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How to price services

Discussion in 'In the Office' started by RJP1267, Sep 21, 2021.

  1. RJP1267

    RJP1267 New Member

    Joined:
    Sep 21, 2021
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    Location:
    Planet Earth New England
    Hello All
    I have done a search for "rate pricing" and did not see anything come up so if this is covered elsewhere my apologies and feel free to point me in the right direction or relocate this thread to the appropriate forum.

    I am looking for information on how to accurately price services (hourly rate) taking into account related expenses (fuel, wear and tear, insurance, etc). Since equipment will depreciate and has an assumed serviceable life span I feel the current method of calculating service fees is due for a tune up and wanted to get some feedback.

    Recently I received conflicting feedback from customers suggesting that our pricing is too high or even too low and with competitors in the area unwilling to disclose for obvious reasons I thought I would turn to the community to get your input. Its been a while since we did a ground up review of pricing, only adding % per year to stay ahead of inflation and fuel costs so maybe this is the time to do a complete rethink...maybe.

    Happy to share whatever info I can to help bring clarity to this query so feel free to ask.

    Thank you.
     
  2. treemuncher

    treemuncher Senior Member

    Joined:
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    Occupation:
    eatin' trees, poopin' chips
    Location:
    West TN
    First of all, you are in New England. I expect your pricing to be much higher than anything in my local area and higher than many other parts of the country. Your taxes, insurance, pay rates and more are much, much higher than what is in my area. I know, I used to live there eons ago. You need to price against your local market. Talk with more contractors to get an idea of pricing - someone will share. There's more than enough work out there. I share my rates with my local competition and even tell them if they are too low or on target. I will adjust my rates up if I find I've been too low. I don't want to be the guy dragging everyone down closer to break even territory.

    I remember when I was quite green, a customer/friend told me hourly rates should be about 10% of the cost of a new machine, as a rule of thumb. Some machines need to be higher or lower than that percentage.

    I always take into account the cost, maintenance and availability of such a machine I'm pricing. I know I have way too much equipment for a one man operation but I avoid low paying jobs, seek specialty work, charge as much or more than others and have minimum call out pricing equivalent to a little more than an 8 hour day or 3 days for anything needing to be trucked in by outside sources. My reputation affords me a higher hourly rate also. I don't dawdle about and I work my ass off for my customers. I've never been on the Jersey team because I will never milk a job for more time. I have many repeat customers that never even ask what my current hourly is.

    Now that I think about it, when I was in college, there was a student whose goal was "Construction Estimator" and he had construction rate reference books. I'm not sure if that was on a per yard or hourly per machine rating. Ask a construction estimator at a large outfit how they figure it all.

    I would always rather be the price leader in my area than the cheapest guy out there. As long as I have enough work, I'm on target. Those guys trying to make payments and getting cut throat always fade away in a year or two.

    Customers will always bitch about the price being too high. When they compare apples to apples, I usually come out a whole lot cheaper when you take other factors into consideration and make a fair comparison. Does your work, methods, pricing save your customers money in the long run or at least be competitive?

    One of the best quotes I ever read in the construction industry is this: "Successful contractors never win every bid but every bid they win is a money maker that keeps them profitable." That mantra has worked extremely well for me over the years.
     
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  3. CM1995

    CM1995 Super Moderator

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    Occupation:
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    Location:
    Alabama
    Welcome to the Forums RJP!

    I'll add Father's favorite saying - "I've never lost money on a job I didn't get.":D

    RJP what equipment are you running and what type of work do you do? Residential, commercial, industrial? Do you do jobs with labor, material and equipment or just hourly equipment?

    Lot of variables with your question and we need more info.
     
  4. treemuncher

    treemuncher Senior Member

    Joined:
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    Occupation:
    eatin' trees, poopin' chips
    Location:
    West TN
    Here I am in the same boat - how to price out services with one of my new-to-me pieces. Prices on parts for this machine never cease to blow my mind. $2k per tire, 4 new tires, tubes nearly $250 each. Not too bad. Biodegradable hydraulic fluid @ $70/gallon - OMFG! And on it goes with minor, typical stuff with this machine.

    Sunday, I ran the machine for a couple more hours to get used to it being on slopes and clean up a few items on the farm. Then, my right joystick (plastic) breaks at the steel mounting lug. I've had this apart before so easy to pull apart and get ready to glue it up or order parts. This break is pretty complex so I really need to order parts. Full joystick top (plastic handle section) with electronic switches = $4,129 for the one side! Plastic sides of joystick without any switches or other parts = $173 per half => 2 required to fix cracked base so $346 + 10% tax + shipping from Switzerland so nearly $500 just for the plastic outer skeleton. And today, while pulling off the joystick, I've got a flat tire again. The same one the tire shop recently installed a new tube in. It has ripped the valve stem off of the tube by the condition of it. More crap to deal with.

