Charge “Half-Day” or “Full-Day”

[Coppersmith]

How to price service jobs for profit IMHO.

Gangbox jobs are the kind where you expect one or more workers to be on the same jobsite all day for multiple days. You can bill eight hours per day per worker every day.

Your hourly rate for gangbox jobs should be [fully loaded labor cost per hour] + [overhead cost per hour] + [desired profit per hour].
In addition, in your quote you charge for material, rentals, subs, and travel.

A service technician running around in a service truck can have a lot of unproductive hours. In fact, on average a service truck only has four billable hours per day. Your service technician expects to get paid for eight hours a day. (If you are filling that role, you should expect the same.) Therefore, the hourly rate on service jobs is different.

Your hourly rate for service jobs for the first four hours per job should be [fully loaded labor cost per hour x 2] + [overhead cost per hour x 2] + [desired profit per hour]. After four hours, the rate should be [desired profit per hour]. Again, materials, rentals, subs, and travel are separate charges.

Things to note about how this hourly rate works:
* You use the above to calculate your price. Don't tell the client how you calculate the price.
* After four billable hours per day you have fully paid your labor and overhead costs for the day.
* For hours five and above you are only charging for profit since labor and overhead are already covered.
* If you do two jobs in one day, you are making extra money on labor and overhead charges. This covers those days where you bill less than four hours.

The result is short jobs are charged more per hour than long jobs. This is not a problem because the total bill will be lower. If you do a full day job, the price comes out the same as a gangbox job making longer jobs less expensive to the client while still covering all your labor, overhead, and profit.

 

[Coppersmith]

Further notes on my post above:

As a business owner your first concern is paying all your operational costs, perhaps most importantly, covering payroll. Your second concern is maximizing your profit. The above method is geared toward doing this. By averaging four billable hours per day, you cover all your operational expenses and make a fair profit. If you are able to raise your billable average above four hours (by doing longer jobs or many days with two short jobs), you accelerate your profitability.

 

[sameguy]

2000 hours in a year, no overtime. Overhead (tax, new equipment, etc.). Materials. How much do you want to make $60,000 more?
Well giving away money isn't going to get you there,

 

[paulengr]

And if doing it correctly you should seldom lose money. Experience helps tremendously in keeping this from happening.

Small projects can be the ones that are easier to lose money on, there is less there to help make up for losses should something unforeseen happen.

Small project can have different meaning for a 1 man crew than for large company with multiple crews scattered around different sites as well though.

Some may not mark up materials at all. Some may only mark up 10-25%. Some might double price of materials.

Those that have little or no markup might counter that with higher labor rates, mileage or other surcharges.

I remember some contractors (not necessarily EC'S) telling me they give a pretty high price on bids because they didn't really want to do the job then get rewarded the job anyway. That much more to make on a job they didn't necessarily want in the first place.

One mechanical contractor told me a sports car he has had the cost of it added into a job he didn't care if he won the bid for - he driving it because he got that bid anyway. Think it was a Camaro, been long enough ago I don't remember and he wasn't a local guy, but worked on a project with him and his crew most of a summer.

Around here the big jobs command about a 10% markup on materials, small ones around 15% like say a starter and what i would call “incidentals” 20-25% like say replacing a receptacle. It’s kind of pass through anyway. On paper it covers your “handling costs” but nobody charges that way. Typically you get a 10-15% discount at your local electrical supplier so if you mark it up that amount the customers that might actually check know you aren’t gouging them.

Don’t forget too that if you get say a 20% discount and mark it up 20%, you are still below list. 80% x 120% = 96%, a 4% discount.

We also consider PITA factor. Some customers get a higher PITA multiplier. Slow payers, engineers, accountants.

 

[paulengr]

Keep in mind that you might lose some customers. I once had a guy ask me to come out for a one-hour job (his estimate, not mine) at a site that was more than a hundred miles from home, then balk at the idea of covering my mileage and travel time, saying he wasn't about to pay for unproductive time.

I sure wish I had a method for losing every customer like that.

That’s the PITA factor. Bend over backward for good customers. Price high for “high maintenance” customers. Just be prepared to win the bus because everyone else is doing that too.

