As a building/remodeling contractor, I've never; in 30 years in business, EVER gave an hourly rate...if they ask, I tell them my multiplier builds that in...Of course; it's like playing poker-you throw out a bet, and see if they call or fold. ..We walk a fine line with pricing. because NO TWO JOBS ARE ALIKE. Also; you screw yourself if you get a "daily rate" because; the one day you leave early; the customer will say; "hey, that wasn't a full day" ... Plus; if you spend more time on the project than THEY think you should; you'll be accused of milking the clock...Know your numbers and make a price. You'll make some mistakes and you'll make some scores...C'est la vie!
Holy crap , that’s spot on . I stupidly said to a bloke I was doing a installation of an ac and said what my hourly rate would be on average although I told him the total price would be ,, well the day came and I decided to put an extra effort in and finish early . The job was finished and done well but he paid me $400 less saying I finished too early , I said you agreed to a fixed price but that didn’t matter to him because I stupidly said what my hourly price was around about , however I said what if I took twice as long would he pay me double .... that didn’t faze him as he didn’t care only that I went quick , moral to story never say your hourly rate .
@@glenndejong6817 Well, you learned a cheap lesson...:)...That's all part of owning a company; I bet you won't do that again...:)...I don't get mad; I get even; Sorry next couple of customers...:(.... Good health and freedom to you and yours...
I find it works best if I say an hourly rate, because decorating in old houses there is no chance of my idea of filling and sanding prep matching the customers expectations, if its a price job they are more likely to point out any defects and say 'you could have filled that ding' etc, there is no chance of getting woodwork in period properties perfect
This is also a good way for the client to see if the fee being charged by the contractor is reasonable. My rule of thumb is to estimate the direct hourly wage rate a particular tradesman gets for doing the job (e.g. $20/hr.) and multiply that by a factor of 3 which would take into account indirect expenses, overhead and profit. Add material costs and you are in the ballpark. $20/hr x 3 = $60 x16 hours = $960 + 285 = $1,245. This would account for any downtime that would not be chargeable included travel time, vacation, sick, marketing time, etc.
I think it's simply a lack of respect for trades. The thing is people tend to look at tradesmen almost as "unskilled" labour and think "Well anyone can be a carpenter or mechanic or plumber or electrician..." etc, but nobody really thinks that of doctors or lawyers or accountants etc. Plus, there's that popular notion that contractors are all getting cash-in-hand and aren't paying taxes so there's a bit of resentment. I base this on comments that I have repeatedly seen on various news articles, and things I've heard people say. I used to be a contractor for a telecoms company and would get members of staff commenting on how I get paid "so much money", and I'd remind them that while they leave the office at 5PM, I'm there until 8 or 10PM and I'd come in before them as well!
@@Agnelum1 Except most folks don't realize those people in the 'Trades' have to be technically competent in their trade AND business/managerial finance.
@@ranger2316 Lawyers are straight out thieves make no mistake. I had a client who had started but never finished a law degree and he said the very first thing the lecturer said to the class was if you get your degree you will have a licence to print money and that is exactly the way they operate.
I use a super simple formula: A. Labor = Hourly wage x 2 (I.E. $25/hr = $50/hr) B. Materials = Hard cost of materials x "X %" markup (I.E. 15 - 50%) Sub-Total = A + B 20 years of successful contracting - K.I.S.S.
@@ranger2316 It is all accounted for in the margins above. The Labour = 100% markup. That results in an approximate profit margin of 25-50% depending on your variable overhead costs (50-75% of markup). Therefore an employee (/yourself) who gets paid $50/hr as a wage must get billed out at $100/hr in order to produce a $12.50 - $25/hr profit. If you bill less than $75/hr you are losing money because overhead accounts for at least 50% of labour markup. Materials get marked up a rate commensurate with your “handling fees”, which is the overhead costs associated with handling materials (mostly liability and administration). 10% is usually enough but I like to make a profit on materials as well so I usually mark up 15 - 35%
WHY IS THIS NOT BEING TAUGHT IN ELEMENTARY, MIDDLE AND HIGH SCHOOL. AMAZING. IF KIDS NEW THIS BEFORE THEY GRADUATE THERE WOULD BE BILLIONAIRE ENTREPENEURS AT ASTOUNDING NUMBERS. MY HAT OFF TO YOU SIR!!!
Maybe because it's called "cost Accounting" and that is taught in an accounting course - not high school or middle school. There are other ways how this could be done as well.
I dont understand why materials are being incorporated into an hourly rate? Is this for quoting when meeting the client for the first time? I guess this example only works for painters? Isn't it simpler just to show labor, materials, indirect expenses, and or overhead as a separate breakdown on the quote?
Indirect expenses vary by location (insurance, licensing, bonding), nature of work (new, renovation, repair), and who you work for (gov't, general contractor, owner builder, or private party). You can keep it simple, not knowing exactly what you've earned until years end. Or hire a professional accountant who can keep you on track. The best thing is to educate yourself so you are less easy to take advantage of. Find a good lawyer also.
I disagree with method. saying that it will take you a number of hours to do a job can be a mistake, because things are always done faster in your mind than in real life. if it takes 22 hours, not 16. you then are not making $20/ hr you make $14.55/ hr. and that changes everything. using a square foot cost method is quicker and more accurate.
Great video. 56% is correct. One more overhead expense to consider is unapplied labor. Time spent at the supply house, shop etc. Calculate as a percentage of a typical 40 hour week and add to overhead.
I live in ct . I own a home improvement business and have no problem getting jobs. I created a checklist because of this video. I keep track of my jobs (invoices) but everything else makes my head spin. So thank you for simplifying it. 👍🏼
Wrong, materials should always be quoted separately, Hourly rates take into account, overhead, wages and profit. Also if you are not marking up the materials, you are losing money.
@@GuyMcLaren dont forget this is a general formula some trade/jobs you can as you use materials at a set amount per hour/day. I mean most people just quote a price for the job not per hour
@@brianwild4640 I have been a contractor for many years, his formula is flawed, someone using it will get screwed. I charge per hour for small jobs, and charge per job for bigger projects. I have seen many contractors getting raped by their pricing.
@@GuyMcLaren I have been a contractor for over 35 years and if you cant see that it is just a general guide like rule of thumb. the paint was just a example. if a contractor is not smart enough to see that this formula only works if you rework it for every job then you are not going to make it as a contractor anyway
Call for bids on your own home on various types of work,, plumbers and electricians are making a killing, and are 3 to 4 weeks out,, i have never seen it this crazy before.
Thank you. Seriously valuable content. Can you elaborate a little on the overhead percentage, would it be 56% of the $900 total.. so $1404 total? Thanks again
The 56 % at the end is a very misleading number, it is not the percentage of overhead from cost of total job, the way he has expressed it , its nothing more than overhead expressed as a percentage of total cost. ie materials and indirect expense.
Good video but leaves out a one important part. You can't just "charge" what you think your worth and expect to get a business going right away. People on here are commenting that they would never pay $900 for painting 3 rooms. Well that's kind of true, but it also completely depends on your MARKET. Painting in Chicago will cost more than painting in Kansas. You need to know what your competition is charging and include that in your formula to affect your rate if you ever want any business.
Yea, that's what we in business call 'Market Forces'. The amount your local market will bear. Then you need to analyze your bargaining power. How many other competitors are in your market and barriers or costs for initial startup and market entry, This is all summarized in Porter's Five Forces. ua-cam.com/video/_IaBZmB09RE/v-deo.html
You should be losing half of your bids because your price is too high. And if you start low you’ll probably stay low because you’re going to be known as the guy that works for cheap. Figure out what it actually costs to make a living AND be profitable and that’s your number.
what is it with all you guys and $20/hr. lol. give yourselves some more credit. good god. $20 is almost min wage in 2018. skilled workers should be making $30 to $40 an hour. you own the business. make some god damn money for once in your life.