    I'm starting to think $500/hr or more will not be out of the question for this machine. That's not even 10% of the price of a new unit. I've since made it across this chasm and up the other side at 43 degree slope. It goes where few other machines can operate and cuts down on liability of hand work.
    IMG_20210912_190014[1].jpg
     
    Last edited: Sep 22, 2021
    DMiller, CM1995 and Paul Council like this.
  5. CM1995

    CM1995 Super Moderator

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    Congrats on the purchase TM! Pretty amazing that machine has enough hydro power in such a compact house to run a mulcher. Have you thought about gel filling the tires? Not the rigid foam but the newer softer gel.

    Our 420DIT backhoe has the soft gel filled front tires that works very well. The soft gel gives enough where you don't rip the lugs off the tires like the hard foam in a dirt moving situation. Destroyed a set of new to me rigid foam skid steer tires back in the early 2000's..:rolleyes:

    BTW TM don't you mean 1% of purchase price? That's the ratio the old timers used and I'm trying to get back to for what little hourly work we do. The last hoe we bought, a 325FL was around $200,000. 1% of purchase price hourly would be $200 per hour.

    At the moment I charge out the 325 at $155 an hour, which needs to be $200+ to make a profit. One reason why I don't perform work hourly. Building part of a project from a subcontractor perspective including materials, labor and equipment is more profitable for us as there is a markup on each line item however it does comes with more risk.
     
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  6. RJP1267

    RJP1267 New Member

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    Sep 21, 2021
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    Location:
    Planet Earth New England
    Sorry for delayed reply. At the moment I have a Bobcat 753H with backhoe attachment and a Deere 310G, since I work weekends my main customer base are DIY'ers/homeowners, I work FT in healthcare and am trying to build up skill sets, portfolio and referrals and possibly migrate to FT if I can clear the same $$ as I do now although I like the freedom of taking a break if I have other stuff to do and not impacting my income. Right now I charge by the hour and I do not provide or get involved with labor or materials, straight equipment time with a min of 4 hrs for which I charge a delivery fee, on an 8 hr job I dont charge for delivery but do add a fuel surcharge.
     
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  7. RJP1267

    RJP1267 New Member

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    Location:
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    Wow now thats a fine looking machine.
     
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  8. DGODGR

    DGODGR Senior Member

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    Dec 19, 2009
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    Location:
    S/W CO
    I just typed up a huge diatribe about market location, conditions and how it may impact rates....and decided to delete it. Too wordy!! There are a lot of factors that will have an impact on market conditions. Since you've mentioned your 325F Cat @ $155/hr it brings into question how much more may be involved. For my similarly sized (+/-60k#) Deere 245G I charge $220/hr. My Cat 315CL (+/-40k#) goes for $150. My rates for these machines have not changed since I implemented them. From what I see you posting on HEF, I would assume (yes we all know what assumptions can get you) that you are currently enjoying unprecedented success in your industry. That being said why not set your rate to the amount required to make a profit. This is what you've done with the bid work....Why not do the same for the hourly? If the market for the hourly dries up, who cares? You've got plenty of bid work. In my humble opinion, the reason you should have a profitable hourly rate is because there is often some hourly work that is born out of the bid work ("Since you are here could please?"....) and I (personally) would rather let someone else do that work if it means doing it for a loss. Even if at a profit I may be doing it for less than what I could be making if that machine was doing bid work instead. I'm not trying to tell you how to run your business (It looks like your doing fine on your own and I have enough trouble managing mine, let alone adding yours. ;) ) but I'd bet your not doing this type of work because you need the practice anymore. I know that I'm not. I have spent decades building my business to what it has become. In my case that has meant sacrificing time with my family and friends, other interests I have, and often times sleep! I'm going to do the job as a professional, correctly, ethically, and with integrity (even if I have bid it incorrectly), but my (substantial) investment, and my time, are valuable to me and I will be compensated fairly for them. If one is being asked to do things for free, as a favor, or at a reduced rate, one must look to see if there might be a lack of respect in the ask.
    All of the above is my opinion and how I am seeing this topic at the moment. It doesn't mean that what I say is absolute, or appropriate, for all persons and/or all situations. As individuals we all must look at our own truths on the subject.

    As it relates to the OP's question, having ones machine costs is key to being able to make quick adjustments which, in my opinion, are based on work load. I think an excellent source to help determine your costs (and even estimating production) is the Caterpillar Handbook. It is not just a source for machine specifications and applications but there is a paragraph dedicated to cost of machine ownership. They used to hand them out as paper backed books but I think now they are on disc...actually they are probably just a link now. Ask your Caterpillar sales rep. They've always given them to me upon request.
    Treemuncher:
    BTW, those hillside "spider" type machines are amazing! Are you trying to say that this machine is $500k to buy? That seems a bit "spendy" for what I'm seeing. One thing you have going for you is that there are not many of those around. This gives you an edge (your already seeing it when you compared it to hand working those hillsides) but one would have to "make" a market for it (maybe you've already carved your niche). $500/hr might be hard to sell in TN. I hope that there are a lot of people with money who want the underbrush removed from their hillsides!
    The prices for those items you've mentioned!! I think a set of loader tires (much bigger your tires appear to be) aren't that expensive (they are with mounting, etc. but not just cost per tire). What really scares me about that work is what happens if you break down and have to try to recover that machine to work on it at a shop?...and who even supports those machines?
     
