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How many of you actually......?

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  • How many of you actually......?

    So I was reflecting back on Geno Gardner's post about what one would charge for a faucet install, and got me thinking about what the rest of you do in your own business because a few of you thought we were a little high in the "Estimation Quote" I gave.

    Not to justify our pricing and not to open up the books I thought I would list the things we analyze as a company both on an annual basis and regular basis to make sure we maintain profitability.

    Over the last ten years in California we have watched all our insurance across the board double, even though we have no claims. Our G.L. has just about tripled since 2000.

    The things I scrutinize annually:

    All our insurance policies renew around Sept. of each year. I have calculated over the years that I now spend on average a minimum of two weeks worth of man hours in August reviewing and scrutinizing every word on every page of roughly a thousand pages of insurance policy information that is sent to me. Then I spend at least another week going over it with our broker to make sure everything is covered. Followed by another week comparing prices with other agencies.


    -General Liability
    -Umbrella Liability
    -Riders for:
    Loss of tools.
    Workers Comp
    Health insurance
    Acts of God......

    Taxes and fees:
    Business licenses
    State Licenses
    Vehicle Registrations & Taxes

    Office Operations:
    Payroll (labor staff)
    Public works documentation
    Federal Project documentation
    Computers / electronics
    Cell Phones

    Shop operations:
    Tool maintenance
    Useful life

    Payroll taxes
    Workers Comp.
    Health Insurance.
    Cell Phone
    Technical training

    Wear and tear
    Sociality Tools

    On large projects we job cost the project against actual costs to confirm the profitability margins.

    I have estimated that one truck needs to generate on average about $1200.00 per day in revenue, labor and fees before it shows company wide profitability.

    One of the reasons why we don't do residential services unless its a referral or someone we know is that sticker shock the customer gets when we hand them the bill. It amazes me how stupid residential customers are. They will hire an illegal Nanny or Housekeeper, have them live in there house and do so openly with no understanding of the persons true background. All because they work for cheap. Or the fact that they don't have a clue about the liability they open themselves up to if the person gets hurt in there house, commits a crime, etc.... Or they will hire an illegal Gardener or a legal gardener who uses illegal help and pay them $50.00-$75.00 a month to do the yard once a week. Never stopping to think what happens to them as the homeowner if Jose gets injured on there property. Yet they will complain endlessly on how we are ripping them off for using our expertise to solve a problem.

    Just curious what the rest of you do? Are you really making a profit when you dig through everything?

    (Just for you guys in California that have your company incorporated here)

    Heads up and expect a nice big fat bill from your WC policy holder in the coming months. New law goes into effect that forces the primary officers of the company to now carry workers compensation insurance on top of the company WC policy, to the min. value of $45,000.00 in annual salary, (even if your employee exempt). We just got hit with a $4,500.00 bill from our Workers Comp Carrier for little olé me alone. I dumped that one on my broker who has spent the last couple of weeks figuring out with the underwriter how to supersede this. For us it will be resolved sometime next week. You all will find out how good your broker is and how good a friend they really are to you when you have to cross this bridge. Cheers.
    Last edited by Watersurgeon; 12-30-2011, 07:32 PM.

  • #2
    Re: How many of you actually......?

    Good stuff Water Surgeon!

    We are a 2 man shop (family business), and my father has been transferring everything into my name over the last 2 years. Now I don't know everything he does on the business side of things yet, but everything you just posted is very similar to how we do business. We look at it as we are not an hourly employee, but a business owner trying to run a business. IMO some don't understand the economics of business, and trying to explain it to them is a losing battle. They think because they charge a certain amount, everyone else should be around the same figure and that simply isn't factual or possible at all.

    If our business can't show a profit after our wages and bills are paid, then I no longer want to be in business then.

    I certainly didn't have a problem with your price you posted in that thread. Matter of fact, I know of at least 4 Residential Plumbing companies in my immediate area, who would of been higher than you for the same job. ($600 range) Doing a budget spread sheet is extremely easy to do and see where a companies bottom line is, but yet most don't do it.

    Prepare for a few hand grenades in this thread, because not only are we Plumbing & Heating contractors, we are also Economic majors, Accountants and Lawyers as well. lol
    Last edited by Flux; 12-30-2011, 05:56 PM.


    • #3
      Re: How many of you actually......?

      Originally posted by Flux View Post
      Good stuff Water Surgeon!

      Now I don't know everything he does on the business side of things yet, but everything you just posted is very similar to how we do business/law.
      Your comment jarred my memory. In California when you take the State Contractors test it is comprised of two tests. Trade and Business. Statistically the majority of people taking the test fail the business license portion of the test. Also, historically the majority of new licensed contractors fail because of there inability to manage the business portion of there operation.
      Last edited by Watersurgeon; 12-30-2011, 08:24 PM.


