What should I charge?

admin — Tue, 08 Apr 2014 04:50:24 +0000

It’s one of those unspoken topics in the building industry. Even when you
get together with your mates do you talk about pretty much everything but
find they are cagey about charge out rates?

Do you wonder whether your rates are too high (potentially costing you
jobs) and find yourself reducing the rates just before sending your quote
out for fear of losing the job?

So what should your charge out rates be?

Like most things there is a simple and not so simple answer.

The not so simple is … it depends.

It depends on the type of work you are doing.

Labour only contractors on an hourly rate will typically charge between
$35 per hour and $45 per hour (let’s ignore square metre rates for the
time being).

For full contract work the range is $45 to $65.

That’s not to say that $45 per hour is acceptable. Based on our
experience, builders who are charging $45 per hour will struggle like hell
to make a profit.

In fact, if you are charging $45 per hour it’s likely you’re part of the
problem and holding the margins down for everyone in the industry.

The simple answer is $55 per hour is a good starting point.

Of course charge out rate is only part of the pricing equation.

Your charge out rate is most relevant when doing charge up jobs. Charge-
up jobs are where you bill an hourly rate and a percentage on the
materials and subcontractors.

For your quoted jobs, the overall margin across the job is what counts.
Are you calculating the gross margin across the entire job? You must
understand the gross margin and price for a target margin.

What about the percentage you put on your materials and subbies?

Rule of thumb here would be between 10% and 20%. 10% is certainly on the
low side. What you’ll find is at 10% the overall gross margin on the jobs
will be too low. Again this will depend on factors such as how big the
project is. The bigger the project, typically the lower the percentage
(as the actual $$ are higher).

So what is the key to getting a strong margin and appropriate charge out
rates? Strong marketing and sales strategies are a part of the answer.
But the starting point – to understand your financial numbers.

Do you run a monthly profit and loss statement, Work in Progress
calculation and cash flow forecast? Are you tracking the jobs as you go
and back costing when the job is finished? Have you factored in an
appropriate salary for yourself?

If not, you’ll struggle to understand the profit on each job and will
continue to run skinny margins and low charge out rates.

Our private clients find the inevitable result of getting accurate
financial reports is they increase their margins – simply because they can
see how much money they were missing out on before.

If you want a “heads-up” on how your rates stack up hit me by return mail.

Let’s lift the margins for all builders!!

Successfully

Tony

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What should I charge?