By The Numbers: Profitable Pricing

A GOOD PLACE TO START. For smaller commercial or residential projects billing less than $500 per month, the easiest place to start is to determine our maintenance package crew and equipment requirements for a "generic" or typical day. For purposes of this example, we will use the following two-person crew.

Second, determine the average amount of drive time, load/unload (non-site) time per day for this crew if it only worked on the type of jobs for which the maintenance package would be used.

We estimate that this crew will average 1.5 hours per person off-site and 7.5 hours on-site during a typical 9-hour workday. That is a total of 3.0 hours of off-site time per day for the crew.

We are now ready to cost out our maintenance package.

We first calculate our Phase I production costs. Notice that I round up to the nearest whole dollar when more than a few cents appear in our M/L/E (material, labor or equipment) columns. I included an overtime and risk factor in the crew average wage, which I rounded up to $9.50.

To obtain Phase I production labor hours, subtract drive time and non-site hours from the total paid labor hours for the day. In our example, there are 18 total paid labor hours for the crew for the day. After we subtract the three off-site hours, the result is 15 on-site production labor hours.

We then calculate the "average" number of hours that the mowers, blowers, trimmers and edgers will be used during the 15 on-site production hours.

Next, subtotal the M/L/E costs.

Phase II general conditions are calculated next. The crucial off-site time and the truck and trailer time are included here.

In this example, it is assumed that lunch and break times are not paid and are not included in the production or general condition labor hours. If, for example, a 15-minute break in the morning is part of the paid eight labor hours per day per man, include it in general condition labor hours.

2 men x .25 hrs/day = .5 hrs/day

Subtotal Phase II general condition costs.

Draw a double line below this, and...

Subtotal Phases I and II M/L/E costs.

You are now ready to add the Phase III markups and margins to the bid.

There are no materials involved on these maintenance jobs and, therefore, no sales tax markup on materials.

The 30 percent labor burden is then calculated and added to the total labor for the bid.

Subtotal your bid once again.

Add equipment to your labor and labor burden totals.

Subtotal. This subtotal is the total direct cost (TDC) amount in the bid.

Calculate your general and administrative (G&A) overhead cost to add to the bid.

Subtotal the bid. The break-even point (BEP) for the bid is arrived at when you add G&A overhead to the total direct costs in the bid.

Add profit and a contingency factor (if desired) as a straight percent or as a profit per hour amount.

You have now arrived at your final price for a "generic" day for your maintenance package. In our example, this crew needs to bill out $462 every day to be profitable.

CURB TIME. To calculate the "curb time" rate for estimating smaller jobs:

Divide the total daily desired price by the on-site (curb time) production hours.

The total daily price of $462 divided by the 15 production hours equals $30.80 per curb man-hour. Round this up to $31 and multiply this rate by the number of people on the crew. This translates into $31 x 2 which equals $62 per curb crew hour.

You can now bid smaller jobs by first estimating the crew’s curb time at a particular job. If you want to bill on a "time & materials" (T&M) basis, be sure to charge the curb time rate to reflect the hours spent on the job. If you are going to add non-site time to the bill, divide the $462 crew billable goal for the day by 18 hours instead of 15 hours. The rate drops to $25.67 per man-hour. Just be sure to bill all 18 hours each day and reach the daily billable goal of $462 for the crew.

Pricing a job site that requires 30 minutes curb time:

30 minutes of curb time x $62 = $31 per visit to the job site.

Remember that curb time starts when a crew pulls up to the curb (at the site being bid) and ends when it drives away.

Note the impact that estimated drive and non-site time has on the crew rate of $62 if it increases or decreases. (See box at right)

Do not include materials or subcontractors in your curb time rates, as they can greatly confuse the matter. I would encourage you to mark up materials a minimum of 20 percent (10 percent for overhead and 10 percent for net profit) above your costs and subcontractors a minimum of 15 percent (5 percent for overhead and 10 percent for net profit) above your costs.

PROFIT ANALYSIS. The daily route billable goal: If a route cannot consistently bill $462 per day as determined in our example, you should examine it to see what job(s) is causing the problem. To do so, determine your per minute rates as follows:

Jobs priced at the TDC or BEP levels should be adjusted as soon as possible. However, be careful. The goal is to make the route profitable and to maximize the billings on a particular route. If a job is priced at the TDC or BEP level, and it is a large part of a route, be careful about increasing its price if you think you might lose it.

It goes without saying that if a job is priced above the desired $1.03 per minute rate, you should probably leave the pricing for that job alone.

MARKET PREDISPOSITION. Maintenance markets become predisposed toward certain pricing levels. I usually see maintenance crews billing out between $22 to $30 per hour around the country. However, certain high-tech markets in New England see commercial maintenance billing rates of $40 to $45 per man-hour. San Diego County in Southern California sees this rate drop to $13 to $14 per man-hour.

After conducting estimating workshops throughout California, we noticed that maintenance rates varied dramatically from region to region due to market predisposition. For example, residential maintenance just north of San Francisco was priced between $31 and $33 per man-hour, and commercial maintenance in Los Angeles at around $20 per man hour.

Rates consistently dropped as you got closer to the Mexican border. Market forces of supply and demand for labor appeared to be the prevailing factor driving maintenance rates down. The further south you went, the more available labor became at reduced prices. Market predisposition reflected the supply/demand forces active in the market. The wise contractor should pay attention to market predisposition, especially when bidding jobs outside of their normal area of operations.

CONCLUSION. Successfully bidding smaller maintenance projects is easier and a lot less risky when you have the right tools. Identifying such benchmarks as billable amounts for routes, hourly curb time rates and per-minute rates can significantly reduce the risk in the bidding process. Understanding market predisposition can also provide a competitive edge at the bid table.

These methods are also applicable to bidding larger maintenance projects. However, each phase (i.e., mulching, fertilization, mowing by mower size, trimming, etc.) will have its own separate bid worksheet like the one used in our example. The principles are the same. There’s just more detail and risk.

Contractors who consistently use these methods not only have the tools to reduce their risks and to bid today’s jobs accurately, they also have the tools that will ensure that they are still in business and around to bid tomorrow’s jobs as well.

Disclaimer: The labor rates, equipment costs and other figures used in this article are industry standards and should be adjusted to reflect production methods and costs for individual companies.