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The T and M curse.5/25
Several builders I work for that prefer I work on a time and material basis for various reasons. It seems that while you can't lose money, you also can't make better money by bidding it correctly. I am one of the smallest shops in the area(2-4 people, 1600 sqft shop). I my shop rate is also competitve, if not the lowest, around. While I feel my shop rate is set correctly, I almost always make more money on bid jobs. I was just wondering how other shops handle situations like this. Thanks
If you always make more money by bidding, then you need a higher rate on materials and/or labor when billing T&M.
This is borne out by the fact that you say your shop rate may be the lowest around. Why? Are you worth less? Not suggesting you are, in fact - the opposite. You are worth more, so charge accordingly and then your T&M jobs will be as profitable as your bid jobs.
This may require you to either A) adjust your labor component in your bid jobs, or B) use a different rate for bid versus T&M. I would suggest (A), since it would appear that you always give yourself a bigger cushion than necessary on bids.
That's good insight. I have been in business for 5 years. I opened my own small shop as no one was hiring at the time. I have watched many good woodworkers be bad business owners and fail, something I want to avoid. My shop rate is low, as I watch my overhead like a hawk. I have always felt if I could be the best value in town, I would always have work. I am always trying to learn more about running a good business and woodweb has been a godsend.
I 2nd David on this. Many small shops fail to charge what the market will bare. Do you have any aspirations to advance? It costs! How is your retirement account doing? If you are getting most of your bid jobs, you are too cheap. Low overhead is often a stagnating recipe.
I guess your post tells me that you don't have a correct handle on your labor. Somewhere you are overestimating labor, materials, or both. Most shops would kill for a steady diet of T&M.
But isn't that why we make more bidding jobs? I usually add 15 to 20% from what I call my realistic estimate to cover for errors, mistakes, etc. Am I doing this correctly? How do others figure there bids?
I said "it would appear that you always give yourself a bigger cushion than necessary on bids."
You said "I usually add 15 to 20% from what I call my realistic estimate..."
So raise your rates 15-20%, don't add a cushion to your bid jobs, and then both types of work should come out about the same.
As to "Am I doing this correctly?", only you can answer that. There is no right or wrong way as long as it's legal. But if you are making more money one way than the other you ought to change the way you're charging on the less profitable jobs, IMO.
To me the difference is risk. With a T & M job, theoretically you should be able to always make your projected profit margin while covering your overhead expenses since the customer is willing to take the risk if the project takes longer to complete than anticipated or material prices increase. On a bid job, you are the one taking the risk of the job going over budget so you should receive a greater reward for assuming that risk. With that being said, I think you should raise your shop rate, that is probably why you are being asked to do work on a T & M basis. Make sure you have everything covered.
That's kind of what I was thinking, I just was wondering what others thought. I did just raise my shop rate by $5. I think I am on the right track. Thanks to all that responded