Hi,
I am looking into setting up a franchise. I am confused on a few issues.

Everything I read or hear tells you to add the cost of overhead to a bid. How do you determine what that is?

If you get 50 jobs a year are you trying to spread it out evenly?

Esitmating is a tricky business with pitfalls around every corner.

Do you always figure up the exact amount of materials, travel, overhead, labor etc. or is it common to just make a hypothesis?

Set prices...is it feasible to preset the cost of a 200A service or replacing a panel etc?

A lot of times I already know what is involved in doing most jobs. I know what it takes in material and I usually know what kind of labor it will take. I always add a multiplier of at least 1.0 for degree of difficulty.

I have found that simply calculating the material and labor etc and adding 10% is not near enough profit. I hear that some EC are working within that margin.

I am now charging $1800 for a 200A service where I used to get $1200. Some of my jobs the profit is 200% or more.

I just think that there is a good formula out there and I dont want to create a new one but I do not want to leave money on the table.

I am talking mostly about residential work.

Thanks for any comments.

-regards

Greg

Check out this article http://ceenews.com/mag/electric_overhead_profit_part/

Our company overhead for the last 6-8 months was 19%
It’s pretty easy to lower your overhead if you know how its figured
2 ways, increase sales or cut expenses

excellent topic

Greg,

You might want to check out a book called "Markup & Profit" by Michael C. Stone
Here are some other articles that might help. http://www.pmmag.com/CDA/ArticleInformation/features/BNP__Features__Item/0,2379,37 43,00.html http://www.pmmag.com/CDA/ArticleInformation/features/BNP__Features__Item/0,2379,7 3093,00.html
Also there are free calculators and information at www.mrhvac.com
Scroll down to Free Management Advice and Materials.

[This message has been edited by A-Line (edited 01-29-2005).]

[This message has been edited by A-Line (edited 01-29-2005).]

Greg,

Mike Holt's website has some books on estimating and applying overhead to jobs.
He states that there are two methods of applying overhead to an estimate.
The percent method and the rate-per-hour method.
Example for the first method:
Your prime cost is $7,000 and your overhead is 25% of sales.
Prime cost $7,000 75%
Overhead ($7,000X33%) +$2,310 +25%
Estimated cost =$9,310 100%

The second method is the prefered method.
The rate per man-hour is calculated by dividing the overhead dollars for at least the past six months by the field man-hours for the past six months.
The Rate-Per-Hour Method is the one I use.
Mike Holt's estimating book has some practice estimates in it that you can work through.
http://mikeholt.com/productcategory...le=Electrical%20Estimating&year=2002

[This message has been edited by A-Line (edited 01-29-2005).]

Hi,
I can imagine that for a large company with about ten employees the estimating job gets a little tougher. Myself I am a sole proprietor so it is relatively simple to calculate what my expenses are. First I have a home office and I have only one rig.

I have advertising, telephone, fuel, office supplies, tools, etc to consider.

My expenses are relatively low. The amount of work I can do varies depending on the type of work it is. Some work depends on the logistics of the job.

I usually charge $45 per hour for labor on everything residential, ($55 for Comm)

A lot of times I will just propose a lump sum for the job. This usually works out better for me.

Sometimes I will determine how many hours and how much material and how many trips, permits etc and figure it up that way.

I used to give an itemized list of each part used and cost but I stopped doing that, I will only show the parts and no individual cost but a total material cost. This helps because the client will ultimately wonder why he paid $20 for a GFI that he could pickup himself for $13. I will show the labor hrs and rate, show the show up fee.

Sometimes I just use a standard agreement that spells out the scope and amount and payment terms. This works really well.

The labor rate is where the overhead comes in. I can get 15% on parts and sometimes a little more. Labor rates are hard to determine. I like to pay myself at least $35 per hour. That leaves only $10 per hr. to cover everything else.

If I try to up my rates I will price myself out of work.

I want my company to make a profit not just pay my wages.

A lot of outfits have several hands on a single job when I will not.

I realize there is only so much a sole proprietor can expect to earn but I want to maximize that amount.

If I cant clear $50K for wages and retirement, then have profit left in the business then a body is almost better to forget it and just show up somewhere else to get the $50K and do a lot of side work.

I know that the majority of Electrical contractors are 10 hands or less so I am not alone.

I waste a lot of time trying to pin down every locknut and how much time it takes to install it so I have almost gotten away from any specialized methods of making proposals.

When you make a proposal and never even hear back from a potential client that makes on stop and think about why the job did not come in.

On some jobs I always walk away wondering if I have left money on the table.

Calling contractors and asking what they charge is a waste of time in my book.

The big EC's will make a few million on a single project.