 

[paulengr]

I had a lady tell me to go to ____ because I was going to charge her more to install the light fixture she bought for $25.

Just don’t warranty the job and be up front about the fact that you have no idea what they bought so don’t know about quality or install time.

 

[480sparky]

Just don’t warranty the job and be up front about the fact that you have no idea what they bought so don’t know about quality or install time.

That would be kind of hard to do since I only talked to her once... when she called to ask about getting it installed and seemed amazed that it would cost more than $25 to install her $25 light.

 

[paulengr]

How to price service jobs for profit IMHO.

Gangbox jobs are the kind where you expect one or more workers to be on the same jobsite all day for multiple days. You can bill eight hours per day per worker every day.

Your hourly rate for gangbox jobs should be [fully loaded labor cost per hour] + [overhead cost per hour] + [desired profit per hour].
In addition, in your quote you charge for material, rentals, subs, and travel.

A service technician running around in a service truck can have a lot of unproductive hours. In fact, on average a service truck only has four billable hours per day. Your service technician expects to get paid for eight hours a day. (If you are filling that role, you should expect the same.) Therefore, the hourly rate on service jobs is different.

Your hourly rate for service jobs for the first four hours per job should be [fully loaded labor cost per hour x 2] + [overhead cost per hour x 2] + [desired profit per hour]. After four hours, the rate should be [desired profit per hour]. Again, materials, rentals, subs, and travel are separate charges.

Things to note about how this hourly rate works:
* You use the above to calculate your price. Don't tell the client how you calculate the price.
* After four billable hours per day you have fully paid your labor and overhead costs for the day.
* For hours five and above you are only charging for profit since labor and overhead are already covered.
* If you do two jobs in one day, you are making extra money on labor and overhead charges. This covers those days where you bill less than four hours.

The result is short jobs are charged more per hour than long jobs. This is not a problem because the total bill will be lower. If you do a full day job, the price comes out the same as a gangbox job making longer jobs less expensive to the client while still covering all your labor, overhead, and profit.

Service jobs is where the full/half day rates make more sense.

Last week I had a very productive day. I had 3 service calls. Each job was almost exactly one hour on site. Drive time was roughly 1-1.5 hours between jobs. Total travel time was 7 hours. So you are “overcharging” but actual “wrench time” is pretty low.

Worse are the “suitcase” crews. It’s fairly normal prices to pay around $5,000 per day to get a factory tech to fly out for a one day service call.

 

[Coppersmith]

Around here the big jobs command about a 10% markup on materials, small ones around 15% like say a starter and what i would call “incidentals” 20-25% like say replacing a receptacle. It’s kind of pass through anyway. On paper it covers your “handling costs” but nobody charges that way. Typically you get a 10-15% discount at your local electrical supplier so if you mark it up that amount the customers that might actually check know you aren’t gouging them.

Don’t forget too that if you get say a 20% discount and mark it up 20%, you are still below list. 80% x 120% = 96%, a 4% discount.

We also consider PITA factor. Some customers get a higher PITA multiplier. Slow payers, engineers, accountants.

I'm not sure how you are calculating the markup or if you are recovering the various costs of materials in other ways besides the markup. I have seen many discussions on this subject with markups ranging up to six times the price on very cheap items. I can't fault someone for wanting to charge $6 for a $1 item. It probably cost at least $5 to go get it.

My method is to double the shelf price of the item. This is the same method used by most manufacturers, wholesalers, and retailers. It's called a keystone markup because it is that important. In my case, I find that doubling the cost of items I buy just about averages out to cover all the costs of purchasing, sales tax, labor to order it, and pick it up, transportation costs to pick it up and transport it to the jobsite, shop/truck wear, warranty service, and returns costs. Notice that there is no profit in there. I markup materials just enough to cover buying them. I don't make money on material. I'm selling labor.

The only exception I make to the keystone markup is when I am buying massive quantities of the same item or a single very expensive item. If, for example, I need 120 recessed can light fixtures and 120 trims, and I can pick them all up in one trip, then I know my costs will be lower, so I recalculate and just charge the actual cost such as 90 minutes of labor to send a guy over to get them and a gallon of gas. Same goes for a single $5,000 item. This allows me to be a bit more competitive on larger jobs.