Believe it or not??? I live in pa and most contractors make at least 50 plus per hour.some trades are up over 100 .some even add a service call over that price. Some trades make more on service calls then some people charging 20 - 40 per hour.
I was thinking the same thing lol I'm a pro handyman I don't work hourly I get paid per job my rate depends on what I'm working on I work by myself but on avg make over $500 a day in labor my work day is 4-9hrs a day some days I can make over 1K a day in labor I left a job in 2015 making 50k+ a year made 100k this year this year was a lot of hard work in stress but I just paid all of my debt off besides MTG will have that paid off in 2-3 years I'm 35 and come from a welfare lowlife family so never let where you come from decide where you are going life
@@hermanboing8489 Also separate your hourly labor rate as a painter or whatever from your profit as the business owner. If you don't, you'll be paying WAY too much in taxes. Figure "for painting, I make $X an hour (and pay FICA taxes on that). As the owner, I make $Y profit (and do not pay FICA taxes on that part.)". Theoretically you could hire other people to do the painting or concrete or whatever. That wage is totally separate from the profit made from owning the business.
@@senseisecurityschool9337 Thanks Ray! I would have not thought about that. I am planning on using online accounting software. Do you know if this software separates the income automatically or would I have to set up my accounting to accommodate that? Thnx!
Rate for ceiling fan install is between $150 and $200. Most ceiling fan manuals say the installation will take 1.5 hrs. I can do it in under 40 minutes. Charging an hourly rate for things you have experience with and can move quickly on is stupid. Dont screw yourself or waste time milking a job you can accomplish quicker. Guy A* gets it done in 4 hours, guy B* gets it done in less than an hour. Why would the same job pay them the same? Dont do hourly for jobs you have experience with. Give a flat rate and bust ass, get it done, make more per hour than the other guy and move on to the next job. Calculating taxes, and other overhead is still a good idea because in the end we all have to pay taxes.
You lost me at “85” you had said if you want to earn a 15% profit than that will give you “85” ? Great video but I’m not great with math can you please clarify how you came up with the number 85? Thanks in advance.
Ive just started being self employed as a domestic electrician and I was concerned about under and over pricing, this is by far the most valuable explanation I've seen so far when it comes to estimates...I live in the UK.!
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Lovely Video! Apologies for the intrusion, I would love your initial thoughts. Have you considered - Rozardner Successful Handyman Reality (search on google)? It is an awesome one of a kind guide for how to start a handyman business without the normal expense. Ive heard some great things about it and my buddy at very last got cool success with it.
We basically use this same method in our HVAC business. Knowing your overhead is the toughest part but once you have that we use the divisor method to calculate our sell price. Thx for the video!
HVACmillionaire I didn't see any discussion about billable hours in this video example. How do billable hours factor into your pricing with your business? And also, shouldn't owners salary be part of overhead and not direct expenses?? And I also didn't see any mention of material markup, accounting for call backs, etc...
Can I come work for you? I'm a painter and I know you'll pay more then I make an hour and I can do everything from bid the job to collect check for you. And I don't make a 1/4 of your 100 an hour fee.
Thanks for the video content! Apologies for butting in, I would love your initial thoughts. Have you researched - Rozardner Successful Handyman Reality (Sure I saw it on Google)? It is a good exclusive guide for how to start a handyman business minus the normal expense. Ive heard some great things about it and my m8 after a lifetime of fighting got amazing success with it.
Nobody in their right mind would pay a painter by the hour. It should be quoted as "Per Job". As for a sole proprietorship, (which is being shown) his salary, or draw is the profit, if it is calculated as he is showing. There is no profit above his draw and in doing so he would be actually gouging the market. What this man is showing is for a sole proprietorship not a corporation that calculates profit over and above expenses, meaning overhead !
I am doing a job by the hour right now, its my 8th week in the same house, I would have robbed myself if I tried to charge a price. It's a period property and the guy asks for small dents and things to be filled, all kinds of little improvements. In future I will always give a price per hour and tell the customer how many hours I have budgeted for. Nobody has ever asked me for the cheapest as possible job, if they did I can easily tell them I can cut out the prep
Ray Morris Exactly! You can "look expensive" or you can go broke discounting everybody. They won't ask for a discount when Lowes throws their estimate fees and stupid crap in such so why shortchange yourself? Stand your ground. Most people in this field(That I've seen) don't even know how much a can of paint will cover to even determine any costs. Logistics is totally missing and people need more than a youtube video full of magical numbers and an actual explanation that determines ACTUAL numbers so clients that ask, you won't be like "I just took a magical number and divided by this unicorn number and that's how I got a Budweiser horse number"... Example: The home is 1,758 sq ft Standard 12x12 rooms 5 Rooms 8ft Ceiling 1 Gallon to every 400 sq ft(What one can should cover) Cost: $45.00 4.40 Gallons total and considering most will go back twice... 8.80 with an additional can so lets go with 9 total $405.00 Paint $55 Supplies My area charges a mere $2,200 for 1500 so that's $1.47/sq ft or $68.18/hour but in this case, a flat rate of $2,20(5). Total: $2,665.00 (AGAIN, THIS IS JUST AN EXAMPLE, BE FAIR ON YOUR PRICING. Overbidding can screw you over worse than underbidding.) DEFINING YOUR HOURS BASED ON YOUR WORTH: You want to make: $2,350 For this paint job Converting To PPSQ: $1.34/per sq ft(This sounds about right for my area, maybe a bit lower but this works) Convert back to dollar: $2,355.72(The ACTUAL amount off what you will charge. The math called for this so it's no longer a guestimate, it's your worth!) Covert that to day rate you are at: $294.47 Math can give you everything you need in more ways than one, you have to learn how to "formulate" and determine factors. Now you have a base Day rate for general tradesman work(Until you grow and you can always bump it) You have a base price for painting This can even be used per small 10x12 or 12x12 room with short ceilings and you can build from there. I can go on forever with this. So many ways in this business you can go at things. The bid has to wedge just right otherwise you won't be competitive. Lastly for any tradesman and sorry to shade this a bit but don't let "licensed contractors" bum you, I'm correcting a shit ton of work from my clients that have used them. Little tired of hearing/seeing licensed contractors tell people about how tradesman/handymen do bad shit and I'm going back over licensed contractors work because the client was not happy. Licensed or not, we share the same experience. New handy tradesmen, Get INSURANCE with mediated coverage. Also for the comment about "Jose' and Alberto" with no insurance. They do a better job than any Jack and Charles with insurance and seems to be fixing all of your ken and barbie fuck ups, why label tradesman? Stop judging tradesman, we are in this field as a team. Stop being competitive and learn to come together because each has their flaws. We are equal.
$900 for 2 full days of work and that’s including the cost of running a business, wow. Who ever follows this wants to live in someone’s garage for the rest of their lives.
Time spent selling the job. Time picking up supplies. Help get's hourly as soon as he arrives to the SHOP. Taxes. Vacation. Healthcare. Insurance. Truck maint. Callbacks. Advertising. Accounting.
Great video, and this may be a stupid question. But, given my overhead is 56% does that imply that I add 56% of the overall cost to the final price of the project? Thnx!