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  9. treemuncher

    treemuncher Senior Member

    Joined:
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    Occupation:
    eatin' trees, poopin' chips
    Location:
    West TN
    CM1995, You are correct. Sometimes it's hard to believe I was somewhat of a math major years ago. Back then, I also had somewhat legible handwriting, too. At least I'm enjoying what I do for a living these days. Desk work was going to be a death sentence for me and living in a city??? NFW!

    Thanks, I've put a lot of time and money into it since I imported it. If I get run out of my main business, it's my fall back until I decide to retire.

    Actually, the machine is closer to $750k fully outfitted as mine is. I was fortunate enough to find exactly what I wanted with every bell and whistle built into it when I found this one in Germany. The only thing missing was the winch that the former owner must have kept. That's $35k+ for the winch but I've built something with an old military unit as a replacement for now. I have 4 remote line circuits on the stick including the Powerline with totally adjustable flow rate and pressure from 0-44 gpm and 0-5,100 psi so I can run most any attachment. Also the Rototilt coupler, central lube system, extra lighting and 5 steering modes for starters. According to MenziUSA, they never sold any of this model here in the states. Too much money and too many electronics for anyone to purchase new, here.

    I'm not worried about "building" a market. I was already one of the very first in the mulcher market and had to build that business from scratch. I can make a lot more if I bid my jobs but hourly is fair to both me and the customer as long as the rate is where I need it to be profitable. I have enough clientele to likely survive a Menzi only business if I had to but I would need to travel a lot more.

    Unless I have computer issues, I can maintain the Menzi myself. I can source many of the parts elsewhere and save a huge about of money. One of their $140 bushings? I found an identical replacement for $6.90. I also have a lathe and milling machine to help me along with customization to make things fit. Menzi will fly mechanics to me but that is REALLY pricey for such a small business as mine. The JD4045 powerplant is easy to work on and get parts for so no problems with the engine related stuff.

    I can get the parts guys on the phone or net out of Florida with fairly fast quote times. They keep a lot of basics in stock but I do have to wait for some specialty parts to come from Switzerland.

    Time to get my glued joystick back together, get that tire off and sent off to the tire shop. A new HD forestry tube at $250 plus labor has had the stem ripped off of it within the first 2 hours of use.:mad: My 1k mile motorcycle trip over the weekend has kept me sane to this point but Mondays are never easy.
     
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  10. CM1995

    CM1995 Super Moderator

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    DG as you know rates one can get for equipment vary greatly across our great country. What someone can get for iron in Place A the guy with the same machine in Place B can't get close too, it's just the way it is as there are many variables. I know of no one that is getting $220 an hour for straight time for a 55K hoe in my market.

    One reason why the Fed Gov publishes local Davis Bacon wage rates for Federal Jobs is that labor rates and COL vary greatly across the country. I don't do any Fed work at the moment but the DB wage rates are a good way to compare cost of doing business across the country labor wise which gives a snapshot for other pricing in our industry.

    Since we're talking about my market, the GCs and owners we work for do not have a taste hourly work, they would rather have a set lump sum cost for extra work which opens up the door for us to make that $200 or often times more per hour with a 325 or 321 depending on the task.

    For instance if I were to quote $220 an hour for straight work for a 50K LB hoe the GC's we work for would laugh me out of the trailer and the largest GC we work for would just pull one out of their internal rental fleet and self perform. We have to go about the task of getting a higher rate a little bit differently with our market and clients. PM's, either GC or owners Reps, don't want to deal with T&M tickets and open cost schedules, they want a total number and a time frame to complete it in. This usually results in the extra task being more expensive than the hourly rates to complete, so I give my clients what they ask for.

    Six of one or 1/2 dozen of the other.
     
    Last edited: Sep 28, 2021
  11. DGODGR

    DGODGR Senior Member

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    Location:
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    I fully understand.
     
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  12. AzIron

    AzIron Senior Member

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    Jun 15, 2016
    Messages:
    1,228
    Location:
    Az
    A thing of note for day work jobs witch sounds like the ops major work always charge a travel or mob fee

    For me when the transport leaves the yard it's on the clock and typically stays on the clock till return at the end of the day if your working 8 hors on site your actually putting in at least 10 hours involved in the job you need paid for it

    A lot of owner ops make a comfortable living running backhoe by the hour here but they charge travel and keep a decent truck and trailer under said machine

    As for prices I tend to be leading the market or am of the group that does but you have to provide consistent results to get top market not necessarily fastest but clean work I am at 110 for backhoes minis and skid steers I base my rates off a backhoe and most customers are calling chiefly for a hoe and our ability to handle anything for them with regards to minis and skid steers affords me a good premium on that equipment otherwise the skid and mini market is about 90 an hour

    My backhoe rate is going up in january at 5 bucks maybe 10 depending on what fuel and parts does between now and then

    If your going to be an owner op stick to what your good at and dont go crazy getting equipment you can only run machine at a time