 

[petersonra]

I think you guys are making a mistake in assuming that there is a correct or fair way of determining your pricing.

The only thing that really matters is that the customer accepts the price you offer him and you make an adequate amount of margin and/or profit and/or overhead to satisfy your financial needs.

How you get to that price really doesn't matter much. I also think a lot of especially smaller contractors leave a lot of money on the table that stays in the customer's pocket that could go in the contractor's pocket instead.

Many customers are price-sensitive going in but are also susceptible to being nickel and dimed if you want to go that route. That's kind of a nuisance for the contractor but if you keep track of all the things they change and charge them fairly for each change you can often add a significant amount of margin to your jobs. It seems sometimes that some contacters make most of their profit that way.

 

[Coppersmith]

Many customers are price-sensitive going in but are also susceptible to being nickel and dimed if you want to go that route. That's kind of a nuisance for the contractor but if you keep track of all the things they change and charge them fairly for each change you can often add a significant amount of margin to your jobs. It seems sometimes that some contracters make most of their profit that way.

 

[paulengr]

I'm not sure how you are calculating the markup or if you are recovering the various costs of materials in other ways besides the markup. I have seen many discussions on this subject with markups ranging up to six times the price on very cheap items. I can't fault someone for wanting to charge $6 for a $1 item. It probably cost at least $5 to go get it.

My method is to double the shelf price of the item. This is the same method used by most manufacturers, wholesalers, and retailers. It's called a keystone markup because it is that important. In my case, I find that doubling the cost of items I buy just about averages out to cover all the costs of purchasing, sales tax, labor to order it, and pick it up, transportation costs to pick it up and transport it to the jobsite, shop/truck wear, warranty service, and returns costs. Notice that there is no profit in there. I markup materials just enough to cover buying them. I don't make money on material. I'm selling labor.

The only exception I make to the keystone markup is when I am buying massive quantities of the same item or a single very expensive item. If, for example, I need 120 recessed can light fixtures and 120 trims, and I can pick them all up in one trip, then I know my costs will be lower, so I recalculate and just charge the actual cost such as 90 minutes of labor to send a guy over to get them and a gallon of gas. Same goes for a single $5,000 item. This allows me to be a bit more competitive on larger jobs.

Mostly I’m doing motor and drive installs. The shop is doing rebuilds. It’s not exact but with them you can almost take the raw materials and triple it for a final price.

So typically on the service/install jobs one or two items that cost thousands. Taxes are 7% on customers that pay it. Shipping would be 3% but for convenience they pool all shipping charges. Purchasing is doing dozens of jobs a day and we usually pay for delivery. I can and do use local supply houses but that is usually just incidentals we missed. So materials is usually about 60-90% of the job cost when there are significant materials. Our service fleet includes service body trucks and trailers and for the big jobs we have our own tractor trailers. We factor that into labor. On site fork trucks and Lulls we just charge rental plus same markup for. It’s one thing to mark up 10 sticks of strut picked up at Lowe’s on the way to the job and another to charge for a 100 HP VFD.

 

[kwired]

That would be kind of hard to do since I only talked to her once... when she called to ask about getting it installed and seemed amazed that it would cost more than $25 to install her $25 light.

At least she didn't want you to install a 69 cent switch for 69 cents or less

 

[kwired]

I'm not sure how you are calculating the markup or if you are recovering the various costs of materials in other ways besides the markup. I have seen many discussions on this subject with markups ranging up to six times the price on very cheap items. I can't fault someone for wanting to charge $6 for a $1 item. It probably cost at least $5 to go get it.

My method is to double the shelf price of the item. This is the same method used by most manufacturers, wholesalers, and retailers. It's called a keystone markup because it is that important. In my case, I find that doubling the cost of items I buy just about averages out to cover all the costs of purchasing, sales tax, labor to order it, and pick it up, transportation costs to pick it up and transport it to the jobsite, shop/truck wear, warranty service, and returns costs. Notice that there is no profit in there. I markup materials just enough to cover buying them. I don't make money on material. I'm selling labor.