      • #4
        Re: How many of you actually......?

        Originally posted by Watersurgeon View Post
        Your comment jarred my memory. In California when you take the State Contractors test it is comprised of two tests. Trade and Business. Statistically the majority of people taking the test fail the business license portion of the test. Also, historically the majority of new licensed contractors fail because of there inability to manage the business portion of there operation.
        New Jersey has a 3 part test for their Masters... Trade - Practical - Business & Law

        I still have my Business & Law book from New Jersey, and you should see what they want you to charge for a job. I would absolutely love to get that type of money they were talking about in that book, but then again, there would be "wanted" posters on the highway featuring my face with a robbers mask on.

        But the Business & Law was the hardest part of the test.
        Last edited by Flux; 12-30-2011, 08:11 PM.


        • #5
          Re: How many of you actually......?

          I have estimated that one truck needs to generate on average about $1200.00 per day in revenue, labor and fees before it shows company wide profitability.

          that's $300,000 per year based on a 50 week / 250 days of work.

          seems very high before you see profit. and that's on just 1 truck.

          i guess being small is actually being big.

          phoebe it is


          • #6
            Re: How many of you actually......?

            Since you posted a lot of insurance info....don't forget to check what your insurance company charges you to add another company as added insured and what the guidelines for that is.

            Last I knew my ins co charged me $250 for each added insured and that only covers one job with that Company.
            Actually the last added insured I did, I ended up getting a $400 bill.

            IE: I do a lot of work for a retail chain through a maintenance Company (XXX co.).
            XXX Co says I need to ad them on my insurance as an added insured. I tell them no problem, but I will have to charge them $250 to do that and that only covers one job at one location. So let's say I clean catch basins at 3 locations and unclog a WC at one of them, I would have to charge them $1000 in order for them to be truly protected as added insured.

            The insurance company charging fee's for added insured is a fairly new trend. When I tell someone requesting added insured this they pretty much through the BS flag, but after they do some calling around they call back and say never mind the added insured, just have your insurance company fax over proof of insurance.

            So far Proof of insurance is still free......well at least I think it is friggin' crooks.
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            • #7
              Re: How many of you actually......?

              my additional insured are free. but in all the years, i've only named 1 as additionally insured.

              proof of insurance is nothing more than your policy showing numbers and dates. you should be able to fax or email from your own policy to the client. unless of course they want it from the insurance company.

              my 2 million dollar policy ends tonight and starts tomorrow. this year i had it all done 2 weeks before so not to get stuck with the holiday closures.

              phoebe it is


              • #8
                Re: How many of you actually......?

                Now not to totally crucify my mate Tony over here this is exactly what makes us work our butts off till we are tony's age. Yes we need to sleep at night. However lets look on the other side of the coin. When you employ you NEVER get what you expect out of an employee. I dont care how much one says about giving benefits and nurturing them, make them FEEL GOOD and Important. Yehah ok, sounds good doesnt it. How many times do you give an instruction and find that they know better. And of course when it all goes belly up we dont get to charge twice for the same job now do we. Then again I do know some licensed practicioners who are little short of two-bob hacks. Then there is our INSURANCE. Tony hasnt mentioned that we are legally required to be insured with a sham policy befoer we get our license renewed annually. My PL is $20million. I have never had a claim and never got a discount either. Go back to the illegal nanny and such. Over here we have si,ilar in the Big Green Shed where the coulda-beens just cant wait to lead you up the garden path. after all they couldnt cut it in the real world so they just load you up with everything that baffles the HO etc etc etc. So back to the original point, we undersell ourselves and this leads to us being treated with absolutely no respect. We are supposed to be Licensed Professionals. We invest in Ridgid equipment that we sourse through this site, not our useless rep Chris(had to throw this slap in GUYS....!!!!). we have to service and maintain this expensive equipment and replace when required. We go to Jail without passing go because we are presumed to be Professionals. So the age old arguement of gouging vs. fair and reasonable will continue for longer than I will be in business, guaranteed. Maybe some of us should invest in business mentors who take an unbiased look at our businesses and make recomendations. I GUARANTEE if you have the balls to do this you will certainly be shocked. So what if you lose some whingers along the way. strive for the A-type clients, not the tyre-kicking customers. Give them service and be reasonable and fair and sleep at night. If someone wants to go broke, encourage them so that they will get out of the way. They are the ones who are screwing the clients and totally disrespecting them.


                • #9
                  Re: How many of you actually......?

                  First let me state I'm NOT in the plumbing business. But I've spent my life in "business", and over my 45 years before retirement I was at times a free lance illustrator, writer, photographer, and then a dept manager in a sub-contract company, and a project manager in a multi-billion dollar company, and then a consultant... and through all of these years, I've maintained my "free-lance" extra-income capabilities. And for a few years in the middle of all this, I was a "Corporation", registered in NY State (which is problematic, all by itself).

