are and do not charge enough to cover those cost.

I'll admit some jobs i really screwed myself by being to low prices. But there have been some jobs where i brought in 125 bucks an hour.

If everyone charged what they should, it would be completly possible to be able to pay your workers enough $ to be able to support a family. This would proably get you better workers that would make more money with less proablems.

Matt

ruskent

Marc- I am not saying my production will double or triple. I'm saying i will bill out at the correct man hours.

Just because you add a 2nd guy to a window crew, do you charge the customer less an hour for that 2nd guy vs the first guy?

Matt

marc

It's a little diferent for us. We pay piece meal..............If it takes you longer you make less. If you work faster you make more. I don't care if it takes you 10 days to side a house or 8 days. You make the same amount of money.
Doing it this way I can tell you what our profit will be the day we sell the job. Scheduling becomes a concern but profit doesn't

dayspring

As a very small operation.... Always keep in mind, if something happens to your help, they get locked up, quit, etc., YOU WILL HAVE TO DO THE WORK! Ouch! if you bid a job using your help pay rate, be prepared to work for that.

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North Country

I posted a break-even analysis excel spreadsheet a while back, this may help you determine your hrly rate, works great for me. I have also found that you will make the same or more if you "get out of the bucket" as the painters say. If you are running a crew then your time is better spent running the business, selling work, estimating and such, I have found. (dont forget to pay yourself for this also, I use a yrly salary just for these things, but pay myself hrly when I am working with my crew.

electro

Here is an interesting spreadsheet, that shows how more employees lowers you overhead which in turn lowers your billing rate, yet raises your profit. Explains how a bigger legitimate company can beat the pants off most small companies when it comes to winning by price.

Brian

Attached Files

Chicago SS no. of employees.pdf (23.5 KB, 123 views)

mdshunk

It's interesting, but totally bogus. I WOULD NOT structure my company like that. I have at least 6 points of contention with that chart. It is so unsound, that it's not really worth the effort to type them out. If this chart becomes a discussion point, I'd be pleased to relate exactly where it's screwed up.

George Z

Md,
I will make it a discussion point then.
I will start:
Unless the numbers are for discussion purposes only,
1)the billable hrs are not realistic.
2) the share of oh per employee drop is too big.

Other than that, the concept is right

If you can, please explain

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john elliott

One thing that interests me when I see discussions of this sort is I get the impression that all a contractor feels that they have to do in order to get the money that they have decided that they require is to ask for it.
What should my billable rate be? 'Whatever the market will bear' is would be my first, and short answer. A better answer would also be a lot longer than that, I well realise, but 'what the market will bear' is a very good starting point

John

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George Z

John, I know this has been discussed often.
the problem with "whatever the market will bear" I have is this:
I did my math and I need $5
The market will bear $3

Assuming my calculator works, there are three assumptions
1) I am in the wrong market
2) I am a bad salesperson
3) I don't mind going out of business as my calculator will tell me.

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john elliott

the problem with "whatever the market will bear"?

There isn't a problem if you look at your own point 1). If you can't make money in your chosen market then you need to get into a different one, ideally before you go out of business.
By different market I don't necessarily mean going from painting to electrical etc, or other such major change, but maybe selling the same thing to different people

John

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