Costs vs profits (related to billing)

Anonymity

Anonymity

Participating member
Location
Ontario, Canada
So I’m finding as my business grows with equipment, fuel expenses, employees etc…I’m trying to wrap my head around the need to charge more per hour (for example) because I have more expenses, BUT I get more done as well. Also, if I only bring some equipment to a job but not another, I shouldn’t charge the same I realize that. But how this breaks down in reality I’m not sure?

So the question is: how do you guys figure out the complicated operating costs of all the different aspects of a business and then figuring out a profit margins that is correct and acceptable?

Not sure I made sense?

Thanks
 
Breaking down all of your expenses to a cost-per number is difficult. It took me some college courses to learn how to do it; that’s the best way to figure it all out.

Another option is to pay your accountant to help you figure out what you should be charging, that’s a great way to learn how to do it and to be sure you have good numbers to work with.

Probably the easiest way to figure things out is to work backwards, start with the profit you want to see at the end of the year, add up your projected expenses, your salary included. Divide the total by your estimated number of working hours for the year, and that will be an hourly rate to use.

Unless you’re working with multiple crews, or really specialty equipment, your cost per hour really does not change enough to count whether you’re using everything on a job or not. A skidloader sitting in the shop costs almost as much to own as the same machine working, so you need all your customers to help pay for it.

If you have multiple crews, things can get more complicated, you can bill one crew at a higher rate than another, but if you’re a one crew operation, your costs per hour will basically be the same for each employee, after the first crew member - that one has to cover the cost of the overhead (all your fixed costs, like the phone bill, website, insurance, truck payments…)

As I’ve said in many other threads, hire a good business coach, it will be well worth the money!
 
As for figuring an hourly rate, I didn't do anything fancy. I started with $X and decided I wasn't making enough. Over time I've raised it a couple of times. I'm pretty comfortable where it is now, making a profit and not winning every bid (not the low bidder)


As for equipment, the only equipment I charge more for is hiring a crane and operator. I see no logic in charging per equipment, especially if it's itemized in a quote, because you'll have a customer who says "oh. If you carry all of that wood out by hand instead of me paying for a skidsteer, I'll save money".


The way that I settled on an hourly price isn't necessary the right way to do it and there is a learning curve where you don't make much money. I like @Reach 's idea of the business coach, I've looked into one myself but unfortunately I cannot find any in my area
 
Jehinten said:
I see no logic in charging per equipment, especially if it's itemized in a quote, because you'll have a customer who says "oh. If you carry all of that wood out by hand instead of me paying for a skidsteer, I'll save money".
Click to expand...
Ran into this issue with a repeat customer last year. Hadn’t worked there for a while and my overhead had tripled(or more??). Quote for the same shrub maintenance was more than previous time as my hourly changed but scope of job was same quality and time.

“You having a big chipper and skidsteer doesn’t help my property” was basically the line he used to haggle. Totally makes sense, and we dropped the hourly for this specific job. If it was a shit job for shit people I wouldn’t have.

Generally I agree with @Jehinten and @Reach :
Reach said:
A skidloader sitting in the shop costs almost as much to own as the same machine working, so you need all your customers to help pay for it.
Click to expand...
But some older customers will not enjoy the benefits of your increased overhead. My two cents is not to talk about it or itemize machinery unless they ask, you know the numbers and they know the product.
 
Serf Life said:
Ran into this issue with a repeat customer last year. Hadn’t worked there for a while and my overhead had tripled(or more??). Quote for the same shrub maintenance was more than previous time as my hourly changed but scope of job was same quality and time.

“You having a big chipper and skidsteer doesn’t help my property” was basically the line he used to haggle. Totally makes sense, and we dropped the hourly for this specific job. If it was a shit job for shit people I wouldn’t have.

Generally I agree with @Jehinten and @Reach :

But some older customers will not enjoy the benefits of your increased overhead. My two cents is not to talk about it or itemize machinery unless they ask, you know the numbers and they know the product.
Click to expand...
You’re right there, and there are times for a long time customer we may reduce rates a little, we just don’t do it often. We can reduce rates a bit just by sending a smaller crew, two guys instead of five.

And we never share our rates with the customers, they just see a quote for the cost of the project, never our hourly rates.
 
No way I'd itemize hours in a quote. I quote how much it will cost to do a job...I have hours and rate in my mind.

I disagree a little with @Reach 's statement: "so you need all your customers to help pay for it." Instead I'd charge more per hour for the clients who "need it". (Exception: if you use it to manage the shop yard...then everyone needs to pay.

What I'd propose:
How many hours per year do you expect to use the equipment. Say 1000. What is your yearly cost? Include: replacement cost (I'd propose cost of new machine/5 ... or 3 if you want to be more aggressive), maintenance, extra insurance, fuel. Let's say $10,000 (I'm just making my math easy!). So that equipment is costing you $10 per hour to use. I'd charge $12-15 per hour to use it.

So quoting a job:
3 crew: $180 per hour
Equipment A: $20 per hour
Equipment B: $15 per hour
It will take 4 hours to do the job..."$860" is all the client sees.
 
Jehinten said:
As for figuring an hourly rate, I didn't do anything fancy. I started with $X and decided I wasn't making enough. Over time I've raised it a couple of times. I'm pretty comfortable where it is now, making a profit and not winning every bid (not the low bidder)


As for equipment, the only equipment I charge more for is hiring a crane and operator. I see no logic in charging per equipment, especially if it's itemized in a quote, because you'll have a customer who says "oh. If you carry all of that wood out by hand instead of me paying for a skidsteer, I'll save money".