                  In whatever capacity my "job" was labelled, the bottom line was that I had to understand "business" and show a profit. Even the big Billion-dollar corporate manufacturer didn't keep me around as part of their "overhead"... I always have had to "make money" in order to survive either as an entity, or as a "zero-cost" individual within a much larger structure (where my value and "cost" was under constant comparison to "outside" contractors).

                  So there's some real basics to being in business... and unfortunately it's these basics that many business people simply don't understand. In fact, my experience has been that very few people, especially the typical "corporate" middle manager, have even the slightest clue about. (Typically, a "couple" of weekly department "meetings" can blow your department's profitability right "out of the water".)

                  As a freelance "extra-job" person, my earnings and encentives were almost entirely to make "extra money"... the price/hourly cost charges that I used was mostly to offset the inconvenience of having to work extra hours and to maybe just be slightly lower than my "full-time" competitors. Afterall, my full-time salary job took care of my actual day-to-day needs, so "freelance" projects was simply about "extra" cash and perhaps just the pride in doing the work and keeping my "name" out there. (It was also a great way to learn new ways of doing things that other companies might require, and then having this new skill to enhance my services to my regular employer.... whose business was making heavy industrial machines - One simply does NOT compete with their employer, in case anyone was wondering!)

                  But in the four decades of my career, there was a time where it was only my talents that made me a living, and for that I had to cover all of the daily, weekly, monthly expenses that our family needed. I remember sitting down with my wife and discussing exactly what it costs us to live... the house mortgage, electricity, heating, water, taxes, food, insurance, transportation, fees, legalities, etc., etc., etc. My wife is very efficient and quite frugal, but still there's an expense to "living", as opposed to just "surviving". Together, we came up with that "cost" and that went a long way to establishing my hourly charge rate.

                  But that rate, would of course be determined by the number of hours that I actually worked, AND could charge for! For example, I can't charge for times when I'm downing a cup of coffee and shooting the breeze with a client, unless that was actually consulting. I can't charge for talking about getting a job, as that means sales time, and I can't charge for quoting jobs. I can't charge when talking to my vendors about new techniques, or for learning the new technical stuff, and I can't charge for time fixing or aligning my equipment. How many hours could I spend a week doing non-charge stuff and exactly how many hours a week can I actually be working and actually charge a client for? For my kind of work, I spent about 12 hours every week doing stuff that I couldn't actually charge a client for... and that meant that I needed to charge those remaining 28 hours. (And yes, you should set your charge rate based on everybody's idea of a 40-hour week!)

                  So, once I figured our weekly "living" expenses, I multiplied that sum by 52 and then divided that by 50 (allowing for two-weeks vacation every year); and then I divided that by 28 to come up with an actual (and necessary) hourly charge rate. And, it was absolutely necessary to be able to charge a minimum of 28 hours every week in order to meet my expenses. But, every hour above those 28 hours at that rate, was PROFIT! Likewise, any dollar amount above or beyond that determined hourly rate meant "profit"; and, "profit", if it were enough would mean growth in the savings account and maybe even in the business itself. (And, you should look at each service and/or employee as a "new door" that let's in more "profit"... and that needs to be closely evaluated for each new hire. Because, each of these steps has a defined cost and somewhat long-term liability, so if it doesn't work, it will definitely impact your bottom line.)

                  So being in business, for me meant that I now had an absolute minimum requirement in order to sustain "business". Of course I'd work more than 8 hours a day and 40 hours a week, but my "rate" was designed to not account for that extra part of the business (or more importantly NOT TO count on it). Afterall, you can't make a profit unless you absolutely know your costs... and if your costs are so high as to put you above the competition, then it makes little sense to go into that business. The purpose (and the only purpose) of business (at least it's prime objective) is to make a "profit", and if you don't understand that you really should just look for a job. (In my case, at that time, my employer moved my job... and left me here to rot, so I didn't have any other option.)

                  Unfortunately, far too many people don't understand that, and some even appear to be in business only to feel that they are independant and working for themselves. I've heard countless people say, "I could never stand to work for somebody else"... but the sad fact is that is never true unless you're inherently RICH, because to be in business for yourself, means that you're really working your butt off for every client that you have! If you aren't, then you'll be extremely lucky if you survive.

                  The challenge for me, was to spend only a certain amount of "free time" every week (and keep that below those "planned" 12 hours) seeking new business or technically improving my business. The latter I would try to do as I worked "chargeable time" and to some small degree, I'd work in a certain amount of improvement with a project simply because I always like to be able to "do one better" with each client's projects. In my business, such forward steps were always well accepted, and it did pace me ahead of my competition.