No. What he's saying is that, over time, you should have that % of your gross annual earnings available to cover all your business expenses and not merely break even. This % in this example suggests a comfortable level (margin) at which this person will be able to grow this business successfully.
remember this is just one way of "pricing jobs" I wouldn't use it as this method doesn't allow enough of a profit, which is the life blood of any business big or small.. this would get someone going in the right direction tho. I can tell you from 25+ yrs of self employeed experience, before you go out on your own, learn what your "TRUE COST ' of doing business is first.---remember your family time that you'll miss is worth something.
Great basic information to get people thinking numbers and $$. Caution for new to construction business owners - direct cost! Begin with (cost +). Until you can accurately estimate, I highly recommend not basing your rate to include direct cost. Also not mentioned in this video is utilization. Rather than saying: "I want to make $20 per hour!", ask: "how much per week do I want to make?" Now if you want to make $800 per week as indicated in this video, rarely do you work 40 production hours per week, its closer to 30 or 75%. That works out to $26.67 per hour! Customers tend to know how much time you spend onsite. If you try billing out 40 hours but only there 30, good chance you are only getting paid $600 not the $800 expected. You will spend an additional 30-40 yours per week on paperwork, quotes, supply runs, material you forgot or short, tools etc. If you haven't contracted before, STOP thinking like an EMPLOYEE. Adding a couple bucks to your employee wage and running out doing quotes is recipe for failure. This video shows how quickly additional expenses add up. Best of luck to anyone venturing out for the first time, construction is brutally rewarding!
Those costs that are related to hours worked (workmanship comp, your part of FICA, meducare, etc) are included as hourly cost of employment for the staff member. So, if the employee is paid $20 an hour, you need to ADD to the 20 the workman comp(whatever it is called there), your cost of FICA, etc.(depending on state regulations) is added to the hourly COST of the employee. However, Insurance plans, uniforms, etc. Are part of overhead.
What Rob-In -Philly said. Your presentation is fine for analyzing a business from the perspective of an accountant. But the problem in the contracting world is that cash flow is more important than profitability. That is, a business can stay in business as long as bills are paid and the owner pays himself "enough." Staying in business is ultimately more important than a balance sheet. Unless you're applying for credit. But for day to day operations, where the phone may not ring for 2 weeks or longer, and for the situations where you really have to "compete" for work, the average contractor is going to price the job based on the job and his expectations for time and expenses. Being able to turn a profit is too often dependent on (a) the contract provisions; (b) the client's ability/willingness to pay; (c) the presence or absence of unknowns that can shift a job sideways in no time; (d) the ability of the contractor to control costs; and (e) the ability of the contractor to negotiate from start to finish. Note: commercial projects typically have more cost burdens than residential, and so have to be priced accordingly. But they're usually also more competitive. Only the most in-demand, large-scale contractors can run a business the way you describe. For the typical guy-and-a truck, it'll always be hand-to-mouth with fingers crossed, one job at a time.
Am i missing something? So the cost to do the job is $764.96 ( 16 x $47.81 ). He charges $900 leaving $135. In profit for 2 days labor that's $ 67.52 / day. And that's hoping there is no call backs. Who the hell would work for less than $10/ hr. In their own business with all the headaches that come with it. You can make more money working at Home depot!
Dude - Focus on the calculation - not the numbers. The video is about the calculation. Read the comments - Use the math that applies to you and ignore the numbers.
yes, that's profit for two days labor... key word is profit (above and beyond job expense (which already covers hourly labor cost)) already calculated $20hr labor into the $47.81. meaning at the end of the job (should it only take 16hrs) you will have paid yourself (or employee) $320 (minus taxes) and the business profited $135 from the work that had been completed.
I learned something today I was charging my customers a flat rate per hour but I didn't add whatever percentage per hour. This is an old video but like I said before l learn something in 2019
here's several ideas to think about before you begin a woodworking business are you likely to have support from your spouse? Are you self-motivated? Will you carry out the plan? Do you have the funds to begin? (I learned these and the reasons they work on Enata wood system site )
Great video, but you didn't touch on taxes. You can add 50% to the salary to account for employment taxes and workers comp. Thanks for the video it should help many new contractors who as a general rule don't understand accounting methods.
Every job is different. Every jobs materials are different 1 job i may do 8 hours with 100 in material 1 job i may do 8 hours and have 600 in material Lot of math every day
You want to talk about a WRONG ALGORYTHM.. I was thinking of something along these lines, 2 hours ago, in my car, with no phone or devices on my person... Just finish me already...
Mark up the pay to cover payroll costs. Account for your time spent bidding and acquiring materials. Don't forget your costs of money. Cc fee's, bank fees, etc. So basically near double what he put on the white board. PHCC has a great program and it's free.
Thank you. Seriously valuable content. Can you elaborate a little on the overhead percentage, would it be 56% of the $900 total.. so $1404 total? Thanks again
@@farmermike9262, sure it does. The cost estimating system of one firm is not necessarily identical to another firm. Rarely, is overhead calculated based on a combined total from all other pooled indirect expense amounts.
perhaps the best (and most depressing) way to know if your contracting business is successful, is to find out what you need to earn PER YEAR. and compare that with your current output. If your not upto the mark, then your in poor mans land. Then you either - raise prices, or start mass producing.
@@Driveyoursuccess you think you can do a video with roofing? Shingles and metal roofing? I'm doing exactly with what you said. But it's not coming correctly
Contractor friend used to mark up his subcontractors 15%; is now at 50% and not one complaint. Another friend has a boat repair business. Prev shop rate was $85/ man hour. His competition folded. He raised his rate to $125/ man hour and no one complained.
Man, first of, AMAZING explanation. I really appreciate that you took some time out of your life and dedicate it to a whole 400,000 number of people. Thank you, and why ins't this taught in companies, or schools? WOW!!
India customers want to negotiate, its part of their culture. I have a few, just prepare for it and preform excellent work and you will be rewarded with their friends and family business as well.
omg Thought it was just me lol I have had 5 in the last year I had to tell the family I could no longer work for them because they could not afford me and I could not afford to work for them ! and they alway told me how poor they are when there house was twice the size of mine the one house they wanted me to paint was a 4500sf home with 18' ceiling and wanted to pay me $100 a room who can afford to paint a room at that price some people are crazy
Great Video! Its 2024 So Everyone either 2x or 3x all numbers in this video. - Profit helps offset the time you spend being the receptionist, scheduler, estimator and bookkeeper. Work that's unpaid by the customer.
Excellent video I’m now a subscriber I’m starting a small welding business in Canada and have been worried about how to charge hourly rate Only thing I don’t understand is the 56% overhead is that 56% of the hourly rate. Thank you
The problem isn't that you're trying to help people learn, the problem is that people start businesses with no knowledge and come to videos like this for sustenance
@@josephgiri2398 "people start businesses with no knowledge " why is that a problem? Because I have to go through people's houses 6 months after they're built fixing all the shit the builders fucked up not to mention all the other areas people start a business they know nothing about and cause havoc to their communities before eventually failing
We bid painting by the square foot. Bidding by the hour is for the man who wants to work for himself but stay poor. If you bid by the foot, it's all covered.
Your profit calculation is incorrect. Should be X 1.15 instead of / .85. I know you divide by a decimal to get to a known number. Example would be to get from 75 to 100 you divide by .75. If you take 15% of 100 you get 15. Add that to 100 and you get 115. If you multiply by 1.15 (115%) you get 115 as well. If you divide 100 by .85 you get 117.647.
I charge $100 a quote, I add it in the bid they don't know that there getting charged because it's in the quote covers the were and tear and gas to look at job, $800 a day labor, materials cost vary roughly $100, plus gas$100 for the day rate in gas. $1,100 for a 1 day job. Good formula know?
