Alicia's post got me to thinking about shop rates. I didn't want to highjack her thread but this is something that is really important. It's something not many of us think about enough, especially when we have employees.
It is extremely rare we charge out by the hour in our business but that hourly rate is something we need to know in order to price out project properly.
There are many factors. First is that we tend to fool ourselves in how long a job really takes. Do we account for the getting ready, the cleanup afterwards and other tasks that are not often counted. How about taking the money to the bank or ordering supplies? We have one big project the has gone on for six years and at last count the emails have added up to are than 3,000 and counting . That's a lot of consultation and hand holding. But no worries for it was built in to your quoted price from the start.
In our shop we like to encourage our employees to work hard but there is a considerable amount of time we cannot bill out - unproductive time.
It's a rare day that everyone is at their work station and ready to pick up the tools at 8:00 am. There's always a little friendly discussion of what happened last night or over the weekend. Then the tools need to be brought out, organized and the work started. We give our employees two paid 15 minute coffee breaks, but from the time the tools are laid down until they are picked up again can often be a little longer. Same goes for lunch. And the crew begins cleanup before it is quitting time.
Sometimes we need to discuss various projects, safety issues or a host of other things. We need to take out the garbage, sweep the floor and sometimes spend a bunch of time organizing and cleaning the whole shop.
We have the equivalent of one full time person in the office or running for supplies we need. Their time isn't billed to any one job. And Peter and I often jump from project to project as needed. Sometimes I can spend the better part of any day talking to new potential clients about future projects. I attend shows, go look at jobs or a hundred other things.
So how do we bill out our time? Let me give you an example...
Let's take one of my employees. We'll say this one makes $20 per hour. (an average employee wage in our shop)
Add to their hourly wage a bunch of costs... medical, pension, government regulated holiday days (paid of course and at least one per month on average) Six percent holiday pay, workers compensation and other costs. Then add in the non productive and non billable hours. The reality is this employee gets five or six hours of billable time each day. That twenty dollars per hour we pay our employee suddenly becomes more like 35-40 per hour of billable time.
Then there's overhead. Shop costs, rent, payments, telephone, auto expenses, insurance (which includes shop insurance, tool insurance, liability insurance) We need to buy new equipment (and replace the stuff that wears out or breaks) We need a new shop truck every three or four years. We need new computers, and software too.
We have to turn the lights on as well as heat and cool the shop. And all those fancy tools take electricity to run of course.
Then there's the mistakes and believe me I make them too. On occasion things will go sideways and we have to do something over. Occasionally we have to repaint something (sometimes a year or two later) This is not billable time.
At least some of our employees need certifications and training on the forklift, boom lifts, first aid, and other educational opportunities.
We have to pay our lawyer to file our papers each year and the accountant wants to get paid their fees for their services too.
Most of these things aren't something we can bill our customer for directly. Instead it comes out of our hourly rate.
To pay our employees that $20 plus cover all of the other costs plus pay ourselves an hourly billed wage needs to be a whole LOT higher than you might think at first glance.
On top of all those wages (including ours) the company needs to make a profit.
We need time to practice (making samples) educate ourselves. We have to mow the lawn and plant some flowers in front of our shop. We need the best possible sign we can make for ourselves. And then there's our web presence. How about attending a chamber of commerce meeting once a month, professional or association dues. I also attend a number of conferences and trade shows each year.
All of that and a whole bunch more comes out of production time... and back to that hourly rate.
When we are figuring out an estimate for a customer our employees are counted in at $100 per hour... Peter's and my time at double that.
Once we settle on a price for a project and give a quotation we stick to that number no matter what. Sometimes we do good and if things go sideways we eat the cost. THat's why we always build in a good margin.
It all averages outer a year. If we do well the employees get a bonus (as do we)
Don't sell yourself or your employees short. That's how we make a living.
-grampa dan
Posted by Don Hulsey (Member # 128) on :
Thanks Dan. That's what I wanted to say on Alicia's post, but I type so slow that my $100 an hour shop rate would not allow me to make $20 while typing all of that.
Posted by Raymond Chapman (Member # 361) on :
Great information, Dan.
Posted by Jean Shimp (Member # 198) on :
I really wish our competitors could read this! I am amazed at some of the low ball prices people work at. Like me, many years ago, they are probably learning the hard way.
Posted by Sheila Ferrell (Member # 3741) on :
I understand exactly where granpa Dan is coming from - with so much obvious overhead, it's incumbent upon all of us to factor in all the little myriad expenses which we often don't consider . . ,
Even as a one person owner-operator with low overhead, I need to figure jobs more accordingly and more importantly, consistently. Sometimes I figure well and net 70 or 80 bux or more an hour. Another time a misfigure ends up netting only 20 or 30 an hour.
