Billing Rates

                         Billing Rates

 

Introduction

You cannot sustain your business and be profitable by guessing at your Billing Rates. Also, it is dangerous to “bid to the competition”. That is when you tell yourself “I know XYZ Painting is going to be 20% lower than me, so I’ll knock 21% off what I think it should take.” You won’t stay in business long with that approach either. You must have an intelligent and consistent approach to estimating.

If you are new at this, you can try to glean production rates and pricing from the PDCA manual or from other books. Instead, the best and most accurate method is to diligently track your own production and spread rates. It may take some time to build a comprehensive data base. Nonetheless, once you do you will be equipped to address estimating with accurate information. Especially important is to keep in mind that different people produce at different rates, so you can’t track just one job and think you have a reliable base to estimate from.

I have been in the Industry for over 20 years, and I am still adding different tasks and outcomes. I continually add into my data base the many variables that can affect our jobs. This has paid off well, proven by the fact that I have successfully bid and managed jobs as large as $5,000,000.

In addition, I have also spent my career trying to give back to the painting community by conducting seminars and joining in web sites discussions. If I can be of help to anyone regarding contracting practices, estimating or blueprint reading please don’t hesitate to contact me. Lynnjprecise@gmail.com.

What Should my Billing Rates be?

calculator and pen

Salary

The easiest approach to determine what number to use for salary is simply by “averaging”. Do this by finding the average of the salaries of the crew members that will be on any given project. You can also use that figure for your Billing Rates for each of your jobs, assuming the “mix” stays consistent.

If, for instance, you have a foreman at $26 per hour, four journeymen painters at $22 per hour. Let’s also assume you have two prep men at $19 per hour. The total would come to $152. Divide this by the number of people (7) and you get $21.71 per hour as an average “mixed rate” salary. This rate will vary, depending on mix you have at any given time. As salaries do change, you will want to refigure this number every few months, to keep it current.

  Load

The term “load”, or “burden”, is used to describe several expenses which are related to employee salaries. These are expenses that also comprise part of your Billing Rates. Normally, these include federal taxes (F.I.C.A. and F.U.I.), worker’s comp, state unemployment tax, liability and health insurance benefits. You can check with your accountant, or calculate these percentages yourself. Either way, you should be sure to keep them current, as they are subject to change. For this example, I will plug in our company’s latest number, which totals up to $6.64 per hour. Add this to the average for your salaries, and it comes to $28.35.

Overhead

To arrive at a figure for your overhead, take your latest financial statement. You will need to total all the indirect costs associated with running your business. These can include items such as support staff salaries, rent, utilities, office expenses, vehicle insurance and repairs, advertising. Remember this fact; “If you overlook something, you’re going to lose money.”

Once you have arrived at a total monthly expense for your overhead, divide that number by the total number of hours your crew works each month. Keep in mind, as with your other costs, this one is going to vary. Again, for the sake of this exercise, I will plug in my figure for overhead, which is currently $13.80 per hour. Adding this to the salary and load figure gives you $42.15. This is how much it costs us per person, per hour, to run our crew, based on the mix above. This formula can be applied to any pay level as well. Obviously, you need to use your actual costs to arrive at an accurate Billing Rate for your operations.

Profit

Finally ,assuming you are in business to make a profit, you need to add something to the above number to ensure that it happens. Hence, the question is, “How much profit do you want to make?” This can change, depending on your work load, or how badly you want the job. It may also depend on what type of project it is or who the customer is.

Let’s say you settle on 10% profit, just to make it easy. First, take the dollar amount we arrived at as our cost of doing business. We arrived at $42.15 per hour (again this based on the mixed rate example for our company). You now need to calculate how you are going to end up with a 10% profit on top of that. If you multiply $42.15 times 10%, you get $4.22 (rounding up). Add those two together, and you end up with a Billing Rate of our mixed crew of $46.37. If this is your approach, you will actually be making 9% profit, not 10%.

To see if I’m right, take the number you arrived at as your profit ($4.22), and divide it by the billing rate of $46.37. The correct way to go about this is to start with the cost figure ($42.15), and divide that by 90%. The result will be $46.83. This is your correct Billing Rate, representing an hourly profit of $4.68 which, if divided by the sell rate, will show a profit margin of 10%.

In conclusion, you may have already been familiar with this method of calculating profit, if not, you just made a whole lot of money!

calculate salaries

About the Author

lynnj
Lynn Jackson began his painting career over twenty years ago under the watchful eye of a master painter. After many years of learning and perfecting his trade, working both on his own and for contractors, he finally settled in Northern California.

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