I appreciate all the great references I will certainly look into all of them.

Thanks for any suggestions!

-regards

Greg



[This message has been edited by mustangelectric (edited 01-29-2005).]

Greg,

For the last 5 years as a maintenance electrician I grossed between 70k to 80k annually. I also had great benefits on top of that. I worked approx 60 hours a week.
I feel that a personal income of 100k or more would make it worthwhile for me to be in business and this is what I'm shooting for. I would also like the company's net profit to be 10% or more.
I'm a one man shop and was charging $40 per hour for residential service work. By the time I figured in unbilled hours and overhead I was making a lot less per hour than I could make working for someone else.
I also got plenty of complaints about charging $40 per hour. People thought I was making a killing.
I switched from T&M to flat rate pricing and increased my hourly rate to $100 per hour and I'm going to try to raise it to around $130 per hour.
I believe it can be done but I need to become better at marketing and selling.
In some areas contractors are getting over $200 per hour and have plenty of work.
They're prices are 2 to 3 times higher than some of the other contractors in their area.
They must be very good at selling.
Some people would call these contractors overchargers or crooks. I call them good businessmen who know their costs and charge what they need to charge to make their desired profit. They don't care what everyone else is charging. This is the way it should be.
I quit estimating new houses for GC's. I couldn't get jobs because I was too high.
When I lowered my price to get the job I didn't make any money.
I'm concentrating on service & repair work dealing directly with the customer.
The overhead costs are high for this type of work but the profits are better and I collect my money daily instead 3 months later.
You have to account for unbilled hours into your labor rate. If you're working 3,000 hours annually and you're billing the customers for 1,500 hours at $40 per hour that puts you down to $20 per hour.
Take the overhead out of that and whats left?
You might as well flip burgers for a living.
I've heard that in the service business most contractors operate at 50% to 60% efficiency. I've heard that acheiving 60% is hard to do.
60% of 3,000 hours is 1,800 billable hours.

[This message has been edited by A-Line (edited 01-29-2005).]

Greg,

I also wanted to add that when I don't get a job I don't believe it was because my price was too high.
I believe it was because I needed to do a better job of selling it at this price.
I really need to work on becoming better at selling.

Hi,
I am pretty satisfied that COST-PLUS and FLAT RATE billing is the only way to go.

I doubt that I will ever give another bid based on hours and material.

Cost plus is rare so flat rate is the ony way a small EC can stay alive!

I would price myself right out of work at $85-$120 an hour.

There are contractors out there who can charge $120 hr per man? I do not think I could even get the job at that rate.

Brown & Root, Fluor, Bechtel and any of the other top 500 firms do not even charge $120 per hand!

You may get that in San Francisco or New York but I do not think that anyone would be able to be competetive at that rate.

I get a lot of calls wanting to know how I charge or what my hourly rate is or what I get per square foot.

$1.75 a sq foot for residential is hard to sell!

FLAT RATE BILLING is the way to go!

-regards

Greg

There's a guy in Atlanta Georgia getting over $200 per hour. He's the most expensive in the area and does 6 million in sales per year. He runs ESI. http://www.youresi.com/team_01.aspx

A_Line, I appreciate your enthusiasm, but ECN is NOT a place to pitch a particular business.
For all I know, ESI ("Every Sucker Invited) is a fine operation, but let them pay for their advertising like everyone else!

I didn't mean to pitch this particular business and apologize if it was taken that way. I'm not a member of this organization and don't know if it is a good thing or not.
I just thought some people might like to know that it exists. I have provided links to estimating software websites and other websites that sell books and other business or electrical related items. I don't tell people they should buy this stuff.
I've seen plenty of posts on ECN recommending various products.

[This message has been edited by A-Line (edited 02-01-2005).]

well with that mentality, I guess we shouldn't be mentioning product names or tool brands either. I could see if A-Line was a new member here and hadn't shown a genuine interest in good businessmanship (if that's a word), then I might suspect his motives. But for all we know, that link could prove to be very beneficial to someone, which is what I though this is about.

I appreciate the links you've posted, A-Line. Keep it up!

Dave

Thanks for the links also,When i first started looking for links 2 years ago on electrical business subjects they were hard to find.

Hi,
Thanks for the replies. I myself have gotten over $200 an hour too, but not everyday and not the norm!

I am all for charge what the market will bear.

I guess all the other contractors in that area can say ..."hey, we charge half of what they get!"

Is that $200 per man on each job?