I also consider my smallish city & outlaying towns within 35 or 40 miles I often travel to do work for - and the number of years I've been at it - I have a very loyal repeat customer-base, but I'm long overdue for a rate increase.
Also familiarity breeds contempt: I've been in business in my hometown since 1988. I know just about everyone. Sometimes when the old friend or aquaintence comes by and expects me to work at cost - it can be frustrating, even contemptible, for both parties - but I've grown better at dealing with this issue over the years. It's kinda sad but true - we spend an awful lot of time educating people and don't even make teacher-wages for that amount of time ...
Here's the best anecdote for dealing with long time aquaintences given to me by an old used car salesman:
"You Have To Make Money Off Your Friends. Your Enemies Don't Do Business With You!"
Thanx for this always-on-tine reminder to actually make sure we make a living doing what we love!
[ September 06, 2016, 02:11 PM: Message edited by: Sheila Ferrell ]
Posted by Dan Sawatzky (Member # 88) on :
My previous post is already long but I wanted to add one more thing.
When we undercharge for our work it is counter productive. We then often have to work work long hours and see little for our efforts. Often, when everything is factored in we can actually lose money that way.
In our shop, if we do our math and discover there isn't a good profit in a project we say no thank you to these jobs without any hesitation. We turn down many more projects than we take. Our time is much better spent making some samples of the type of work we want to do in the future or improving the look of our shop.
We also absolutely do not sweat what our 'competition' is doing (and there is plenty of competition out there, even in our specialized market. In fact, we regularly send them the work we turn down. That keeps them busy and makes time for the very best customers in our shop.
All this of course works best if you can find a niche market and do work few others can instead of run of the mill quality. If you aren't doing this then it's time to build your skills and create samples and run them up the flagpole to find that market. It works exceptionally well.
I know many folks will say that it's fine for me here but they couldn't sell that kind of work in their area. My answer to that if you work hard to be at the top of your game, people will find you wherever they might be. These customers will pay top dollar and wait their turn in line to get it. The internet makes it easier than ever in history.
We prove it every day in our shop. Our current list of clients are in Trinidad (southern Caribbean), Dubai and eastern Canada with other good sized projects pending that will go to Texas, California and Ontario, Canada. Only one small project in the next year will be local.
-grampa dan
Posted by Alicia B. Jennings (Member # 1272) on :
Now none of the jobs I ever do are as complicated as Dan's. He's got a lot going on. But I find that I do my business quite a dis-service by spitting out quotes on the spot. I have been working on that flaw, and trying to control what flys out of my big mouth.
Posted by Vance Galliher (Member # 581) on :
I've follow an axiom learned long ago...my work is not for bid !
[ September 07, 2016, 10:45 PM: Message edited by: Vance Galliher ]
Posted by Ricardo Davila (Member # 3854) on :
Vance,
You got that right !
Posted by Raymond Chapman (Member # 361) on :
While my work is not anywhere near Dan's caliber, we do some dimensional work that most in our area do not have the inclination to do or can't produce what we love to do. After 60 years of making a wide variety of sign types, we have arrived at a point where it is easy to turn down work. Since we are known as the most expensive shop in the area, we don't get a lot of the tire kickers. Reputation can be both positive and negative.
As I near the time when I'll lock the door for the last time, I wish I had learned Dan's lessons a long time ago.
Posted by Dave Sherby (Member # 698) on :
I agree with everything Dan said, but I must add that he has a niche market, very unique. He built a very good reputation with his outstanding quality and designs, but how much competition does he really have compared to our type of sign shop? I know he has competition, nobody has a lock on any product, but when it comes to your average sign that could be produced by any sign shop there are too many people that will take the lowest price they can find. I have always produced my signs with the highest quality materials available. My signs outlasted my competitors by wide margins. It has taken till my near retirement to finally become known as the quality guy. But I must say, years ago I followed Dan's advice and I quit worrying about my competitors and what their pricing looked like, I quit bidding on jobs, and my profits definitely went up. My new rule of thumb is to figure how much time it takes to do something and then double it.
Posted by Don Hulsey (Member # 128) on :
Dan does have a niche market, but the rest of us still deserve to get paid for what we do.
I would rather PAY to play golf than to work for free.