The way that I settled on an hourly price isn't necessary the right way to do it and there is a learning curve where you don't make much money. I like @Reach 's idea of the business coach, I've looked into one myself but unfortunately I cannot find any in my area
Click to expand...
A business coach and financial advisor very similar?
 
Treezybreez said:
If your equipment allows you to get more work done, then it theoretically should pay for it's self.
Click to expand...
I agree with this thought. We have to stay competitive, but we must know what our equipment costs are. I have found that as I have made purchases to increase our efficiency, the hourly rate does go up even if the bid for the job stays the same. Bidding jobs with factoring in new equipment purchases does seem to be a moving target, and I have found it can take a couple of months of bidding after a new piece is added to get my numbers dialed in.
 
Treezybreez said:
If your equipment allows you to get more work done, then it theoretically should pay for it's self.
Click to expand...
I certainly agree with that... Go back to the numbers in my example. If with the equipment you can get the job done in 4 hours or it takes 6 hours to do it without the equipment, you just saved your client some money.... And you got another job done that day. However, if you say the equipment should pay for itself and continue to bill at $180 per hour rate and you only bill for 4 hours You aren't paying for your equipment... Or your equipment isn't paying for itself, however you want to look at it.
 
I know what I need to make for the day, 1/2 day and roughly per hour. I dont adjust this based on what equipment I am using. I understand that when I am actually generating revenue, that revenue must pay for my expenses at that time PLUS all the time and expenses that dont generate revenue. Example I factor in all my time and fuel used in doing estimates that I dont get the job. Time on the phone, time in my office, time in my shop etc. Also I have been very careful about not making my company too top heavy with equipment as that makes small jobs not profitable.
 
VenasNursery said:
A business coach and financial advisor very similar?
Click to expand...
They have similarities, but they’re rather different. A financial advisor knows money, but does not do much else. A business coach may know something about money, but usually concentrates on the other aspects of business, things like setting goals, making plans to carry out those goals, figuring out the purpose and the vision of the company. A coach may also help refine a sales practice, whatever else you need. Think of a business coach as a Big Brother to give you whatever guidance you may need.
 
VenasNursery said:
I’m gonna have to make time would love to get advised
But
Don’t know if I want to hear all about my issues haha
That I already know
Only the positives haha
Click to expand...
I highly recommend making the time, it’s well worth it. I meet with my coach once a month, for about an hour and a half each time. It’s fairly expensive, but it pays for itself many times over.
 
I’m paying $400 per month for the coach, and that gives me the 1.5 hour per month in person, three 4-hour group meetings/collaboration meetings a year, and access to my coach by text or email in between if I need anything in between.

The actual value is worth far more than the dollar value to me, as the benefits have been tremendous in my opinion. Not all coaches are equal though, there are some good ones and some bad ones, like anything else.
 
owScott said:
I know what I need to make for the day, 1/2 day and roughly per hour. I dont adjust this based on what equipment I am using. I understand that when I am actually generating revenue, that revenue must pay for my expenses at that time PLUS all the time and expenses that dont generate revenue. Example I factor in all my time and fuel used in doing estimates that I dont get the job. Time on the phone, time in my office, time in my shop etc. Also I have been very careful about not making my company too top heavy with equipment as that makes small jobs not profitable.
Click to expand...
I agree, but I will add another angle to look at small jobs.


Small jobs can still be profitable even with lots of equipment. First off, if it requires all of the equipment that is needed on the larger jobs a decent minimum should be required. Then these jobs get scheduled with other larger jobs that are close by.

The minimum should factor in the time for the initial phone call and data input, bidding time, time for scheduling and client communication, time onsite, and driving time, even if you can group it with other jobs.

If the job doesn't need much equipment, like felling jobs or no cleanup, we mark them in our system as 2MJ, which means 2 man jobs.

Then we can go out and make those jobs profitable while the equipment is being serviced, or the yards are too wet to get equipment in.
 
Reach said:
Breaking down all of your expenses to a cost-per number is difficult. It took me some college courses to learn how to do it; that’s the best way to figure it all out.

Another option is to pay your accountant to help you figure out what you should be charging, that’s a great way to learn how to do it and to be sure you have good numbers to work with.

Probably the easiest way to figure things out is to work backwards, start with the profit you want to see at the end of the year, add up your projected expenses, your salary included. Divide the total by your estimated number of working hours for the year, and that will be an hourly rate to use.

Unless you’re working with multiple crews, or really specialty equipment, your cost per hour really does not change enough to count whether you’re using everything on a job or not. A skidloader sitting in the shop costs almost as much to own as the same machine working, so you need all your customers to help pay for it.

If you have multiple crews, things can get more complicated, you can bill one crew at a higher rate than another, but if you’re a one crew operation, your costs per hour will basically be the same for each employee, after the first crew member - that one has to cover the cost of the overhead (all your fixed costs, like the phone bill, website, insurance, truck payments…)

As I’ve said in many other threads, hire a good business coach, it will be well worth the money!
Click to expand...
I totally agree, but I also want to add productivity is also a machine. Regardless of the task, imangine and know you the other crews prices, and skill set. I can make a super niche with minimal equipment and crew, but also charge a little less than the company with the big tools and workers. I have a flat fee for ‘specialty equipement or advanced rigging’. I briefly had a employee that worked for a company who bills $155 per hour per crew member while on rope. The most comparable job, I asked him a few comparison questions. Day one, we did about the same volume of work, with 1/3-1/2 less crew, second day we did nearly double volume of work. Then I asked him about ‘level of effort’ as in gallons of sweat per hour, “oh shit, MUCH LESS”
In my world (and ours?) we just used a English reeve system with two winches. Loss of time on day one was eaten up by set up time, but saved physical labor
 
You must log in or register to reply here.

New threads New posts

Back
Top Bottom