Project manager compensation

      A conversation about PM pay grows into a detailed look at the cost of doing business. December 17, 2003

I am a project manager for a medium sized cabinet shop currently managing about 2.5m/year in volume. I am their sole PM and often assume extended duties which include estimating, sales, design and layout. Smaller projects I manage from start to finish but most are done with the assistance of an estimator (except that all change orders are generated by myself) and a cabinet designer.

The work we do ranges from high-end custom pre-finished cabinetry to commercial grade laminate cabinets. It also includes a line of modular cabinets which I use as a tool to meet a customer's timeline or budget.

My duties are extensive. They include gathering specifications for appliances, sinks, etc. and determining specialty hardware and providing a sketch or CAD drawing for special cabinets. I field measure every project, work with the detailer to submit shop drawings (sometimes I provide the shop drawings myself), review drawings for accuracy from first submittal to production drawings, direct the shop on special items, purchase special items/materials, meet with clients to get approval on drawings and define their needs, schedule the project, provide billing % to accounts receivable, collect monies when needed, perform minor repairs on site, ensure the client is happy and the project is complete. This is a brief summary of the tasks I perform on each job...

I am wondering what value most business owners would attach to such a position. What is a fair salary or commission basis for this type of work? If you are a PM, what kind of benefits or pay scale are you used to?

A little more background: I started with this company when they were only 5000sf, 12 employees and produced about $750k/year. That was 8 years ago and now we are 25000sf, over 40 employees and should do about 2.5m this year.

(Business Forum)
From contributor A:
I think that you should end up in the 70K range. Western New York State. Where are you located?

From the original questioner:
I live on the central coast of California.

From contributor B:
I am a current owner and former PM for a company of similar size.

First, it is nearly impossible to determine your worth without knowing the type of individual you are and the quality of the work you do. I'm also not familiar with your market, and what a typical pay scale might be. That said, I'll give my opinion based on what I know.

First, I would suggest you work on a base + commission type pay. I would probably offer a base of $40-50k, with bonuses given that were based on job profitability. With average profitability, you should earn in the $60k range.

You should also be given a specific job description, so you and the owner both know what is expected.

There are other ways of compensation that you might consider negotiating into the deal (company vehicle, cell phone, insurance for the family, 401k, profit sharing, etc.).

If your employer is a member of AWI, you might ask them to provide you with a copy of the AWI Cost of Doing Business Survey. It can provide more data that is specific to your situation.

From contributor C:
Your company's gross output is really low. It needs to be about double before the office staff can begin to smell the kind of money talked about here in this forum. If the average compensation package per person costs the company 30K per year, half the gross sales ends up paying the wages. How can anyone run a business like that? And how does the owner pay an office guy double what is bringing the company to its knees? Where's the money for material and overhead?

Say you have about 15 benchmen. About $1,000 of product needs to leave his bench every day. That's 20K per month, $240,000 per year, each. Less than that, everyone struggles to pay the bills. Produce 4 times the product of what it costs for a benchmen. ($30.00 x 4 = $120.00)

From contributor B:
I thought the same thing about the sales versus employee ratio. This will vary depending on the product you are producing, but I believe the AWI Cost of Doing Business Survey averaged around $120k per employee. That is about what we average as well. 40 employees, then, should produce about 4.8 million.

In contributor C's example, it would be $9.6 million, which seems out of whack for custom woodwork.

From the original questioner:
Boy, lots of good responses so far.

I am curious how it is that many companies will offer a sales rep 5-10% to bring a job in the door, but a PM who is ultimately responsible for job profitability is only worth 2-3%.

When fresh out of the shop, I resented the fact that while I was busting my back in the shop to earn 30k a year, the sales reps and PMs were earning more than double.

Once I began as a PM and my pay scale grew, I realized the stress and pressure that goes with the job. The shop started looking good again. But the money kept me in the office. Lesson learned.

However, I find now that I am doing the sales, estimating and PM positions for the shop while earning just PM wages. That means a lot of overtime and minimal compensation. I don't want to sound ungrateful, though, as the experience I have gained is invaluable and I have learned to push myself way beyond what I thought was possible.

As for the earnings of our company, I should have qualified that we also do about 1.5 in other ventures (countertops and cabinet installs for other distributors) which I do not have to manage, so the balance was a little off. In considering wages and profitability, the actual support/personnel required to produce the 2.5 mil is about 25 (still out of balance with the previous responses but not as bad).

From contributor B:
Many times an employee's value to a company is determined by their "replacement cost," for lack of a better term. It is difficult to find good shop employees, even more to find a good PM, and even more to find a good salesperson (who knows how to locate and sell profitable work).

I've always felt that estimators are the most undervalued segment of our workforce. Often, I see them paid less than a PM (if the jobs are separate).

Sales can be one of the most difficult jobs in this business, and the "used car" sales approach just doesn't cut it. In my experience, a good salesman has established trust with their customers, and that takes years of work. You may be ready to move into full time sales, and out of the PM role. I think you might then appreciate the sales rep that you now resent. (I personally would much rather have an in-house sales person than a rep who can't price the work).