The only exception I make to the keystone markup is when I am buying massive quantities of the same item or a single very expensive item. If, for example, I need 120 recessed can light fixtures and 120 trims, and I can pick them all up in one trip, then I know my costs will be lower, so I recalculate and just charge the actual cost such as 90 minutes of labor to send a guy over to get them and a gallon of gas. Same goes for a single $5,000 item. This allows me to be a bit more competitive on larger jobs.

Some items will cost less per item when purchased in larger quantities as well.

Cut wire/cable usually more per foot than full reel price.

 

[Coppersmith]

Mostly I’m doing motor and drive installs. The shop is doing rebuilds. It’s not exact but with them you can almost take the raw materials and triple it for a final price.

So typically on the service/install jobs one or two items that cost thousands. Taxes are 7% on customers that pay it. Shipping would be 3% but for convenience they pool all shipping charges. Purchasing is doing dozens of jobs a day and we usually pay for delivery. I can and do use local supply houses but that is usually just incidentals we missed. So materials is usually about 60-90% of the job cost when there are significant materials. Our service fleet includes service body trucks and trailers and for the big jobs we have our own tractor trailers. We factor that into labor. On site fork trucks and Lulls we just charge rental plus same markup for. It’s one thing to mark up 10 sticks of strut picked up at Lowe’s on the way to the job and another to charge for a 100 HP VFD.

This points out something that I keep forgetting: There are many types of electricians here doing many types of business. My answers and viewpoint is based on residential and commercial service truck work. Answers will vary for people doing other stuff.

 

[wyreman]

...That way I can focus on doing a good job, leaving a clean worksite, maybe having some social chit-chat with the customer, and leave the customer with a good impression at the end of the day, rather than being too busy to talk and racing off to the next job.

As much as it would be nice to scrunch as many jobs as possible into a day, like Paulengr said, I’d rather schedule a particular task for the day, and if I happen to finish a little early maybe having a small task that I can do to finish out the day, or go back to the office and finish the day with some paperwork (never ending), or organizing the work trailer and prepare for the next day.

I'm focusing on slowing it down and choosing the better part

 

[kwired]

This points out something that I keep forgetting: There are many types of electricians here doing many types of business. My answers and viewpoint is based on residential and commercial service truck work. Answers will vary for people doing other stuff.

Some of us do a little bit of everything, or at least what we feel comfortable doing.

Did get a bid request from pipeline company that is planning to install oil pipeline (don't want to go the political route with the pipeline here) in my area to move a couple poles with electric lines on them that are on the pipeline right of way. They are POCO poles with medium voltage distribution lines on them. This is something the POCO would typically move themselves - of course would charge them to do so. I don't have the equipment or training to deal with the medium voltage and won't give them a bid. My guess is more than anything they are fishing for a price and that POCO is likely going to be who ultimately moves them.

 

[Andrew t]

if you sent an employee out to do this 5 hour job and it to late in the day to start another job are you only going to pay him for 5 hours? I don’t think so

 

[kwired]

if you sent an employee out to do this 5 hour job and it to late in the day to start another job are you only going to pay him for 5 hours? I don’t think so

Sometimes there is things that need to be done if you get back to the shop early and probably isn't a problem if it happens once in a while. If it happens all the time then it starts to cost the owner.

As a one man operation there is always something that needs done that isn't directly billable to a client and getting back a little early is a great time to do some of those things. You can always start loading for whatever is planned for tomorrow and maybe get out of the shop earlier for that project.

 

[Coppersmith]

if you sent an employee out to do this 5 hour job and it to late in the day to start another job are you only going to pay him for 5 hours? I don’t think so

My employees (when I have them) get paid for eight hours a day regardless how many hours (eight or less) I can fill on their schedule. They are told if they run out of billable work, they are to make sure everything in the truck is put away where it belongs. Once that is complete, they are to inventory the truck, make a list of items needed, and go shopping for fill-ins. If they still have time, take the truck to the car wash. If all of that is complete, they can go home, but remain reachable (until quitting time) in case a call comes in for a short job or estimate. I also sometimes have them come to the shop to help me do something.

Not all contractors operate that way. Some only pay their people for the hours they are working but have commission arrangements. I'm not sure why an employee would accept such a deal.