You have a college degree, a respectable white collar job and you work hard, but you don’t make $100 an hour. That would be $200,000 per year! Where do contractors come off charging $100 per hour for labor when they are only paying their technician $35 per hour (including taxes and benefits)?
Let’s take a look. A brutally efficient service company on average bills their service techs out for less than 50% of the time they are on the clock. The rest is windshield time, warehouse time, paperwork time, on-going training, running for parts, return visits that are not billed, etc. The technicians are getting paid for all that time but bill customers for less than half of it. So you can knock that $100 per hour the company is making down to $50 per. That leaves a spread of $15 per hour ($50 billed – $35 in direct labor cost).
Now let’s look at the truck the service tech is driving. It costs at least $30,000 without inventory and its life is 5 years. That equates to 5,000 billing hours (20 hrs/week x 50 weeks x 5 years). It’s worth $5,000 when the company sells it. The truck cost $25,000/5000 hours or $5.00 per billing hour (assuming no finance charges, fuel, oil changes, tires or repairs). Now factor the wages for the person who took your call and dispatched the technician, the bookkeeper who billed you and filed your warrantee paperwork, the office, warehouse, inventory, taxes, insurance, computers, internet, phones, cell phones, etc. This is why many companies charging $100 per hour or basing their flat rate pricing on $100 per hour find there is no money left to pay the owner who is taking all the risk and fronting all the money.
Consumers are not the only ones who don’t understand this. Many employees don’t understand. Without the knowledge of the true costs to run the business, they assume the company is making $70 per hour profit. Many employees who steal from their employers use this as justification in their minds. Even many small business owners who do not already break down their expenses this way are surprised to learn how much they are losing every time their truck rolls out of the office.
The competitive market works at keeping prices in line. Beware of a company charging below the going rate because there are one or two things you can be sure of. One is that the company is cutting corners on products, materials, skilled labor, insurance, permits, etc. The other is that the company won’t be in business for long and if you have a problem, you will have nowhere to go. It’s smart to shop around and keep companies honest but be sure you are comparing apples to apples. Many times the cheapest price is the worst value.
According to Edward Marchiselli, President of consumer advocacy companyAsktheSeal.com, “Once consumers understand the dynamics of why legitimate service companies charge what they do, the fear of being ripped off diminishes and they can select the best company for the job, receive quality work and enjoy the end product without wondering if they paid too much.”
www.AsktheSeal.com is a consumer advocacy company and website based in Tampa, Fl. The peace of mind that AsktheSeal.com provides is priceless and is therefore free to consumers. Consumers depend on AsktheSeal.com to learn how to select the best and safest company for the job and to find companies with the Seal of Approval. Reputable companies depend on AsktheSeal.com to distinguish them from corner cutting competitors who pretend to offer the same safety and quality standards.
Source: Hartland Electric / Chris Diroll of Eaton Certified Contractor Network