Flate Rate vs T&M vs Cost Plus

[willyj]

Re: Flate Rate vs T&M vs Cost Plus

Charlie congratulations on your retirement. I for one love this too much to walk away.
Please explain to me how you do a job with "not to exceed". Do you get to a point and say I can't do any more and leave it unfinished or do you continue and go over the allotted price and eat the cost?

 

[charlie tuna]

Re: Flate Rate vs T&M vs Cost Plus

a "not to exceed" price is one that i can see and know without questioned areas of labor and material prices to determine a price. usually, i come across these when they are really looking for a "ballpark price". example: a school begins some night classes and needs lights installed between the parking lot and the school for safety and security purposes. it will require six 400 watt metal halide fixtures mounted from the roof area and needs some kind of control. they want them operating in the next few days! i know all the material is locally available ---figure the fixtures at $500. each --- lamp-fixture and photo cell----a safe price. thats three grand. don't know where i'm gonna find power, but the worst case is from an electrical closet on an outside wall--one 277 volt circuit. two men - three days is more than enough! thats another three grand. basic materials---pipe(emt)-wire-bell boxes-etc. is about $200.00.. not to exceed price $6200.00.. did the job in two days -- found a few short cuts to get the power up on the roof --actual job cost to the school was $4600.00, this was my cost plus 23 per cent! they were satisfied with the job and the job cost, and i was happy with my profit--about $860.00..

you can never walk away from a job! there will be some you would like to run away from!!! you noticed-- i said there were no questionable areas concerning this job. if there was - i probibly would have suggested t&m in that case! if you give a "price not to exceed" you are committed to do the job without exceeding the "not to exceed" price! and i have given "not to exceed" prices that did not make much of a profit--thats business! i have also been involved in bid jobs that i have adjusted the price due to excessive profits! example: we installed a tenant metering system that the original bid price was $68,000.. during the job, i found out that the power company would sell me their existing C.T.'s at a price that they figured the would get for "scrap". they do not re-use them!!! this was about fifty per cent of the job costs! when the job was finished --- with maximum mark up on overhead and profit was $38,000.. i could have stuck it to them --- i don't do business that way! that customer continued using our services until i retired---millions of dollars worth of electrical work was generated by "trust"!

 

[willyj]

Re: Flate Rate vs T&M vs Cost Plus

Charlie,
Sounds like you had a system that worked for you but the key word is "millions". You can't make millions charging labor out at $45 an hour.

We also have thousands of satisfied customers and use a totally different pricing system than yours.
Our main goal is customer satisfaction and quality with repeat business.
I am a young 50 and have people in place so when it's time for me to sit in the sun I am able to.
This is called business which too many electricians don't understand.
I'm sure GM, Sears,Home Depot, Microsoft all have high overhead and look at where thier at.

 

[charlie tuna]

Re: Flate Rate vs T&M vs Cost Plus

willy,
at one time i had a labor rate at $45.00! today it is $60.00.. labor rate means nothing if you don't have work for your men --- if you read what i said is that one customer has directed millions of dollars in electrical work through my company and if you say "high overhead" means little--your in trouble. we could compete with any contractor in our area --we were union ---but ran a minimum overhead with good men. in twenty five or more years my men never had to miss any work!

 

[willyj]

Re: Flate Rate vs T&M vs Cost Plus

Charlie,
I've read your posts and see that you have done well once again congratulations, but at $45 an hour you must of been paying your men close to minium wage. I have guys that make $30 an hour now and there is no way I could charge even $60 and make money.
High overhead or low overhead means mothing if you don't know how to run a business and my point has been electricians aren't taught how to be business men.
If you look in the code you won't find any sections on business.
I put the tools away 10 years ago and got in the office to run my business because I want to retire well off not relying on Social Security to suplement my income.
I know a fellow electrician who is a machine tool man who at 72 still has to work because he has always charge $42 an hour for his services. His wife is very ill and never having proper insurance because he couldn't afford it he now has to work to keep his family alive, again poor business managment.
Charlie my friend that is what it is all about. Some have the know how to make money others are happy to just scrape by with enough money at the end of the week to pay the rent buy food and a case of Buweiser.
Since I was a child I was told that you are in business to make money and retire comfortable.
We supply our guys with health insurance, dental insurance, uniforms, paid vacations, tickets to major sporting events, paid holidays, bonuses,and a retirement plan.We also pay for thier continuing education.
What did you offer your guys? I have guys that have been with us for years and plan to retire here and we aren't union.
We do residential and commerical service work, we don't bid, we won't bid.
So if you can tell me how to squeeze all that into $60 an hour I'm sure Bill Gates would like to talk to you.

 

[aline]

Re: Flate Rate vs T&M vs Cost Plus

Willyj,

You're where I hope to be 10 years from now.
I'm in the process of changing my company name and plan on concentrating on residential service.
There doesn't seem to be to many in my area doing this. I did see a coupon for electrical serive for the first time in my local paper.
It looks like the company is a member of ESI.
They don't have a yellow page ad out yet.

 

[willyj]

Re: Flate Rate vs T&M vs Cost Plus

Aline,
I have heard of ESI and believe they are a fine organisation after all the man that is running the program runs one the fastest growing electrical contracting company's in America. However with good business sence everyone can do the same, but it takes getting out of the field and into the office.
It won't take ten years, just some financal backing with a small business loan, some heavy yellow page and radio advertising and knowing what your bottom line is.
You will also need quality employees and residental service work is where it is at.
Of course there is a lot more to it but those are the basics

 

[hey_poolboy]

Re: Flate Rate vs T&M vs Cost Plus

Hi guys,

This is a good discussion. I have read very good arguments on both sides of the flat-rate issue. Following is a link to the best and i think the first FRP guide. It is geared toward mainly HVAC and plumbing. They have recently added a pool and spa repair pricing guide.
Callahan Roach Flat-rate Pricing
Edit: (It incorporates a travel charge in the main price, the second tier is the primary repair, there are also additional columns for things like incidental repairs, and additional repairs which are billed at a lower labor rate since you are already on the site.)
I have used their method in the past and liked it very well. We used to tell the customer it was $50 for a diagnosis, but if they elected to have us perform the repair we counted it toward the repair cost.

I don't know where you guys get your overhead costs from, but even in the pool industry we couldn't have worked for the change you guys are talkin'. We were near $90/hour.
Take labor burden and add to that the insurance costs, phone, cell phones, advertising, vehicles, tools, rent, and all other expenses, then add in your intended profit margin, and unless you are a one-man show working out of a garage you just came up with a very big number.

[ March 12, 2005, 04:46 PM: Message edited by: hey_poolboy ]

 

[tryinghard]

Re: Flate Rate vs T&M vs Cost Plus

Flat Rate simply summarized is: a value for product furnished and installed.
It works great and is as ethical as any other method of business.
The auto body industry was probably the one who started it; i.e. fender $300.00, this value is all you see and it includes product, pieces, and labor to install it.

Time and Material summarized is: you furnish and install first then bill your client for your time and material spent. Your service rendered to your client is your design, labor, and material.
Often you give a window price or a not to exceed before you are hired or pre-qualified. This method usually ends in dispute because your client does not truly understand what you must provide for a legal application. If you have staff installing they will always miss time and material actually provided this causes animosity within your own company. Time and material method requires much more overhead to manage the indifferences and disputes as well as track product and labor.

Lump sum method: value for scope of work described.
You simply give your client a price for a scope of work. If they hire you, you provide the work and get paid. You do not have to share any breakout values or costs.
The lump sum method is much safer for all parties involved than time and material.