From the original questioner:
Since I have been responsible for the sales and estimating and PM for the company I am working for, I must say that sales doesn't frighten me one bit. For the record, I don't resent the salesman, I just don't understand the discrepancy. I have actually been assuming that role also.

Personally, I hate the used car sales approach and almost despise the term "salesman" because of the images that come to mind. I also hate the sales technique of bidding low and change ordering your client to death. I sell by charging a fair price in the beginning, thoroughly educating my clients so that they can qualify the other bids and see why they should pay more for my service. This has led to so much repeat business that the work is now literally seeking me out.

I look at my job as twofold - first and foremost, I am an advocate for our clients. Second, I am responsible for selling a product at a price that ensures the shop makes a profit and the client will not be shortchanged. With this approach, I find keeping clients and my shop owner happy is only a challenge when there is too much work and we have to turn it away.

Since we have picked up so much work, I have trained an estimator to handle about 75% of our bids to free me up on the management end. But it seems no matter how much I try to delegate, it only relieves the pressure temporarily and then the floodgates open again. More help ultimately means more work.

From contributor B:
Your situation sounds exactly like one I encountered working for someone else. Over time, I took over (or was given) the management of the company from the owner. Fortunately, this owner was willing to pay me for wearing so many hats.

I must say, my original posts concerning your pay are probably underestimated. It sounds as if you are selling more. I can't agree with you more about the term "salesman." In this business, a great salesman doesn't appear to be selling at all, but educating the client so they understand our work.

Your approach in the above post is impressive. You really should be tied to profits in some manner, or an incentive based pay. Don't shortchange yourself!

From contributor C:
It's not 9.6 million, its 3.6 million. A shop of about 45 employees (office, mill, bench, finish, etc.), plus or minus, is going to have roughly 15 benchmen. Take the total amount of work shipped out the door each month and divide it by the total number of shop employees. 15 x $240,000 = $3,600,000 / 35 production personnel (includes most, not all office personnel) = $103,000 roughly. Not including the installer's cost, since that is not shop production and is a business in itself. (Some office personnel would be included with installation.) You can see how difficult it is to get to the average of 120,000 per employee per year.

From contributor D:
From what I understand about sales reps, they are using their own car, gas, insurance, etc., while a PM has most of this added to their job description. How someone that gets that can cry about a rep making 10% is beyond me. If they are on the low end of the totem and get the lower end, like 5 or 6%, it would still be a stretch for a PM to cry about being underpaid.

From contributor B:
Contributor C, thanks for clearing that up. I was using employees instead of benchmen in figuring average sales per person.

In the shop I previously managed, we averaged $110-120 per employee, including all office employees, drivers, etc. They all contribute to sales volume.

From the original questioner:
Contributor B, did you finally take ownership of the shop? I am considering the possibilities myself and will probably get my contractor's license this year, regardless.

Although I have a good home with the company I work for now, I am always open to explore opportunities for advancement and growth. I feel strongly that if you aren't moving forward, you are moving backward, and I certainly don't want to lose ground.

Contributor C pointed out something I hadn't considered regarding sales people. If they are getting 10% but doing so as an independent (paying their own expenses, SE tax, insurance, etc.) that definitely levels the playing field somewhat. However, if you are smart at it and sell for a company who has a good product, but more importantly is on time with delivery schedules, how hard is that?

Personally, in all my sales, I have never even seen the need to do lunch or pay for a golf game, buy drinks, etc. to get a sale. I have never used perks to get a client and probably never will. After all, if you are providing a quality product, isn't that sufficient?

On the contrary, I am more likely to have a client demand that I let them take me to lunch, clothe me in their promotional apparel or even take me to a playoff game. Don't get me wrong, thank you is always in order when a job goes well and your client is to be praised. But really, are we any less deserving at the end of a successful project?

My motto is: "Do what comes naturally and if that works for you don't second guess yourself by kissing up too much!"

From contributor B:
I wasn't able to work out a transition plan with my previous employer. In my opinion, he over-valued his company. And I knew that I played a huge role it his success (so his company's value was tied to my abilities). We also had different management styles, and I saw that as a possible conflict. There was also a big age difference (him nearing retirement and me fairly young).

The final straw for me was a realization that I would be sacrificing either way (buying into his company, or starting my own). With starting my own company, I would be able to direct the company in my own way (without having a partner to always run things past).

I'm not saying this is best for everyone, but made the decision based on what my strengths and weaknesses are. I also was able to finance my new company so cash flow would not kill me before I was off the ground.

If starting your own company is of any interest, make sure you understand the financial aspect of the business, write a business plan, and have a plan for finding key employees.

From the original questioner:
I am heading in a similar direction. I am currently researching the costs of startup and working on a 5 year business plan to see if it is feasible or not.

I am weighing out whether it is better to work for someone else and earn a good living with less risk or take the leap and assume the risks that have the greater reward. Either way, I won't take a step without a solid business plan.

Having been intimate with the financial aspects of the company I work for now, I have learned much about payroll expense, taxes, the dreaded worker's comp, P&L, etc. I have seen the crunch times and the good times tied to cash flow, and all of this makes me feel that I am not so far from owning my own company already.

The only difference is the risk to reward factor and never knowing when the business owner I am working for might decide to close. It would be nice to make those decisions myself.

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