I was asked to be the speaker at the local CFI chapter meeting in Cleveland in October. I said OK and asked Dan Fredricks Jr., the chapter president, what topic? "Professionalism and cost of doing business," was his response. "A lot of guys are still not looking at themselves as businessmen and don't know what their cost of doing business is," Dan said. "Also," he continued, " with the recent wood-related price increases tackstrip is more expensive than ever and we don't even want to talk about gas. Not to mention adhesive or other petroleum-based products."
As a base for my presentation, I recalled a conversation I had with a young installer a few years ago on the plane ride back from CFI Convention. He had always worked as an employee of the store, paid by the hour, a part of the organization. He advanced over the years from helper to journeyman installer. Because of family obligations he had recently moved to a new area. Every store he spoke to wanted to use contractors not employees. He finally did find a store, where he is working now, that wants installers as employees. The entire experience left him wondering if he was doing the right thing working as an hourly employee. His question to me was twofold: should he be contracting and how to determine the correct amount to charge.
We decided the first thing he needed to know was how much it would cost him per hour to run his business. He did mostly residential and very little commercial work. We agreed an average installation crew (mechanic and helper) following manufacturer instructions (power stretching, seam sealing, etc.) should be able to install 10 to 12 yards (90 to 108 square feet) per hour.
Ten yards (90sq. ft.) an hour, 80 yards (720sq.ft.) in an eight-hour day, was the base we decided to use. I asked, "How much do you want to make per hour?" "$20 per hour," he said. "You'll need a helper and to keep someone dependable will probably cost you $10 per hour," I said. He agreed.
Now we had some place to start from, a crew with a base cost of $30 per hour. Charge 3 bucks per yard ($.333 per sq. ft.), right? Well, there's more to this than first meets the eye. What follows is an outline of the costs for running this crew.
First, let's not forget Uncle Sam. Social Security, workman's comp, and general liability insurance premiums are based on a percentage of your payroll. The cost for those three premiums will amount to approximately 20 percent of payroll. Now your cost is $36 per hour.
You have to have a dependable truck to haul yourself and the carpet to the job site. I checked with a dealer friend of mine for the cost of a stripped down model. He suggested three options; a larger V-8 motor for the weight we would be hauling, limited-slip differential for safer winter driving, and air conditioning. Having owned a work van without air conditioning I agreed whole heartily with the last.
The suggested list price for a new 1-ton Maxi van with these three options was $24,500. If I were buying today he said would knock off $2,000 bringing it down to $22,500, add tax $1,355.10, license $153.50, and you're at $23,508.60 out the door. Put down $3,508.60; finance $20,000 for 60months @7.24 percent, you'll have a monthly payment of $398.29 or $2.30 per hr.
I arrive at hourly costs for monthly charges this way: 52 weeks per year divided by 12 months = average 4.33 weeks per month, x 5 workdays per week = 21.66 work days per month x 8 hours per day = 173.33 work hr. per month. Divide the monthly charge by 173.33 to get hourly cost. Cost is now $38.30.
Commercial truck insurance is going to cost approximately $1500 per year or $.72 per hour. Cost is now $39.02. If you drive an average 60 miles per day, 10 miles per gallon means 6 gallons of gas @ $2 = $12 or $1.50 per hr. Cost is now $40.52.
Truck maintenance, oil change, tires, brakes, repairs, etc. IRS allows $.36 per mile.
60 miles per day x .36 = $21.60 or $2.70 per hr. Cost is now $42.02.
You'll need supplies, plan on about $.45 per yard (5 cents per sq. ft.) for stretch-in, $.55 per yard (6.11 cents per sq. ft.) for glue down. An average 50 cents per yard (5.55 cents per sq. ft.) x 10 yards (90 sq. ft.) per hour = $4.95. Cost is now $46.97.
Medical insurance. If you have a family, decent medical coverage will cost you about $8,000 per year, $3.85 per hour. Cost is now $50.82 per hour. Call it $51 per hour, for round numbers. At 10 square yards (90 sq. ft.) per hour you must charge $5.10 per square yard (56.66 cents per sq. ft.). This is your break even cost per hour to do business. Use this number to calculate extras like stairs, border work, furniture moving, pull up and the like.
For example, can you strip, pad and install 25 straight stairs in an hour? Then you need to charge at least $2 per stair. Layout, cut, and seam 20 lineal feet of border work in an hour? $2.55 per lineal foot. Berbers or patterns slow you down to 8 yards (72 sq. ft.) per hour? Charge $6.40 per square yard (71.1 cents per sq. ft.). Does it take you a half-hour to remove and replace furniture in the average room? $25 per room.
If you are a contractor, you are running a business, just like the carpet mill and the retailer. This $51 per hour is your cost per hour to do business. At $5.10 per yard (56.66 cents per sq. ft.), you are breaking even; it doesn't include profit.
Profit is what pays for your tools, uniforms, business phone, cell phone and pager, the computer you need to keep track of billing, the desk it sits on, the $3,508.60 down payment on your truck, and don't forget your retirement.
If the 80 yards (720 sq. ft.) you do tomorrow takes 9 hours instead of 8, you'll have pay your helper for an extra hour. This comes out of your wages! Now you're not making $20 per hour; you've dropped to $16.44 per hour. Even though we don't want to talk about it, don't forget income tax!
Are you charging enough to pay for your cost of doing business? I don't know. You do the math. Speaking of math, while I was adding the sq. ft. conversions to this article I noticed a small way to pick up some money, round up. Let me explain; $5.10 per yard divided by 9 (sq. ft. per yd.) equals 56.66 cents per sq. ft. Round down to 56 cents and it equals $5.04 per yard. Round up to 57 cents per sq. ft. and it equals $5.13 per yard. An extra 9 cents per yd (1 cent per sq. ft.) doesn't sound like much, but it adds up. 9 cents per yd (1cent per sq. ft.) x 80 yards (720 sq. ft.) a day = $7.20 x 5 days = $36 x 50 weeks = $1,800 per year. Now we are talking some money.