This is garbage. Why convert materials to an hourly rate? Makes no sense. Figure material costs for the job and multiply times 1.25 to 1.5 for total materials cost. Figure labor and add the two..Self employed people pay self employment tax. So you will only keep half of what you charge in labor for yourself after taxes. If you are paying help you need to charge at least double what you are paying them. This guy makes something simple very complicated.
This is dumb. You never put your materials in the hourly rate. You cannot be competitive for one. You add materials then add 15% and fo a qoute not hourly. If you want profit it needs to be 30%
Indirect is the prick that broke into my job 2wks ago and stole my spray toolbox and a bunch of my LED lights. The spraybox had about 7-800$ in spraying related tools in it.
This system is the most basic and not very comprehensive. In your hourly rate you have to consider a lot more indirect expenses like liability insurance, license fees, bookkeeping, accounting, advertising, tool replacement. You must also consider your office time unless you do that for free.
Your calculation is incorrect. Your costs should be fixed and variable. Clearly if you pot of paint covers three rooms or one you wouldn't fraction that as it's fixed.
This calculation doesn't include beer runs or deductions for cell phone usage. The contractor I've been doing jobs with for the past 6 months brings in Workforce guys when we get a delivery package. All our jobs come that way, we finish out retail outlets in Premium Outlet Malls. These guys are all over the spectrum from honest hard working, to worthless shirkers just hoping to get enough money to go catch a buzz on. Calculate that.
dude his just showing you a formula you can use, those numbers you see on the board would not be the same as yours, just switch the numbers and follow the process to come up with the total.
That was a brilliant way to explain in a straightforward and objective, how calculating hourly rates for a contractor or small business. That will be useful for many contractors that don't know even to have how to contextualise such relevant information like that. Excellent, Congratulations Ian!!!
Indirect expenses cannot be added to the cost of the product. It should not affect the sales price in any way. This what I've know since long time 🤔? Would you explain. Here what I 've learned: Overhead Rate = Overhead Costs / Sales Let’s say you had $4,000 in indirect costs and $16,000 in sales. Your overhead rate would be 0.25, or 25% ($4,000 / $16,000). This means that you spend 25 cents on indirect costs for every dollar you earn. If your direct costs are also high, you won’t be turning much of a profit. So I think the overhead here in your example = (10 ÷ 56.25)× 100%= 17.77 %. This means you spend 17.77 cent for each 1 Dollar you earned.
1) This calculation is for a service - not a product - hence why it's for contractors 2) When a contractor first starts out, they don't have a history of expenses to determine overhead - so they start with indirect expenses 3) When they have a history of expenses - then they can use overhead 4) This is a calculation for hourly rate - and you absolutely have to incorporate expenses into any hourly rate you charge
Good video. One correction though. 15% on 47.81 is calculated by multiplying 47.81 by 1.15 (not by dividing it by 0.85). This will give you a rate of $54 and some change (not $56 as is calculated in the video).
No, a 15% profit margin is calculated exactly how he did it. You're suggesting a 15% markup, which is different. Close but different. It's really a big difference across a year of invoices. 15% profit margin says that 15% of my total invoice before tax is profit. If you instead markup 15% over costs, your profit margin is less than 15%. On $100.00 of costs the difference is $2.64. On annual sales of $50,000 that is $1,320. Most companies cannot succeed on a 15% margin. Their equipment will be in decline and employees will seek work for a better equipped employer. Self employed people will limit work opportunities due to the diminished quality of their equipment. Back to the point he makes. The $1,320 would help a paint contractor to invest in a backup sprayer that would enable him/her to keep commitments without disruptions from sprayer problems. Or many other ways to improve service. Profit margin is different from markup. Cheers (In accounting classes this difference was stressed.)
Guys! Quit complaining about the numbers he's using and use the math on the numbers that apply to you. Good Grief!
If I was using a 30% margin what would it be? How would I divide that?
As a building/remodeling contractor, I've never; in 30 years in business, EVER gave an hourly rate...if they ask, I tell them my multiplier builds that in...Of course; it's like playing poker-you throw out a bet, and see if they call or fold. ..We walk a fine line with pricing. because NO TWO JOBS ARE ALIKE. Also; you screw yourself if you get a "daily rate" because; the one day you leave early; the customer will say; "hey, that wasn't a full day" ... Plus; if you spend more time on the project than THEY think you should; you'll be accused of milking the clock...Know your numbers and make a price. You'll make some mistakes and you'll make some scores...C'est la vie!
Holy crap , that’s spot on . I stupidly said to a bloke I was doing a installation of an ac and said what my hourly rate would be on average although I told him the total price would be ,, well the day came and I decided to put an extra effort in and finish early . The job was finished and done well but he paid me $400 less saying I finished too early , I said you agreed to a fixed price but that didn’t matter to him because I stupidly said what my hourly price was around about , however I said what if I took twice as long would he pay me double .... that didn’t faze him as he didn’t care only that I went quick , moral to story never say your hourly rate .
@@glenndejong6817 Well, you learned a cheap lesson...:)...That's all part of owning a company; I bet you won't do that again...:)...I don't get mad; I get even; Sorry next couple of customers...:(.... Good health and freedom to you and yours...
I find it works best if I say an hourly rate, because decorating in old houses there is no chance of my idea of filling and sanding prep matching the customers expectations, if its a price job they are more likely to point out any defects and say 'you could have filled that ding' etc, there is no chance of getting woodwork in period properties perfect
@@utubeape :)...There are exceptions to every rule...It's a personal choice...it's about being satisfied with what you're paid...
Exactly
This is also a good way for the client to see if the fee being charged by the contractor is reasonable. My rule of thumb is to estimate the direct hourly wage rate a particular tradesman gets for doing the job (e.g. $20/hr.) and multiply that by a factor of 3 which would take into account indirect expenses, overhead and profit. Add material costs and you are in the ballpark. $20/hr x 3 = $60 x16 hours = $960 + 285 = $1,245. This would account for any downtime that would not be chargeable included travel time, vacation, sick, marketing time, etc.
Defensive estimating
Contractors guide to markup and profit
Those two books are Bibles in construction
Thanks 👍
Have no idea why people beat up contractors, nobody breaks down lawyers,stores,restuarant, doctors etc,
They use the same cost/managerial finance principles to compute their hourly rate.
I think it's simply a lack of respect for trades. The thing is people tend to look at tradesmen almost as "unskilled" labour and think "Well anyone can be a carpenter or mechanic or plumber or electrician..." etc, but nobody really thinks that of doctors or lawyers or accountants etc.
Plus, there's that popular notion that contractors are all getting cash-in-hand and aren't paying taxes so there's a bit of resentment. I base this on comments that I have repeatedly seen on various news articles, and things I've heard people say. I used to be a contractor for a telecoms company and would get members of staff commenting on how I get paid "so much money", and I'd remind them that while they leave the office at 5PM, I'm there until 8 or 10PM and I'd come in before them as well!
@@Agnelum1 Except most folks don't realize those people in the 'Trades' have to be technically competent in their trade AND business/managerial finance.
@@ranger2316 Lawyers are straight out thieves make no mistake. I had a client who had started but never finished a law degree and he said the very first thing the lecturer said to the class was if you get your degree you will have a licence to print money and that is exactly the way they operate.
This is what I love about youtube! So much good info, Thanks for taking the time to post!
can you explain the profit calculation?
