Lately I have been putting a lot of thought into profit. I've seen in countless threads folks mention 50% up to 500% profit on manufacturing products, or preforming customer work. Much of this I have written off to bravado and creative accounting. When I worked in tier 1 automotive, my work cell in the tool room, a Hermle and DMG 5 axis were billed at $28/hr. I consider this creative accounting.
I did some work a couple years ago for a company, providing some very tight tolerance tooling for them. They applauded the quality and after inspection told me they had never seen a nicer tool. However I never did another job for them. When I had the chance to ask I was told that their current supplier, who supplies tooling that rarely passes inspection, was a third of my price.
I was recently contacted by one of my vendors to let me know that it was time for annual inspection of my Rockwell testers. It's $540 for their visit which consists of two hours of driving, and half an hour to inspect and calibrate two testers. That's $216/hr for 2.5 hrs.
I trenched and installed a new service for a friend of mine to his shop last year. The CHEAPEST quote he received was $18,000. Materials cost $3,000, excavator rental was $850, and I logged 44 hrs to complete the job. If the business that quoted the job doubled the material costs and rental, $6,000 and $1,700, that would leave approximately $234/hr. It was also a 6 month wait if they did the work.
Another friend recently received a quote (after waiting 3 months for the quote) to install the boiler/heat pump for his in floor heat. The company is supposedly well known for this type of work and has an excellent reputation. They quoted $8,000 to $10,000 to install the heat pump, inspect and test the system. I have a nearly identical system, only with a water heater and not an electric boiler/heat pump. My plumber took 4 hours to install mine, with me helping to fill the system, bleeding the air, and testing it. He charged me $600. I can't make this quote work in any way shape or form, unless they threw some enormous number out because they simply do not want the job, and instead of telling him this, hopes he won't have them do the job.
Finally I will be spending this weekend replacing a service at the first friends house I mentioned. He called five electricians to quote the job, not calling any that quoted the shop service, three never showed up to their appointments, the fourth lectured him on how unsafe his house was, and refused to quote only replacing the service panel, and instead quoted a minimum of $20,000 to rewire the entire house, the fifth quoted $3,000 to replace the service panel. The service panel is a disaster for sure. Personally I believe his home inspector should be drug by his toes to the city square and publicly flogged with every local home inspector in attendance. The $3,000 is only labor, and I estimate that it will take me about 16 hours to complete. I had my own homes service replaced, as a home owner I am not allowed to replace a service, and my electrician and his helper took about 6 hours including some other work, and including the cost of the new service panel, and all new breakers, charged me $1200. That was in 2016. A licensed, skilled, full time electrician should be able to work much faster than me, and at 16 hours, that is $187/hr.
Back to the topic of profits. It is true that at $187/hr that electrician may still be losing money. The machine shop billing $35/hr may be extremely profitable. That is primarily a function of volume. Like the electrician, I am a one man shop, and bear all the costs. The machine shop billing $35/hr has a multitude of employees, at least two shifts, and several large contracts that are guaranteed work.
Job shop work, contract work, and product work of course all vary with a myriad of differences necessitating different profit schemes. My question to the many you, that own a wide variety of types of shops, servicing a multitude of industries, is how do you calculate and plan for profit?
I did some work a couple years ago for a company, providing some very tight tolerance tooling for them. They applauded the quality and after inspection told me they had never seen a nicer tool. However I never did another job for them. When I had the chance to ask I was told that their current supplier, who supplies tooling that rarely passes inspection, was a third of my price.
I was recently contacted by one of my vendors to let me know that it was time for annual inspection of my Rockwell testers. It's $540 for their visit which consists of two hours of driving, and half an hour to inspect and calibrate two testers. That's $216/hr for 2.5 hrs.
I trenched and installed a new service for a friend of mine to his shop last year. The CHEAPEST quote he received was $18,000. Materials cost $3,000, excavator rental was $850, and I logged 44 hrs to complete the job. If the business that quoted the job doubled the material costs and rental, $6,000 and $1,700, that would leave approximately $234/hr. It was also a 6 month wait if they did the work.
Another friend recently received a quote (after waiting 3 months for the quote) to install the boiler/heat pump for his in floor heat. The company is supposedly well known for this type of work and has an excellent reputation. They quoted $8,000 to $10,000 to install the heat pump, inspect and test the system. I have a nearly identical system, only with a water heater and not an electric boiler/heat pump. My plumber took 4 hours to install mine, with me helping to fill the system, bleeding the air, and testing it. He charged me $600. I can't make this quote work in any way shape or form, unless they threw some enormous number out because they simply do not want the job, and instead of telling him this, hopes he won't have them do the job.
Finally I will be spending this weekend replacing a service at the first friends house I mentioned. He called five electricians to quote the job, not calling any that quoted the shop service, three never showed up to their appointments, the fourth lectured him on how unsafe his house was, and refused to quote only replacing the service panel, and instead quoted a minimum of $20,000 to rewire the entire house, the fifth quoted $3,000 to replace the service panel. The service panel is a disaster for sure. Personally I believe his home inspector should be drug by his toes to the city square and publicly flogged with every local home inspector in attendance. The $3,000 is only labor, and I estimate that it will take me about 16 hours to complete. I had my own homes service replaced, as a home owner I am not allowed to replace a service, and my electrician and his helper took about 6 hours including some other work, and including the cost of the new service panel, and all new breakers, charged me $1200. That was in 2016. A licensed, skilled, full time electrician should be able to work much faster than me, and at 16 hours, that is $187/hr.
Back to the topic of profits. It is true that at $187/hr that electrician may still be losing money. The machine shop billing $35/hr may be extremely profitable. That is primarily a function of volume. Like the electrician, I am a one man shop, and bear all the costs. The machine shop billing $35/hr has a multitude of employees, at least two shifts, and several large contracts that are guaranteed work.
Job shop work, contract work, and product work of course all vary with a myriad of differences necessitating different profit schemes. My question to the many you, that own a wide variety of types of shops, servicing a multitude of industries, is how do you calculate and plan for profit?