Ever had a job where you quoted too little? Either you were stuck working for nothing or you had to upset your client by letting them know that the bill would be a lot higher than you had estimated. Learning to quote effectively is a great way to keep your customers happy and your business in the black. Calculating a base rate can help you to provide more accurate quotes and keep your profit margins healthy. Accurate quotes will ensure that you don’t price yourself too low or so high that you’re out of the running.
A base rate is a unit price for labor only as material costs can vary from project to project and are best worked out by your suppliers. Base rates vary with your crew size and the rates that each member of your team earns per hour.
For example, if you were utilizing a team of three to complete a framing task, each member would earn as follows:
Lead: $40/hr
Framer: $25
Apprentice: $15
That means the crew cost you $80 for every hour that they work. Add to this the labour burden cost for each employee. Labour burden costs are costs that the employer pays, in addition to salaries, to have employees. These include: payroll taxes, insurance, benefits, meals, supplies and training costs. To figure out the labor burden costs, add these costs together for the year, then divide by the number of employees to get the labour burden cost for each employee. You can now divide that answer by the number of hours each employee works to get the hourly rate.
For example, you’ve calculated that last year you spent:
This does not include overhead, vehicles, travel time, management costs etc.
- payroll taxes: $5,000
- insurance: $8,000
- benefits: $6,000
- meals and coffee: $1,000
- supplies: $2,500
- training costs: $2,000
Total: 24,500
24,500 divided by (for example) 6 employees means each employee costs you $4,084.
Now divide the $4,084 by the number of hours you can expect from each employee per year. This should be 8 hours a day x 5 days a week x 52 weeks for a total of 2,080 hours a year. You should also take into consideration vacation, holidays and sick days so let’s say 10 holidays, 10 days vacation and 10 sick days.
That means you will lose 240 hours a year to vacations and sick leave which leaves 1,840 hours.
Your labor burden costs are $4,084 divided by 1,840 hours which is $2.21 per hour.
So now your labour costs are as follows:
Lead: $40/hr + $2.21 = $42.21
Framer: $25+ $2.21 = $27.21
Apprentice: $15+ $2.21 = $17.21
Your baseline for this crew is $86.63 per hour. Now add the general 50% markup to get your baseline rate of $129.95 for the three-person crew per hour.
That gives a base rate per employee of $43.31 per person. It’s important to notice that with the lead, your profit margin is less than a dollar, but you will be increasing that margin with the other workers. Be sure to keep this in mind when quoting on crews with more than one lead.
Using your base rate to calculate the price of a project is easy! If you are doing a job with a crew of 3 men over six weeks:
$42.94 x 3 employees x 6 weeks x 40 hours a week will end up costing $31,186.80 in labor.
Don’t forget to add in the rate for any requested changes to the project and get those in writing and signed.