How do you structure payable hours and billable rates?

[marmathsen]

Billable Rates

I'm looking to do another labor rate increase and I was hoping to get a sense of how others structure their pricing.

As a point of reference we are a small 4 man shop and we only do residential. Aside from new construction and select few large remodels, we bill hourly for almost everything.

In the past we had billed out at a higher rate for more experienced journeymen and a lower rate for more green journeymen. Then a few years ago we changed to 1 hourly rate for all 3 journeymen and a lower rate for the one trainee we have. We bill the same hourly rate to our largest general contractor as we do for our smallest brand new client.

The discussion now is to have price levels, 1 default rate for new clients and smaller clients, and 1 discounted rate for our largest clients (probably based on the last ~2 years of invoices). I use QuickBooks and it looks like the easiest to implement would be a discount (I'm thinking 10%) on the whole invoice which would include labor and materials.

How do you structure your pricing that you bill out in comparison to what I've described above?

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Payable Employee Hours

In the same conversation, we're toying with the possibility of changing how we pay our guys. Maybe...

If we send them out to one or several jobs in a day, and they bust their butts and are done in 6 hrs rather than 8, then they're benefiting the customer but short changing themselves since they are paid by the hour.

I've wondered for a long time about the idea of converting to salary for our guys. Or recently I was wondering about paying in full day or half day increments. That way if they get done in 6 hrs they still get a full 8 hrs of pay.

We are in a competitive labor market (Seattle) so I'm always sensitive to making sure my guys feel like they are in a good spot and are LESS likely to look around for other opportunities.

How do you structure your employee compensation in comparison to what I've described above?

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Thanks in advance for your input

 

[petersonra]

I am not a contractor but I can tell you that fiddling with rates and paychecks even if it benefits customers and employees long term tends to be viewed with suspicion. People do not like change.

If it is not broke, don't fix it.

They may not even realize it but most employees will gladly work for less if they feel their efforts are truly appreciated. If you want to keep your people, make them feel like you want them. I am not talking about free pizza now and then. Just noticing when they do something special is a big deal. But it has to be real. People know when you are trying to fool them.

 

[marmathsen]

I am not a contractor but I can tell you that fiddling with rates and paychecks even if it benefits customers and employees long term tends to be viewed with suspicion. People do not like change.

If it is not broke, don't fix it.

I assume you're referring to having a discounted rate for large clients?

We've entertained this idea because it is exactly house all of our suppliers operate, the bigger the account the more discount you get. We've also had GCs make brief comments (only a couple times) about a homeowner getting the same rate that they get.

They may not even realize it but most employees will gladly work for less if they feel their efforts are truly appreciated. If you want to keep your people, make them feel like you want them. I am not talking about free pizza now and then. Just noticing when they do something special is a big deal. But it has to be real. People know when you are trying to fool them.

I fully agree. My impression has always been (and it's pretty easy to back this up) that money is only one part of what makes an enjoyable workplace. The happiest employees are ones that feel like they are part of a team, their efforts are appreciated, and they won't be stuck on a treadmill for ever.

But at the same time, money is a part of it. Especially in a high cost of living area.

 

[LarryFine]

When you pay your guys by the hour, their incentive is to work slowly; when you pay them by the job, their incentive is to work faster. I know that's how it works for me.

If you can give a customer a flat price for a job (which I do except for troubleshooting), you can do the same thing with the workers. Tell them how much they will earn for a particular job, regardless of how long it takes.

 

[petersonra]

I assume you're referring to having a discounted rate for large clients?

We've entertained this idea because it is exactly house all of our suppliers operate, the bigger the account the more discount you get. We've also had GCs make brief comments (only a couple times) about a homeowner getting the same rate that they get.

We have a higher rate for customers that we do less business with than for those we only do a little bit of work for. But we do not even tell them what the rate is since virtually everything we do is a fixed price, except startup. The rate for change orders is the same for everyone.

 

[marmathsen]

We have a higher rate for customers that we do less business with than for those we only do a little bit of work for. But we do not even tell them what the rate is since virtually everything we do is a fixed price, except startup. The rate for change orders is the same for everyone.

I'll be totally honest and say that fixed pricing intimidates me. We reserve that for only the most crystal clear of projects.

Virtually every job we go into ends up snowballing into a bigger project because either the homeowner adds a bunch of stuff or it's way harder to accomplish the task or we need to replace substandard existing stuff in order to make it right.