I use a super simple formula:
A. Labor = Hourly wage x 2 (I.E. $25/hr = $50/hr)
B. Materials = Hard cost of materials x "X %" markup (I.E. 15 - 50%)
Sub-Total = A + B
20 years of successful contracting - K.I.S.S.
How do you account for indirect expenses and overhead?
@@ranger2316 It is all accounted for in the margins above.
The Labour = 100% markup. That results in an approximate profit margin of 25-50% depending on your variable overhead costs (50-75% of markup).
Therefore an employee (/yourself) who gets paid $50/hr as a wage must get billed out at $100/hr in order to produce a $12.50 - $25/hr profit. If you bill less than $75/hr you are losing money because overhead accounts for at least 50% of labour markup.
Materials get marked up a rate commensurate with your “handling fees”, which is the overhead costs associated with handling materials (mostly liability and administration). 10% is usually enough but I like to make a profit on materials as well so I usually mark up 15 - 35%
@@peterthebull8578 Fair enough. That's a bit more information than your original equation. Sounds good though! Have a good one. 👍
WHY IS THIS NOT BEING TAUGHT IN ELEMENTARY, MIDDLE AND HIGH SCHOOL. AMAZING. IF KIDS NEW THIS BEFORE THEY GRADUATE THERE WOULD BE BILLIONAIRE ENTREPENEURS AT ASTOUNDING NUMBERS. MY HAT OFF TO YOU SIR!!!
Lol it does. Simple math
Maybe because it's called "cost Accounting" and that is taught in an accounting course - not high school or middle school. There are other ways how this could be done as well.
I could have use this information when I was In school taking construction classes.
slaves dont need this knowledge.. thats why
WE BUY HOUSTON HOUSES ASAP All caps lowers the quality of your post.
I dont understand why materials are being incorporated into an hourly rate?
Is this for quoting when meeting the client for the first time? I guess this example only works for painters?
Isn't it simpler just to show labor, materials, indirect expenses, and or overhead as a separate breakdown on the quote?
I don't understand why indirect expenses are divided by direct expenses.. I see no relation at all
Indirect expenses vary by location (insurance, licensing, bonding), nature of work (new, renovation, repair), and who you work for (gov't, general contractor, owner builder, or private party). You can keep it simple, not knowing exactly what you've earned until years end. Or hire a professional accountant who can keep you on track. The best thing is to educate yourself so you are less easy to take advantage of. Find a good lawyer also.
I disagree with method. saying that it will take you a number of hours to do a job can be a mistake, because things are always done faster in your mind than in real life. if it takes 22 hours, not 16. you then are not making $20/ hr you make $14.55/ hr. and that changes everything. using a square foot cost method is quicker and more accurate.
then from accumulated experience you can derive your labor hours/sq ft, for new construction installations anyway
What about taxes? Ejete Theo are included?
Taxes would be part of indirect. They usually run about 20% in our area.
Don't pay it lmao.
You need to include labor burden in your labor calculation: payroll taxes, benefits, worker’s comp-don’t put those into indirect expense.
Do you can make tablet improving this subject?
Great video. 56% is correct. One more overhead expense to consider is unapplied labor. Time spent at the supply house, shop etc. Calculate as a percentage of a typical 40 hour week and add to overhead.
I live in ct . I own a home improvement business and have no problem getting jobs. I created a checklist because of this video. I keep track of my jobs (invoices) but everything else makes my head spin. So thank you for simplifying it. 👍🏼
Wrong, materials should always be quoted separately, Hourly rates take into account, overhead, wages and profit. Also if you are not marking up the materials, you are losing money.
he is marking up materials he is just doing it in a different way and calling it the profit
@@brianwild4640 He is converting it all to an hourly rate, You cannot bill materials at an hourly rate.
@@GuyMcLaren dont forget this is a general formula some trade/jobs you can as you use materials at a set amount per hour/day. I mean most people just quote a price for the job not per hour
@@brianwild4640 I have been a contractor for many years, his formula is flawed, someone using it will get screwed. I charge per hour for small jobs, and charge per job for bigger projects. I have seen many contractors getting raped by their pricing.
@@GuyMcLaren I have been a contractor for over 35 years and if you cant see that it is just a general guide like rule of thumb. the paint was just a example. if a contractor is not smart enough to see that this formula only works if you rework it for every job then you are not going to make it as a contractor anyway
Call for bids on your own home on various types of work,, plumbers and electricians are making a killing, and are 3 to 4 weeks out,, i have never seen it this crazy before.
Thank you. Seriously valuable content. Can you elaborate a little on the overhead percentage, would it be 56% of the $900 total.. so $1404 total? Thanks again
The 56 % at the end is a very misleading number, it is not the percentage of overhead from cost of total job, the way he has expressed it , its nothing more than overhead expressed as a percentage of total cost. ie materials and indirect expense.
Why do you divide direct expenses by total job hours ? I’m assuming this hourly rate will change for each job using this method ?
Good video but leaves out a one important part. You can't just "charge" what you think your worth and expect to get a business going right away. People on here are commenting that they would never pay $900 for painting 3 rooms. Well that's kind of true, but it also completely depends on your MARKET. Painting in Chicago will cost more than painting in Kansas. You need to know what your competition is charging and include that in your formula to affect your rate if you ever want any business.
Yea, that's what we in business call 'Market Forces'. The amount your local market will bear. Then you need to analyze your bargaining power. How many other competitors are in your market and barriers or costs for initial startup and market entry, This is all summarized in Porter's Five Forces.
ua-cam.com/video/_IaBZmB09RE/v-deo.html
He explained that in the video. Did you watch the video?
Exactly! Competitor survey is very important
You should be losing half of your bids because your price is too high. And if you start low you’ll probably stay low because you’re going to be known as the guy that works for cheap. Figure out what it actually costs to make a living AND be profitable and that’s your number.
what is it with all you guys and $20/hr. lol. give yourselves some more credit. good god. $20 is almost min wage in 2018. skilled workers should be making $30 to $40 an hour. you own the business. make some god damn money for once in your life.
Believe it or not??? I live in pa and most contractors make at least 50 plus per hour.some trades are up over 100 .some even add a service call over that price. Some trades make more on service calls then some people charging 20 - 40 per hour.
I was thinking the same thing lol I'm a pro handyman I don't work hourly I get paid per job my rate depends on what I'm working on I work by myself but on avg make over $500 a day in labor my work day is 4-9hrs a day some days I can make over 1K a day in labor I left a job in 2015 making 50k+ a year made 100k this year this year was a lot of hard work in stress but I just paid all of my debt off besides MTG will have that paid off in 2-3 years I'm 35 and come from a welfare lowlife family so never let where you come from decide where you are going life
I agree, but that's not the point of this video. Put in whatever hourly rate you think you're worth. The numbers don't matter here, the process does.
@@hermanboing8489 Also separate your hourly labor rate as a painter or whatever from your profit as the business owner. If you don't, you'll be paying WAY too much in taxes. Figure "for painting, I make $X an hour (and pay FICA taxes on that). As the owner, I make $Y profit (and do not pay FICA taxes on that part.)". Theoretically you could hire other people to do the painting or concrete or whatever. That wage is totally separate from the profit made from owning the business.
@@senseisecurityschool9337 Thanks Ray! I would have not thought about that. I am planning on using online accounting software. Do you know if this software separates the income automatically or would I have to set up my accounting to accommodate that? Thnx!
Rate for ceiling fan install is between $150 and $200. Most ceiling fan manuals say the installation will take 1.5 hrs. I can do it in under 40 minutes. Charging an hourly rate for things you have experience with and can move quickly on is stupid. Dont screw yourself or waste time milking a job you can accomplish quicker. Guy A* gets it done in 4 hours, guy B* gets it done in less than an hour. Why would the same job pay them the same? Dont do hourly for jobs you have experience with. Give a flat rate and bust ass, get it done, make more per hour than the other guy and move on to the next job. Calculating taxes, and other overhead is still a good idea because in the end we all have to pay taxes.
