Labor Rates and Profit

      A lively discussion about how to value various skill levels of labor in pricing woodworking installations. December 2, 2006

Question
I own a remodeling business. Currently I am charging $35.00 per man hour. How much should I charge for a laborer/carpenter?

Forum Responses
(Business and Management Forum
From contributor J:
As much as you can and still have work.



From the original questioner:
Not really what I wanted to hear, but basically that is what I'm wondering. Is it normal to charge the same hourly rate as I charge for myself? He's just a little slower than me.


From contributor S:
$35.00 an hour is $70,000 a year gross, from which you have to deduct insurance, tools, rent, auto expense, bad debts, business license, etc. Lucky if you have $30K net profit before taxes. You can't live off that! You'd be better off working for someone else as an employee for $20 an hour.

This board certainly runs the gamut. Last week it was a $23,000 island, this week it's remarkably low wages. That island job must have had 3 years worth of labor in it. Seriously, even if you work out of your garage, your hourly charge has to reflect your overhead (rent, utilities, insurance, business license, cost of replacing tools, sharpening services, travel overhead, employee benefits like vacation, health insurance, retirement costs). If you are charging $35 per man hour for labor, you aren't even making wages, let alone a profit, for all the headaches of owning and running a business.

I'm in Southern California, and the going rate for labor... auto repair, appliances, HVAC, electrical, etc is about $125 an hour on a retail market. By the time you add in the cost of worker's comp insurance, your helper is probably costing you $30 an hour even if his hourly rate is around $15.



From contributor A:
In the northeast, current labor rates are:
1. general carpenter $25/hr
2. skilled carpenter $35/hr
3. skilled finish carpenter $40/hr
4. skilled shop guy $50-$65

Near the cities and expensive towns/islands, these rates may be conservative. The island was under $15k.



From contributor X:
I work in Atherton (SF Bay Area), and you're doing okay if you're billing your finish carpenters out at 50 an hour and yourself at about $60-65, for finish install work. $125 per hour for HVAC electrical, etc... Almost makes me want to jump ship. Walk away with $80 an hour in profit per employee… can't complain about that.


From the original questioner:
I'm in Saint Louis and do all the work myself except when I have one of my sons working for me. I do it all, just about - carpentry, plumbing, flooring, painting, etc. I have an excellent reputation, and all my business has been strictly word of mouth for 15 years, but I still feel reluctant to charge that much for my son or anyone else, for that matter. They would have to be better than me.


From contributor L:
Get a Means cost book. Figure what to charge for the job, not per hour. Add in about 35% for the things that have to be done but no one pays for, like picking up material, maintaining the truck and tools, talking to customers, etc.

Fact of life, the plumber walks in with a bucket of tools and charges four times what we can get per hour. Yes, you do have an hourly charge, but don't give that info to the customer. When you go to the grocery store, do you care what the baker makes per hour or do you care what a loaf of bread costs?

Way too many of us do what I used to do years ago, value ourselves too little. Price your work so you get one or two out of ten leads and start making a better living. If you get 'em all, you're leaving money on the table. No doubt you are a good craftsman, but people don't deserve the best and quickest person to do the job. They deserve average skill for average pay, or their money's worth.



From contributor O:
I raised my shop rate from $50 to $75 per hour a year and a half ago. Something interesting. I get more, higher quality work. Less of the "can you do it cheaper" folks. I price it out, give them a cost and go from there. I also got heavy into commercial and less in residential.

When someone tells me they want to do it for less, we look at the bid and I let them decide where to cut costs. No doors? Lower quality slides? Different wood? Spend less time sanding? Whatever they want.

What really did it for me is I just decided I'd rather go home and sit in the AC than work 40 hours to just trade money between my customers and my suppliers.

If I were to close my shop and work out of my trailer as a handyman, I'd outfit it well with lots of common parts (electrical, plumbing, etc.), make appointments, have little overhead and charge at least $50/hr plus materials.

On the weekends I'll sometimes pick up a little handyman job (hanging crown, trim, etc.) and I charge $75/hr plus materials. Most people balk at the $75, but I'm upfront, and some people are happy to pay it because I show up on time and work steady until the job is done. I do the best work I can. Everyone has been happy so far. And I usually get more work. Last job like this I did was two rooms of crown that lead to a bar for the "guys' room" and they just called me back for custom closet's.

Do not be afraid to charge more just because you don't think people will pay it. Test the market. See what happens. We are more skilled than auto mechanics or plumbers. Or AC repair men. The difference is they offer a service that the consumers perceive as a necessity. No one needs a full-on cherry entertainment center with pull out DVD storage that perfectly fits between the fireplace and the wall. If they want it, charge them. Extras cost more. They can't get that anywhere else but from a custom shop. Why do we charge less than what they will pay at Ethan Allen? Some people compete with Rooms to Go. This is even something China can't do… yet! We as an industry need to be paid for our skill level and our investment in tools.

I'm in the Southeast, for what it's worth.