Regards

Greg

With flat rate software you enter in your hourly rate and this rate is applied to all of the tasks that you print in your books.
I may be wrong but I think his rate would be set at 200 per hour. Most of the time a task would be completed in less time than the book shows. So if the book shows a task should take 4 hours but it is completed in 3 hours that would be 266 per hour. If it took 5 hours to complete than that would be 160 per hour.
Most of the time the task should be completed in less time than the book shows so the average would be over 200 per hour.
As far as I know this is 200 per man.
It's hard to believe that some people are able to charge this rate while others have a hard time charging 50 per hour.
I think he spends a lot on marketing and advertising. TV commercials, Phonebook ads, etc.

[This message has been edited by A-Line (edited 02-02-2005).]

Hi,
Could you explain the purpose of these "books" and what they are used for?

Is there a flat rate set for each activity or assembly?

That may not always work out will it?

Thanks

Greg

These books have the prices for the tasks or jobs that you do. Each tech has a book and shows the customer the price for the task in the book. The customer is more likely to approve the price when it is shown to them in a book. The books make it easy for the techs to price the jobs.

Example: Customer wants you to come out and install a ceiling fan they just purchased.

The customer is informed of a service charge for a tech to come out and look at the job.

The tech arrives and removes the existing light fixture. He finds that the existing box is not rated for fan installations and there is only a swich leg in the box so he will need to get power from another source for the fan.

The tech opens the pricing book and shows the customer the price for the task of installing the ceiling fan and writes it on the invoice. He then shows the customer the price for replacing the box with a fan rated box and writes that on the invoice. Finally he shows the customer the price for running power to the fan and writes that on the invoice. He would then total up the 3 tasks for the total price.
The customer would then sign that they approve the price.
If the customer declines the price the tech would reinstall the light and collect the service fee and leave.

If the customer approves the price the tech would complete the work and then get another signature from the customer stating that the work was done to their satisfaction.

If the tech sees that the receptacles in the kitchen and bath are not GFCI then he would inform the customer of this and show them the price in the book to replace these with GFCI receptacles.

That is one of the purposes of the book is so that any tech can price the job or additional work on the spot. For your company to grow you need to have a system so that techs can price and sell the jobs. If you try to price all the jobs yourself you will be limited.

A-Line... Any chance I could ask you a few general questions about the system you use? Just General Information ? I have been trying to get some additional info. If so email me.

Thanks,
Bill

5th-gen@earthlink.net

[This message has been edited by wirewiz (edited 02-02-2005).]

Beware of the Flat Rate Plus book from Mr HVAC (Easy Street, Inc.). I'm still waiting to get my money back.

Dave

Helps you generate an hourly rate.
http://www.masterplumbers.com/utilities/costcalc/

I know it's for plumbers, but labor is labor at this point.

I tried it based on my records for last year, short year, new business, and I came out looking pretty good.

Dave55, What was wrong with the flate rate plus book? Can you give me some idea?

Thanks

BTW, I did get my money back from Easy Street. The salesman, a "Master Electrician" argued with me about the need for two ground rods, and missed some material lists which listed wire nuts for large ga. wires. As I recall, it leaned toward NM wiring, and ITE panels, with no info. on Square D, and none on RMC (this is QO and EMT country). They have some sheets on "Rigid", but it was PVC, not RMC. The print-out book was mostly blank space with over 200-pages. Each item listed a special price for a customer with a maintenance contract, which is an easier sell in HVAC than electrical contracting. In the video he showed a very small thin book that was his HVAC sales book. What I was getting from the software was producing a 2" thick binder, which would be nearly unusable.

I had some other issues, but in general I felt like they have a good system for HVAC, but it didn't quite translate into Electrical Contracting. It also had some glaring typos that I felt would have been caught by a proof-reader, rather than a spell-checker. For $2500 I felt it should have run by a few real Electrical Contractors all of whom would have caught the errors and would have been able to help produce a much more professional product. There was nom way I'd present a sales book to a customer that didn't look top-quality.

I also didn't trust the numbers in the sheets. Replacing a Square D QO breaker, for example, was cheaper than replacing the same sized HOM breaker. I ran into a few other things like that and decided that I'd have to take the time to do it myself. I would have much preferred to pay the $2500 than spend the hundreds of hours creating my own.

Dave

A little more to the original topic...something to consider in setting rates and bidding is your level of experience and quality of tools. If I used to work with a hacksaw and took hours to troubleshoot...and now use a metal saw and take minutes to troubleshoot, I need to adjust my rates accordingly. That's one of the major reasons for bidding jobs rather than doing them T&M.

If your rate stays the same and your experience increases (and production increases), you're making LESS MONEY.

Dave

Dave33 where is the second part of this article http://ceenews.com/mag/electric_overhead_profit_part/
that you posted?
I can't seem to find it
Thanks