                  Big problem of course was "cash flow"... all of my clients were "Corporations" with purchasing departments and accounts payable terms. In other words, you could take on a 200 hour job or more, but you had to wait for a purchase order (which if you really waited for, would put you behind schedule in too many cases) and then you could "bill" only after the job was delivered (200 hours or so later)... and then you had to wait 30 to 90 days to actually get paid. So, a really big "dream" job could actually put you out of business! (I remember long ago, when a particular competitor took on this massive job from the State of New York... I was envious as hell, he had a job that was going to last him and his four employees almost a full-year's work. He went bankrupt before he could deliver the final frames. NY State didn't pay him for what he had delivered, until almost six months later!... AND, I know a local plumber who got into a similar situation doing work for the city!)

                  (Lesson Learned: Make sure you can get "progress payments" at certain points of completion, if the job is bigger than your "working cash" reserve!)

                  The other concern was "adding employees"... As you all know, that's a major step and there are massive liabilities that go along with that. So for me at least, the answer was NOT to hire an employee... but to subcontract it to another freelancer. Present the job requirements to them, get a quote and then hand it over with your expectations. They deliver to you, you check and deliver to the client, and you give your "hired" a "1099". But to do that, IT has to be their job, under their time, at their place, with their tools....BUT it's your parameters, quality, assurances, and approved delivery that counts. Daily/hourly supervision costs way too much and it's not something I could openly afford back then. That probably doesn't work in the plumbing business and I'm not sure how the labor laws are defined today... but at that time, it was very workable for my kind of occupation.

                  The other, and perhaps best, thing that I did was to incorporate. I could find no advantage to being a "Proprietorship" as the whole thing is pretty fuzzy in separating your business from your personal; in fact at the time, there was no difference between money's in your account, personal or business.

                  But as a "Corporation", everything was different. All expenses, even those two cups of coffee I bought at the client's office was a "write-off". My car, my equipment, even the workroom/office in my house (and all of the utilities needed for it) were accounted as a business expense. My wife and son were on the "Board of Directors" and though we owned all of the stock certificates, we did have "stock". I paid myself a salary as a "contractor" to the Corporation and then the "corporation" took that as a write off. I of course had no clue to any of this before I "incorporated", but I was smart enough to hire a "tax accountant" (not just an "accountant"). My wife and I did the books, kept everything "above board" and documented and reported every single hour and every dime earned. At the end of the first year, I only made about 70% of what I had earned working for the big company as an employee... but I got to keep every dime of it and therefore actually had more money at our disposal... life was definitely better as a corporation.

                  By the end of three years (of otherwise "unemployment") my freelance, turned "corporation" ambitions had been rather profitable. I had great equipment, a new car, a good number of reliable clients, and even two almost full-time sub-contractors under serious consideration for full-time employment. My actual $ income was such that I never had to hit the savings or the college fund and in fact managed to bank some. But, the technology was changing very rapidly and I figured in another couple of years, much of my "lead" was going to be gone; as by then, anybody with the $'s could then do what I, at that time, was on the leading edge with. So, one of my clients (actually a division of my old employer) made me an offer I couldn't refuse.

                  But, the point was that I had taken a good look at what "being in business" required and I made it work very well for me and for my clients. I made money, I saved money, and I increased my skills and offered capabilities at a price that overshadowed my competition... and in the end, it got me a better paying position and a great reputation with the major corporation, which I then helped bring into the technological changes of the period.

                  The business part, was little more than understanding the basic math of profit and loss, and then knowing what I had to charge and knowing how I had to address cash flow issues. Fortunately, I never had to borrow a dime or ask for investments and I never leaped into things that substantially raised my overhead and caused me to cost myself out of the competition. I always managed to deliver on time and at less expense than my competitors... all of which "evaporated" within those couple of years after I left "my company" to someone else. All of them, BTW, died in a sea of bankrupsy.

                  So, understanding your needs and then costing that into a "rate" is absolutely essential. You can't figure "profit" unless you know your "costs". You need to track everything in order to know either side of that... and in so doing you will know exactly why you didn't "profit" from a particular job and then know how to take the steps to correct such faults on the next project. Amost equally important, is knowing why you made an unexpected profit. For knowing those particulars will allow you to do it again (hopefully it was done fairly) and most importantly it gives you a "margin" within which you can "adjust" if the competition is serious. Sometimes, in the heat of competition, you might be tempted to "cut it to the bone"... and that's okay, if you got some serious assets to back you up in dry times, and you don't want to loose any employee's or your "edge". BUT, it's really best to never take a loss below your actual "cost" rate. You do that too much and you may as well just attach a few greenbacks to the bid sheet and pass the whole thing on to your competitor.

                  I hope this is helpful,

                  Last edited by CWSmith; 01-09-2012, 01:32 AM. Reason: Typos