Heidi
Maxwell Systems

As to…

‘In the current market, many of my jobs are smaller repair and remodel jobs (rot repair, etc.), jobs where a bid price could insure loss, and working on a time and material basis seems to be the fairest approach for all. ‘

I’m not so sure that is necessarily right way to think about things. I can’t understand why a bid price would necessarily guarantee a contractor a loss. That said when the time involved in producing an estimate or quote is high in relationship to the time it will take to perform the job time and materials perhaps T&M is a good option but I remain a strong advocate of fixed cost pricing in terms of the value it delivers to both the consumer and the contractor.

‘I would like to charge more per hour to help cover overhead, but by charging more I’d be spending a lot of time at home. Your $70/ hour and the break down with it is very logical, but double my hourly. What’s the best way to incorporate overhead and profit into a time and material job and remain competitive. My hourly is average for this area, but overhead is killing me. There isn’t’t much room for overhead in my hourly rate.’

You can’t look at the decision to charge more to cover your overhead as something you would like to do. The numbers will speak for themselves and you have to do what you have to do. If you’re not charging enough to cover your overhead where is the money to pay your overhead costs going to come from??? This may be a hard pill to swallow and not what you want to hear but if a client rejects you solely based on your hourly rate you haven’t sold them on your "value proposition". Your problem is in sales and marketing and not in the correctness of your hourly billing rate number.

From a sales standpoint if the rate you quote is $60 per hour and the job takes you 8 hours but takes the contractor who quotes $50 per hour 10 hours then you just saved them $20 and they probably would feel better about the project.

Or let’s say it a case of your using a Capacity Based Markup strategy to come up with loaded billing rate and you are competing with a contractor or contractors who use the Estimated Total Volume Based method you might want to point out that while your labor rate is higher you are not gouging them on the materials. In the example I illustrated in this article Aaron has a Billing rate of $70.56 vs. Bills rate of $32.64 Aaron is only marking up materials 11% to earn a 10% on them whereas Bill is marking up materials %50 for a %30 profit on them. And if the client wants to choose higher quality and consequently higher cost materials for their project you Aaron isn’t punitively punishing them for that decision the way Bill would be with his material markup.

‘Jobs with a higher material cost are more profitable, but most of my jobs have a higher relative labor cost.’

Statistically speaking the smaller the job, the higher the ratio of labor to material costs will be. That’s why it even more important for a contractor to use a well designed and calculated Loaded Labor Rate.

Jobs with a higher material cost are more profitable, but most of my jobs have a higher relative labor cost.