In the end I find T&M to be easier and more fair for everyone.

Rob G

 

[LT Sparky]

Our service work is t&m. First hour rate is a little higher to pay for the drive over then second hour goes to regular rate. Any small project is usually quoted. We have a few customers we’ve been with forever that never ask for prices so thats t&m. Those are nice because its less work up front. But those are few and far between..
I would like to see a way to pay techs by each job they do vs hourly but at this time doesn’t seem feasible. Seems like a administration nightmare.

 

[Eli1211]

I do flat rate pricing for all resi work except for troubleshooting. It is my belief anything other than flat rates for resi and you are leaving money on the table. Reason being, flat rate prices are ALL based on worst case scenario and jobs more often than not are not worst case scenario, so profit is consistently higher vs. working at an hourly rate. Assuming you are charging around the typical $100 an hour mark. You gotta show your employees they are appreciated and needed, but I also live near a large metropolitan area, very competitive labor market, if you can come up with something that works for you that helps keep good electricians around, why not? And a final thought, this business isn’t about being fair, “fair” is very subjective, it’s about providing a top notch/quality service and making as much money as you can in the process. The market will tell you when you are charging too much.

 

[kwired]

Billable Rates

I'm looking to do another labor rate increase and I was hoping to get a sense of how others structure their pricing.

As a point of reference we are a small 4 man shop and we only do residential. Aside from new construction and select few large remodels, we bill hourly for almost everything.

In the past we had billed out at a higher rate for more experienced journeymen and a lower rate for more green journeymen. Then a few years ago we changed to 1 hourly rate for all 3 journeymen and a lower rate for the one trainee we have. We bill the same hourly rate to our largest general contractor as we do for our smallest brand new client.

The discussion now is to have price levels, 1 default rate for new clients and smaller clients, and 1 discounted rate for our largest clients (probably based on the last ~2 years of invoices). I use QuickBooks and it looks like the easiest to implement would be a discount (I'm thinking 10%) on the whole invoice which would include labor and materials.

How do you structure your pricing that you bill out in comparison to what I've described above?

---

Payable Employee Hours

In the same conversation, we're toying with the possibility of changing how we pay our guys. Maybe...

If we send them out to one or several jobs in a day, and they bust their butts and are done in 6 hrs rather than 8, then they're benefiting the customer but short changing themselves since they are paid by the hour.

I've wondered for a long time about the idea of converting to salary for our guys. Or recently I was wondering about paying in full day or half day increments. That way if they get done in 6 hrs they still get a full 8 hrs of pay.

We are in a competitive labor market (Seattle) so I'm always sensitive to making sure my guys feel like they are in a good spot and are LESS likely to look around for other opportunities.

How do you structure your employee compensation in comparison to what I've described above?

---

Thanks in advance for your input

How often are you having employees take care of warranty items?

What you mentioned makes sense for the project itself, but there is times something just doesn't work right and you possibly need to make it right on your own dime, even after you have completed the project and are not otherwise active on site anymore. Is not a money making thing but has to be done and employees still need paid for their time there.

Also how much time do your guys spend doing things "for the company" instead of for a client? They possibly do spend some time in the shop doing things that aren't directly associated with a client/project. They may need to perform maintenance (at least operator level maintenance) on some equipment and vehicles from time to time.

Nothing wrong with bonuses or other incentives. If you start to get to where it is totally profit/loss driven, you get to where they are more of a contract labor type person rather than a conventional W-2 employee, and it is possible in some scenarios they absorb some the loss when it occurs.

 

[OK Sparky 93]

I’d like to jump in here if that would be fine with all.
As an employee, or the one man owner/operator, when billing customer how much more time do you add after the work is done and you are calculating all materials and time? Knowing that you are going Togo hand the customer the invoice and wait for them to write a check, and then…

while you are here, we/I (customer are thinking) and could you look at this.

 

[marmathsen]

I’d like to jump in here if that would be fine with all.
As an employee, or the one man owner/operator, when billing customer how much more time do you add after the work is done and you are calculating all materials and time? Knowing that you are going Togo hand the customer the invoice and wait for them to write a check, and then…

while you are here, we/I (customer are thinking) and could you look at this.

None. I bill the customer after I'm back at the office. So all time is accounted for

Rob G