Profit is a Six-Letter Word NOT a Four-Letter Word
September 18, 2007
OK, we’ve been though this before, but maybe you weren’t listening, or just maybe you didn’t care about what I was saying. Let me spell it out for you - I care about you, I care about your family, I care about your retirement, and most importantly, I care about this trade!
Let me ask you these questions: Do you want to provide your family with proper healthcare? Do you want to give your children the opportunity to succeed, not work as hard as you have had to? Do you care about your future? No? Well then, put this magazine down and never pick it up again. If you do pick it up again, do not, I repeat, do not ever read my column again.
Still with me? Let me spell it out again. How do you determine what your cost of doing business is?
Don’t like how the numbers add up? Then you could either straighten out your spine and stand up for yourself, or get out of this business and into something that treats you like a human being.
Before I get into how to determine your cost of doing business, let’s talk about the letters to the mill presidents. I sent my letters, did you? Probably not! I got one reply, from Beaulieu, which is great that they had the decency to respond. The problem is that they are looking to the I.I.C.R.C. to develop a carpet installation certification program.
That’s great except that the I.I.C.R.C., which is good at what it does, is a carpet cleaning organization. While it’s great for cleaners, for the most part, they don’t know much about installation. Why weren’t the CFI, WFCA, or the Union INSTALL Program involved? Good question, don’t you think? These associations have been training installers and know what they are talking about.
Send the letters to the mill presidents! DO IT! Nobody is going to carry your water but you. If they had the same attitude 200 some years ago as the installation community does now, we would be speaking with a British accent and still paying tax on tea!
Oh yea baby, I’m pissed! I’m going to spell it out to you again, pay attention this time. How do you determine what your cost of doing business is? If you are working by the yard, pay attention! If you are union or an hourly employee, then this doesn’t concern you. Whoa wait a minute, it does concern you, get back here. Union guys, how much of the residential market is installed by union labor? Pretty close to none, right? Why? Because you make a living wage with benefits and you are priced out of the market. Wouldn’t you rather have non-union installers operating like your shops, running a real business with proper understanding of costs? Then you are competing on a level playing field. Let the best businessman win. It’s lopsided now; not only are the independent installers hurt by the current system, but the union as well. You are locked out of the majority of flooring installed in this country, the residential market. You need to send the letters to the mill presidents as well.
The installation community needs to be united on this, union and independent installers alike. If we aren’t, then we will be stuck with rules and certifications put in place by the mills and a cleaning organization, and being trained on installation by the I.I.C.R.C!
Now, back to your cost of doing business. The formula works, just plug in your own numbers if you don’t like mine.
My costs are too low for today’s gas and supply costs. Can you realistically do more than 10 yards an hour? Properly, seam-sealed, power-stretched. Well then, use your own number. Don’t cheat, be honest. Put in the real number, not what you hope you can do.
I was asked to be the speaker at the local CFI chapter meeting in Cleveland recently. I agreed, 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, tack strip is more expensive than ever and we don’t even want to talk about gas. Not to mention adhesive or other petroleum base 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 wanted 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 two-part - Should he be contracting? And how does he 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-sq. ft.) per hour.
Ten yards (90 sq. ft.) an hour, 80 yards (720 sq. ft.) in an eight-hour day, was the base we decided to use. I asked, “How much do you want to make per hour?” He said, “$20 per hour.” I said, “You’ll need a helper and to keep someone dependable will probably cost you $10 per hour.” He agreed.
Now, we had some place to start: a crew with a base cost of $30 per hour. Charge $3 per yard ($.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 hr.
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 he would knock off $2,000 bringing it down to $22,500, plus tax ($1,355.10) and license ($153.50), and you’re now looking at $23,508.60 out the door. Put down $3,508.60; finance $20,000 for 60 months at 7.24-percent, and you’ll have monthly payments of $398.29 or $2.30 per hour.
I arrive at hourly costs for monthly charges this way: There are 52 weeks in a year, divided by 12 months equals approximately 4.33 weeks per month. Multiply that by five (five workdays per week) and you get 21.66 workdays per month. Multiply that by eight (for the hours per workday), and now you have 173.33 work hours per month. Divide the monthly charge by 173.33 to get the hourly cost, and now your cost $38.30 per hour.
Commercial truck insurance is going to cost approximately $1,500 per year, or $.72 per hour. Your cost per hour is now $39.02.
If you drive an average of 60 miles per day, 10 miles per gallon means six gallons of gas at $2, or $12, or $1.50 per hr. Your cost per hour is now $40.52.
Truck maintenance, oil change, tires, brakes, repairs, etc. The IRS allows $.36 per mile.
Sixty miles per day x .36 = $21.60, or $2.70 per hr. Your cost per hour is now $42.02.
You’ll need supplies. Plan on about $.45 per yard ($.05 per sq. ft.) for stretch-in, and $.55 per yard ($0.611 per sq. ft.) for glue-down. An average $.50 per yard ($0.555 per sq. ft.) x 10 yards (90 sq. ft.) per hour = $4.95. Your cost per hour is now $46.97.
Medical insurance: If you have a family, decent medical coverage will cost you about $8,000 per year, or $3.85 per hour. Your cost per hour is now $50.82 per hour. Let’s just round it up and say it’s $51 per hour. At 10 square yards (90 sq. ft.) per hour, you must charge $5.10 per square yard ($0.5666 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. Lay out, cut, and seam 20 lineal feet of border work in an hour? $2.55 per lineal foot. Berbers or patterns slow you down to eight yards (72 sq. ft.) per hour? Charge $6.40 per square yard ($0.0711 per sq. ft.). Does it take you a half-hour to remove and replace furniture in the average room? Charge $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 ($0.5666 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 let’s not forget your retirement.
If the 80 yards (720 sq. ft.) you do tomorrow takes nine hours instead of eight, then you’ll have to 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 $0.5666 per sq. ft. Round down to $0.56 and it equals $5.04 per yard. Round up to $0.57 per sq. ft. and it equals $5.13 per yard. An extra $0.09 per yd ($0.01 per sq. ft.) doesn’t sound like much, but it adds up. Nine-cents per yd. ($0.01 per sq. ft.) x 80 yards (720 sq. ft.) a day = $7.20 x five days = $36, multiplied by 50 weeks = $1,800 per year. Now we are talking some money.