From contributor L:
If we set our price by the cheapest, ill made junk cabinets out there, what does that say about us? Competing with stick builders or garage shops shouldn't be an issue if you market your work instead of waiting for the chance to drive a job in the door. Sell the differences between you and the junk cabinets out there; some will care, others won't. In my experience, the cheapest jobs are the most troublesome; they seem to expect champagne quality on a Kool-Aid budget, and they are the ones who try to stiff us on the last payment.

Garage shops can be a problem mainly because they don't have a clue as to the real costs of running a full size business and make up the difference by working longer hours or being more productive because they are one man shops. Long ago I heard the sage advice that hiring the first man will up your production by one third. The second man ups it to two thirds and the third man will add another third, or around double what the owner was doing on his own. I've never found a way to beat the curve except with machinery, machinery, machinery. No way a small, one man shop can compete on quality, speed and cost; he just doesn't have the resources or time.

We have six kitchens going at this time plus half a dozen smaller jobs in various stages of completion. Haven't had any slow time in over two years - sure could use a few weeks for maintenance and shop upkeep. Our area has probably seventy to a hundred shops of various sizes, plenty of competition. It still boils down to selling, selling, selling the differences between good cabinets and bad cabinets. If you are selling to home builders, get out of that niche, leave it to the guy with a pickup truck full of tools. The only shops selling to home builders around here sell junk at a junk price. Use solid wood drawers, or one of the quality metal side drawer systems, show the customer the differences in sanding in a quality built shop cabinet. Upgrade your finish with pre-cat, glazes and lacquer based paints. People who buy most of the homes out there are ignorant about quality cabinet work, so educate them or show them something that drops their jaw. They won't settle for less once they have seen the good stuff.

Remember, you only want to land 10 to 20 percent of the jobs that you bid. If you don't have enough people coming in to get jobs bid on, work on that, don't drop the price unless you want to be known as the cheap source of cabinets.



From contributor C:
We are at $46 per hour in the Tampa, FL area and nobody is driving a new Mercedes. Your men under your guidance are worth every penny you charge for yourself. You are the essence of a factory floor foreman. You can do anyone's job to keep the line running and production going out. That's the benefit of having other people as well as yourself working at the same time. But don't forget, the expense to your business cannot be overlooked. Do not feel guilty about your rates. A lot of it goes back out.


From contributor K:
I started a handyman business only a month ago and right now, I truly have more business than I can handle. Really, I average about $85 an hour and I don't shave my price for anyone. I don't bill by the hour - I bill by the job. Yes, I got the Mean's book on remodeling and I use it as a rough guide for pricing. I show up on time, do what I say I will do... and clean up my mess. People pay.

I love cabinetmaking and would love to do it full time, but I don't see any way that I can make this kind of money as a cabinetmaker. On top of everything else, my investment totals a bucket of tools, business cards and flyers, business license ($100 a year), some cheap liability insurance (about $90 a month). I average about $2,000 a week (gross) and I have no overhead other than a cell phone, insurance and gas for the truck. Think about it. I've only been doing this for a month.

I passed out flyers to about a dozen real estate offices around town. I also hung flyers on mailboxes in Virginia Highlands (an old neighborhood with a lot of renovation going on). Within 24 hours, I was getting calls from homeowners needing general handyman stuff done. I'm also getting calls from real estate agents needing punch lists knocked out for house closings. I'm working 7 days a week and phone doesn't quit ringing. Do a good job and the word-of-mouth spreads fast.

About 10% of the customers I run across need new kitchens or some kind of custom cabinetry. Most of these people don't even know where to get it done. Hey guys, wake up! I know all of you have the skill set to do this handyman thing - and the customers really don't care what it costs to get the job done. The best part is that you get paid the same day. Cash flow is king.



From contributor M:
I have a comment about the guys working out of garages or sheds, barns, carports, etc. I have seen very high quality craftsmanship come out of places of all shapes and sizes. I have also seen some real crap come out of some very large or average size shops with 15 employees or more. I strongly disagree with the dig at garage shops. The only reason they pose a problem is because they have next to no building overhead. All their other overhead is much cheaper. It doesn't matter if they know how much it costs to run a large shop - they only need to know what their overhead is and what they want or need to make an hour. If that guy can charge $30 or $50 a man hour and turn out the same quality as a larger shop charging $60 or $100 a man hour and net the same or close, that's called competition and I would say the guy with the larger shop and all those employees doing twice the cabinets has a bigger problem.

The best formula I have been given to figure out how much to charge per man hour is to figure up all your yearly expenses, everything you write off. Divide that by the number of workable hours in a year or number of hours you want to work, then add the amount per hour that you would like to receive, then add the two together.

As for employees, use the same formula: add the expense they cost you, workman's comp, health insurance, etc. Don't forget they will be using more saw blades and expendable materials also, plus the amount they will be paid directly.

Although it is a good idea to know about your competition - what they sell and how much they charge and the quality of their work – it's more important to know what you need to charge.



From contributor G:
I don't understand how you can ask how much to charge for a job. Do your homework, keep records of past jobs, know how much you have to make per hour to break even, know how long something takes to build. You have to know what your costs are in order to break even and to cover your expenses.

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