You lost me at “85” you had said if you want to earn a 15% profit than that will give you “85” ? Great video but I’m not great with math can you please clarify how you came up with the number 85? Thanks in advance.
Find me a painter who uses $10 brushes and then fire him for the garbage work being done
i would be greatful for you to explain why you used the formuli 47.81/0.85 and not 47.81 * 1.15 becuse you mentioned 15%
Ive just started being self employed as a domestic electrician and I was concerned about under and over pricing, this is by far the most valuable explanation I've seen so far when it comes to estimates...I live in the UK.!
Great Video clip! Forgive me for the intrusion, I am interested in your opinion. Have you heard about - Rozardner Successful Handyman Reality (search on google)? It is a good one of a kind guide for how to start a handyman business without the normal expense. Ive heard some awesome things about it and my mate after a lifetime of fighting got astronomical success with it.
Lovely Video! Apologies for the intrusion, I would love your initial thoughts. Have you considered - Rozardner Successful Handyman Reality (search on google)? It is an awesome one of a kind guide for how to start a handyman business without the normal expense. Ive heard some great things about it and my buddy at very last got cool success with it.
Join sparky ninja on FB and watch his and John Ward's video on YT.
YES AND WHO WILL PAY GENERAL LIBILITY,WORKER COMPENSATION,GAS TRUCK USE
Those are indirect expenses.
And I won't get out of my truck for $20 an hr.
Good ,stay in there and I will wave at you when you drive by
This video has so much value. Thank you for sharing! @Ian Johnson
We basically use this same method in our HVAC business. Knowing your overhead is the toughest part but once you have that we use the divisor method to calculate our sell price. Thx for the video!
HVACmillionaire I didn't see any discussion about billable hours in this video example. How do billable hours factor into your pricing with your business? And also, shouldn't owners salary be part of overhead and not direct expenses?? And I also didn't see any mention of material markup, accounting for call backs, etc...
I charge 75 to 100 per hour handymen work. All the tools and 30 years experience.
Can I come work for you? I'm a painter and I know you'll pay more then I make an hour and I can do everything from bid the job to collect check for you. And I don't make a 1/4 of your 100 an hour fee.
@@treytrey8214 what part of the country do you live?
If you're a small one man band business and you have a company, you mustn't forget to include employment taxes as costs.
Definitely a video from 10 years ago, times all that by 3-4x now
I learnt more in this 8 min video than I did in 2 years of business management classes (high school)
Thanks for the video content! Apologies for butting in, I would love your initial thoughts. Have you researched - Rozardner Successful Handyman Reality (Sure I saw it on Google)? It is a good exclusive guide for how to start a handyman business minus the normal expense. Ive heard some great things about it and my m8 after a lifetime of fighting got amazing success with it.
and paid a lot more for it than just time!
Im not surprised. Most of those teachers have never even ran a business themselves.
Learnt? Where did you go to school? Alabama?
@@MikeMike-xx9of Scotland... so yeah the original Alabama haha
Nobody in their right mind would pay a painter by the hour. It should be quoted as "Per Job". As for a sole proprietorship, (which is being shown) his salary, or draw is the profit, if it is calculated as he is showing. There is no profit above his draw and in doing so he would be actually gouging the market. What this man is showing is for a sole proprietorship not a corporation that calculates profit over and above expenses, meaning overhead !
I am doing a job by the hour right now, its my 8th week in the same house, I would have robbed myself if I tried to charge a price. It's a period property and the guy asks for small dents and things to be filled, all kinds of little improvements. In future I will always give a price per hour and tell the customer how many hours I have budgeted for.
Nobody has ever asked me for the cheapest as possible job, if they did I can easily tell them I can cut out the prep
Ray Morris Exactly! You can "look expensive" or you can go broke discounting everybody. They won't ask for a discount when Lowes throws their estimate fees and stupid crap in such so why shortchange yourself? Stand your ground. Most people in this field(That I've seen) don't even know how much a can of paint will cover to even determine any costs. Logistics is totally missing and people need more than a youtube video full of magical numbers and an actual explanation that determines ACTUAL numbers so clients that ask, you won't be like "I just took a magical number and divided by this unicorn number and that's how I got a Budweiser horse number"...
Example:
The home is 1,758 sq ft
Standard 12x12 rooms
5 Rooms
8ft Ceiling
1 Gallon to every 400 sq ft(What one can should cover)
Cost: $45.00
4.40 Gallons total and considering most will go back twice... 8.80 with an additional can so lets go with 9 total
$405.00 Paint
$55 Supplies
My area charges a mere $2,200 for 1500 so that's $1.47/sq ft or $68.18/hour
but in this case, a flat rate of $2,20(5).
Total: $2,665.00 (AGAIN, THIS IS JUST AN EXAMPLE, BE FAIR ON YOUR PRICING. Overbidding can screw you over worse than underbidding.)
DEFINING YOUR HOURS BASED ON YOUR WORTH:
You want to make: $2,350 For this paint job
Converting To PPSQ: $1.34/per sq ft(This sounds about right for my area, maybe a bit lower but this works)
Convert back to dollar: $2,355.72(The ACTUAL amount off what you will charge. The math called for this so it's no longer a guestimate, it's your worth!)
Covert that to day rate you are at: $294.47
Math can give you everything you need in more ways than one, you have to learn how to "formulate" and determine factors.
Now you have a base Day rate for general tradesman work(Until you grow and you can always bump it)
You have a base price for painting
This can even be used per small 10x12 or 12x12 room with short ceilings and you can build from there. I can go on forever with this. So many ways in this business you can go at things. The bid has to wedge just right otherwise you won't be competitive.
Lastly for any tradesman and sorry to shade this a bit but don't let "licensed contractors" bum you, I'm correcting a shit ton of work from my clients that have used them. Little tired of hearing/seeing licensed contractors tell people about how tradesman/handymen do bad shit and I'm going back over licensed contractors work because the client was not happy. Licensed or not, we share the same experience. New handy tradesmen, Get INSURANCE with mediated coverage. Also for the comment about "Jose' and Alberto" with no insurance. They do a better job than any Jack and Charles with insurance and seems to be fixing all of your ken and barbie fuck ups, why label tradesman? Stop judging tradesman, we are in this field as a team. Stop being competitive and learn to come together because each has their flaws. We are equal.
This comment is gold. Thank you!
You have no idea how valuable his vid has been for me!
Thanks, brother! I sub to ur channel! Keep them coming
$900 for 2 full days of work and that’s including the cost of running a business, wow. Who ever follows this wants to live in someone’s garage for the rest of their lives.
Time spent selling the job. Time picking up supplies. Help get's hourly as soon as he arrives to the SHOP. Taxes. Vacation. Healthcare. Insurance. Truck maint. Callbacks. Advertising. Accounting.
Great video, and this may be a stupid question. But, given my overhead is 56% does that imply that I add 56% of the overall cost to the final price of the project? Thnx!
No. What he's saying is that, over time, you should have that % of your gross annual earnings available to cover all your business expenses and not merely break even. This % in this example suggests a comfortable level (margin) at which this person will be able to grow this business successfully.
@@Schnitz13 finally an answer to the 56%. THANK YOU!!!