Posted by Rusty Bradley (Member # 6938) on :
Looking back over my 30 years of sign making...and to my detriment... I nearly always under valued my work... I remember once being asked by someone who was wanting me to make them sign if I did it full time...I told them..."I do it full time for a part time living"...and truer words were never spoken...more money would have made life easier...but that never got in the way of the exhilarating feeling I got from the act of creating.
Still to this day...I think "Work'in Full Time for a Part Time Liv'in"... would be a great title and subject matter for a country song.
[ September 09, 2016, 12:17 PM: Message edited by: Rusty Bradley ]
Posted by Rick Sacks (Member # 379) on :
I remember telling a possible customer that if he didn't pay the price for the sign than my kids would need to pay for his sign, and the kids wouldn't get their new shoes.
[ September 12, 2016, 09:03 AM: Message edited by: Rick Sacks ]
Posted by old paint (Member # 549) on :
QUOTE. a job higher then you would actually do it for..........and if they dont FLINCH.........add something more!!!!!!!!my rule for QUOTES to people that get me out there to look at a job FOR A QUOTE.......seeing as some of these would never have been "my job" to begin with......higher then normal quote was gona be it anyway........because these jobs wanted the "cheapest" and i dont do cheap......... the jobs i quoted higher then normal........IF IT BECAME A REALITY......i always knocked $20-50 off the top.........when i over quoted.........you cant ADD to the toatl when its done)))))and then they feel like they got a heal of a deal........... best one ever........iam sorta like rick when it comes to these people who want to beat me up on price. had this mormon/menonite older guy. i know he was a farmer, but he was dealing on phone cards when they was big thing. 2000-2002. come in on day wanted banners 2 x 5 yellow, plain block text black and some red $$$ numbers. i had the storefront shop then......wants to buy these and so the bidding began. so my normal price of a 2 x 5 was $100, so he starts the what if i buy 5? so i knocked off $10 each for 5. then he says what if i buy 10? so i stopped him here told him IF YOU GIVE ME AN ORDER FOR 20....... i will do them for $80 each.......and thats bottom number for me. dont care if you order 50.....$80 each is where it stands. SO HE TRIED to beat on me......now iam done with him, dont care if he walks out the door so i told him this(being nice) OK.........i got a deal for ya, I WILL DO ALL THE BANNERS YOU WANT FOR FREE...... hows that??? he looked at me like ok...now he got me......... i said WITH MY RULES....... #1. IAM coming to live in your house. #2. you will cloth and feed me #3. i never seen you wife, but if shes a good lookin woman, i might want to sleep with her every now and then....... BUT YOU GET ALL YOUR BANNERS FOR FREE!!!!!! i must made 100-150 of these $80 banners.....and he never again tried to get me down on price)))))
[ September 13, 2016, 01:52 AM: Message edited by: old paint ]
Posted by Wayne Webb (Member # 1124) on :
I have an hourly rate, but I seldom use it for pricing jobs. Since I was spending too much time on quotes, I made a few little "pricing programs" using Microsoft Excel(actually I use Open Office now). I have one for "Metal Signs", another for "Sandblasted Signs", "Vinyl Letters" "Vehicles" etc. It really helps with the good jobs as well as the tire kickers as all I have to do is punch in some variables, give them their price in minutes, and get back to what I was doing.
I don't have rent or employees so my hourly rate doesn't need to be as high as some of yours but, I do have overhead like utilities, insurance, equipment purchases and repairs etc. I mainly use my hourly rate on things like certain routing jobs or installations. If I did have rent and/or employees, I would raise my hourly rate for sure.
On second thought though, I am in the process of building two signs for my business which will end up costing me about $7k. If these two projects have the effect that I'm hoping for, I may just need to raise my hourly rate again.
[ September 13, 2016, 10:18 AM: Message edited by: Wayne Webb ]
Posted by Preston McCall (Member # 351) on :
An attorney goes to heaven and St. Peter asks him how old he was..."It says here that you were 143 years old?" "Er...ah...that must be billable hours, sir. I was only 52."
Seriously, when doing windshields, I ran an average of $390 per hour....$15 per windshield and I did 26 per hour. 185,000 windshields later, I retired to my art gallery in Santa Fe. It is not about how much per hour, but how much they value your service!
Today, I just paint landscapes that sell for premium money. Prices run 2-5k each for 20 hours max per. I frame them and not every one sells. Would I make more money painting windshields without the huge overhead? You betcha, but with no green chilies and being able to just hang out in my gallery is priceless. I must love it, as I am here seven days a week. At least here, I can imagine myself as being some internationally collected fine artist, whereas before I was just some car-lot lizard that charged way too much to paint windshields.
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