I got so lost
remember this is just one way of "pricing jobs" I wouldn't use it as this method doesn't allow enough of a profit, which is the life blood of any business big or small.. this would get someone going in the right direction tho. I can tell you from 25+ yrs of self employeed experience, before you go out on your own, learn what your "TRUE COST ' of doing business is first.---remember your family time that you'll miss is worth something.
Me as a experience contractor I get paid for my skills
Great basic information to get people thinking numbers and $$. Caution for new to construction business owners - direct cost! Begin with (cost +). Until you can accurately estimate, I highly recommend not basing your rate to include direct cost. Also not mentioned in this video is utilization. Rather than saying: "I want to make $20 per hour!", ask: "how much per week do I want to make?" Now if you want to make $800 per week as indicated in this video, rarely do you work 40 production hours per week, its closer to 30 or 75%. That works out to $26.67 per hour! Customers tend to know how much time you spend onsite. If you try billing out 40 hours but only there 30, good chance you are only getting paid $600 not the $800 expected. You will spend an additional 30-40 yours per week on paperwork, quotes, supply runs, material you forgot or short, tools etc. If you haven't contracted before, STOP thinking like an EMPLOYEE. Adding a couple bucks to your employee wage and running out doing quotes is recipe for failure. This video shows how quickly additional expenses add up. Best of luck to anyone venturing out for the first time, construction is brutally rewarding!
What about employee taxes calculated into the 20.00 per hour
Those costs that are related to hours worked (workmanship comp, your part of FICA, meducare, etc) are included as hourly cost of employment for the staff member. So, if the employee is paid $20 an hour, you need to ADD to the 20 the workman comp(whatever it is called there), your cost of FICA, etc.(depending on state regulations) is added to the hourly COST of the employee. However, Insurance plans, uniforms, etc. Are part of overhead.
direct expenses change for every job. are you supposed to charge a different hourly rate for every job you work on?
What Rob-In -Philly said. Your presentation is fine for analyzing a business from the perspective of an accountant. But the problem in the contracting world is that cash flow is more important than profitability. That is, a business can stay in business as long as bills are paid and the owner pays himself "enough." Staying in business is ultimately more important than a balance sheet. Unless you're applying for credit. But for day to day operations, where the phone may not ring for 2 weeks or longer, and for the situations where you really have to "compete" for work, the average contractor is going to price the job based on the job and his expectations for time and expenses. Being able to turn a profit is too often dependent on (a) the contract provisions; (b) the client's ability/willingness to pay; (c) the presence or absence of unknowns that can shift a job sideways in no time; (d) the ability of the contractor to control costs; and (e) the ability of the contractor to negotiate from start to finish. Note: commercial projects typically have more cost burdens than residential, and so have to be priced accordingly. But they're usually also more competitive. Only the most in-demand, large-scale contractors can run a business the way you describe. For the typical guy-and-a truck, it'll always be hand-to-mouth with fingers crossed, one job at a time.
Well said.
Where is your load factor for your wage? $20 plus EI/WCB/CPP etc
Am i missing something? So the cost to do the job is $764.96 ( 16 x $47.81 ). He charges $900 leaving $135. In profit for 2 days labor that's $ 67.52 / day. And that's hoping there is no call backs. Who the hell would work for less than $10/ hr. In their own business with all the headaches that come with it. You can make more money working at Home depot!
Dude - Focus on the calculation - not the numbers. The video is about the calculation. Read the comments - Use the math that applies to you and ignore the numbers.
yes, that's profit for two days labor... key word is profit (above and beyond job expense (which already covers hourly labor cost))
already calculated $20hr labor into the $47.81. meaning at the end of the job (should it only take 16hrs) you will have paid yourself (or employee) $320 (minus taxes) and the business profited $135 from the work that had been completed.
What an informative video. Thank you so much for sharing your knowledge 🙏
I learned something today I was charging my customers a flat rate per hour but I didn't add whatever percentage per hour. This is an old video but like I said before l learn something in 2019
From where you got the 85?
here's several ideas to think about before you begin a woodworking business
are you likely to have support from your spouse?
Are you self-motivated?
Will you carry out the plan?
Do you have the funds to begin?
(I learned these and the reasons they work on Enata wood system site )
Great video, but you didn't touch on taxes. You can add 50% to the salary to account for employment taxes and workers comp. Thanks for the video it should help many new contractors who as a general rule don't understand accounting methods.
Every job is different.
Every jobs materials are different
1 job i may do 8 hours with 100 in material
1 job i may do 8 hours and have 600 in material
Lot of math every day
You want to talk about a WRONG ALGORYTHM.. I was thinking of something along these lines, 2 hours ago, in my car, with no phone or devices on my person... Just finish me already...
Don’t forget the transport charge, storage surcharge, additional overcharge, dealer upcharge, and the pure profit fee.
Mark up the pay to cover payroll costs. Account for your time spent bidding and acquiring materials. Don't forget your costs of money. Cc fee's, bank fees, etc. So basically near double what he put on the white board. PHCC has a great program and it's free.
Thank you. Seriously valuable content. Can you elaborate a little on the overhead percentage, would it be 56% of the $900 total.. so $1404 total? Thanks again
kirtan rasa, it all depends on your estimating system and ensuring it will comply with an audit.
@@firstnamelastname3558 that gives no help
@@farmermike9262, sure it does. The cost estimating system of one firm is not necessarily identical to another firm. Rarely, is overhead calculated based on a combined total from all other pooled indirect expense amounts.
perhaps the best (and most depressing) way to know if your contracting business is successful, is to find out what you need to earn PER YEAR. and compare that with your current output. If your not upto the mark, then your in poor mans land. Then you either - raise prices, or start mass producing.
This is very HELPFUL, but does this apply to roofing? I'm trying to one a small business of roofing.
Please anybody; I need a guild line.
@@tristannez7302 Yes - it applies to any small contractor. Roofing - painting - etc.
@@Driveyoursuccess you think you can do a video with roofing? Shingles and metal roofing? I'm doing exactly with what you said. But it's not coming correctly
@@tristannez7302 Hi Tristan. I think it's best to send me a request directly at ijamesjohnson@yahoo.ca - let's start there.
@@Driveyoursuccess hi Lan, yes sir. I surely will do. Been calculating this idea for awhile
Contractor friend used to mark up his subcontractors 15%; is now at 50% and not one complaint. Another friend has a boat repair business. Prev shop rate was $85/ man hour. His competition folded. He raised his rate to $125/ man hour and no one complained.
Man, first of, AMAZING explanation. I really appreciate that you took some time out of your life and dedicate it to a whole 400,000 number of people. Thank you, and why ins't this taught in companies, or schools? WOW!!
It is taught in schools; its called accounting. In this case, cost/managerial accounting.
some customer from india would never pay that much.maybe 100 a room.
Lol get new customers!
India customers want to negotiate, its part of their culture. I have a few, just prepare for it and preform excellent work and you will be rewarded with their friends and family business as well.
India clients want $1,781.00 worth of work done for $81.00. If they can't pay the fair price and not some India bazaar price, find new clients
JAVY 1980
I had the same experience.
omg Thought it was just me lol I have had 5 in the last year I had to tell the family I could no longer work for them because they could not afford me and I could not afford to work for them ! and they alway told me how poor they are when there house was twice the size of mine the one house they wanted me to paint was a 4500sf home with 18' ceiling and wanted to pay me $100 a room who can afford to paint a room at that price some people are crazy
Great Video! Its 2024 So Everyone either 2x or 3x all numbers in this video. - Profit helps offset the time you spend being the receptionist, scheduler, estimator and bookkeeper. Work that's unpaid by the customer.
Thank you for the comment
Excellent video I’m now a subscriber
I’m starting a small welding business in Canada and have been worried about how to charge hourly rate
Only thing I don’t understand is the 56% overhead is that 56% of the hourly rate. Thank you
Awesome, thank you for taking the time to make a video. I appreciate your knowledge. Thank you
The problem isn't that you're trying to help people learn, the problem is that people start businesses with no knowledge and come to videos like this for sustenance
Why is that a problem? if you're not constantly looking for information and learning, then you're not gonna survive.
@@josephgiri2398 "people start businesses with no knowledge " why is that a problem? Because I have to go through people's houses 6 months after they're built fixing all the shit the builders fucked up not to mention all the other areas people start a business they know nothing about and cause havoc to their communities before eventually failing
We bid painting by the square foot. Bidding by the hour is for the man who wants to work for himself but stay poor. If you bid by the foot, it's all covered.
I wonder if whoever came up with your formula knows how many sqft you can paint in an hour.
Your profit calculation is incorrect. Should be X 1.15 instead of / .85. I know you divide by a decimal to get to a known number. Example would be to get from 75 to 100 you divide by .75. If you take 15% of 100 you get 15. Add that to 100 and you get 115. If you multiply by 1.15 (115%) you get 115 as well. If you divide 100 by .85 you get 117.647.
I watched this about six years ago and it completely changed how I do business. Just wanted to say thanks
Thank you for that. Makes me feel great. I have to get back to making videos. Take care
I charge $100 a quote, I add it in the bid they don't know that there getting charged because it's in the quote covers the were and tear and gas to look at job, $800 a day labor, materials cost vary roughly $100, plus gas$100 for the day rate in gas. $1,100 for a 1 day job. Good formula know?
What happened to 1/3 labour, 1/3 materials, 1/3 gross profit??? Ah well, why make it easy when you can 'finesse' it, right?
Thanks. I like the idea that you don't want to invest with your own salary. Smart.
This is garbage. Why convert materials to an hourly rate? Makes no sense. Figure material costs for the job and multiply times 1.25 to 1.5 for total materials cost. Figure labor and add the two..Self employed people pay self employment tax. So you will only keep half of what you charge in labor for yourself after taxes. If you are paying help you need to charge at least double what you are paying them. This guy makes something simple very complicated.
Bullcrap doesn't take 16 hrs to paint 3 rooms! What a scumbag scammer! Why I paint myself...👊
Hey Ian, thanks for the video. Would you explain more about the function of the Overhead Rate? What does it used for?
Thanks Ian, this content helps me alot...mahalo
This is dumb. You never put your materials in the hourly rate. You cannot be competitive for one. You add materials then add 15% and fo a qoute not hourly. If you want profit it needs to be 30%
Indirect is the prick that broke into my job 2wks ago and stole my spray toolbox and a bunch of my LED lights. The spraybox had about 7-800$ in spraying related tools in it.
Marty Nunn that fucking sucks brother. I have to tell my guys all the time this little toolbox is $1,000 to replace. Keep your head up.
This system is the most basic and not very comprehensive. In your hourly rate you have to consider a lot more indirect expenses like liability insurance, license fees, bookkeeping, accounting, advertising, tool replacement. You must also consider your office time unless you do that for free.
Your calculation is incorrect. Your costs should be fixed and variable. Clearly if you pot of paint covers three rooms or one you wouldn't fraction that as it's fixed.
I don't understand why you would include materials in your hourly rate materials change from job to job?
This calculation doesn't include beer runs or deductions for cell phone usage. The contractor I've been doing jobs with for the past 6 months brings in Workforce guys when we get a delivery package. All our jobs come that way, we finish out retail outlets in Premium Outlet Malls. These guys are all over the spectrum from honest hard working, to worthless shirkers just hoping to get enough money to go catch a buzz on. Calculate that.
So sad, all these videos need to be remade since the pandemic
I’m so bad at math, do you know where he got the 85% from?
@@jt3409 "you want to make 15% of profit", 100-15=85
@@klimankhmeron7636 wow that was so simple, thank you so much!!
where do you buy your Paint for $25.00 hmm Benjamin Moore Paint is about 40 these days
About 40 For the regal line, but they also have cheaper lines. Also if your a contractor you should be getting discounts.
dude his just showing you a formula you can use, those numbers you see on the board would not be the same as yours, just switch the numbers and follow the process to come up with the total.
and by the way benjamin moore does have paint around $25
Get a contract account to get your discount. No contractor is going around paying retail price for materials
this video has noting to do with the cost of the paint. it's for the purpose of determining an hourly rate..........
Multiplying 47.81 by 1.15 is not the same as dividing 47.81 by 0.85. If you multiply your cost by 1.15 you will end up selling your self short.
Josef - excellent point - that's for that. I wasn't paying attention when I answered that other question. Take care.
Fuck all that
Have the owner buy the materials
I charge him 900.00
Could you explain how to apply the overhead percentage? Do you then increase your target profit by the overhead percentage to account for overhead?
That was a brilliant way to explain in a straightforward and objective, how calculating hourly rates for a contractor or small business. That will be useful for many contractors that don't know even to have how to contextualise such relevant information like that. Excellent, Congratulations Ian!!!
Thank you Ricardo - well appreciated.
Average hours
Indirect expenses cannot be added to the cost of the product. It should not affect the sales price in any way.
This what I've know since long time 🤔?
Would you explain.
Here what I 've learned:
Overhead Rate = Overhead Costs / Sales
Let’s say you had $4,000 in indirect costs and $16,000 in sales. Your overhead rate would be 0.25, or 25% ($4,000 / $16,000). This means that you spend 25 cents on indirect costs for every dollar you earn. If your direct costs are also high, you won’t be turning much of a profit.
So I think the overhead here in your example = (10 ÷ 56.25)× 100%= 17.77 %. This means you spend 17.77 cent for each 1 Dollar you earned.
1) This calculation is for a service - not a product - hence why it's for contractors
2) When a contractor first starts out, they don't have a history of expenses to determine overhead - so they start with indirect expenses
3) When they have a history of expenses - then they can use overhead
4) This is a calculation for hourly rate - and you absolutely have to incorporate expenses into any hourly rate you charge
Why contractor s need to calculate hourly rates? We charge what we think it's good for us.
This guy is smooth. Like a shaved white chocolate accountant.
15% profit? Pfft that wouldnt even allow for fuck ups.
If you can't price up jobs or invoice correctly then you want to quit and get a job.
What about employee taxes
Rubbish!
Paint etc is materials
Not your hourly rate!
I'm confused why he divided it by 85 for the profit?
Good video. One correction though. 15% on 47.81 is calculated by multiplying 47.81 by 1.15 (not by dividing it by 0.85). This will give you a rate of $54 and some change (not $56 as is calculated in the video).
No, a 15% profit margin is calculated exactly how he did it. You're suggesting a 15% markup, which is different. Close but different. It's really a big difference across a year of invoices.
15% profit margin says that 15% of my total invoice before tax is profit. If you instead markup 15% over costs, your profit margin is less than 15%. On
$100.00 of costs the difference is $2.64. On annual sales of $50,000 that is $1,320. Most companies cannot succeed on a 15% margin. Their equipment will be in decline and employees will seek work for a better equipped employer. Self employed people will limit work opportunities due to the diminished quality of their equipment.
Back to the point he makes. The $1,320 would help a paint contractor to invest in a backup sprayer that would enable him/her to keep commitments without disruptions from sprayer problems. Or many other ways to improve service. Profit margin is different from markup.
Cheers
(In accounting classes this difference was stressed.)