As a system integrator, the hourly charge-out rate for you and your technicians will not only determine how much profit you make this year, but also the long term success of your business.
If the hourly rate is too low, cashflow will always be tight especially at peak times during the month.
You’ll find yourself sweating it out hoping there will be enough money in the bank to pay staff and suppliers, frustrated that profits are disappointing after another year of hard slog.
Or if your rates are too high, you will be losing too many jobs to your competitors.
So how have you worked out your hourly charge-out rates?
Some base their hourly rate relative to the skill level of their technicians, others go on gut feel and adjust pricing to how much work they have. Some even guess what their competitors’ rates might be and base it on that.
These are factors you should take into account, but this is not the right way to price and will get you into trouble.
To price right, you first need to start with your actual costs.
Let’s take a look at our friendly neighbourhood employee Peter Parker as an example.
Peter is a good reliable systems installer on a salary of $65,000 per annum. Although his previous job was as a reporter, he is surprisingly agile at getting into difficult places with cable (crawling under floors, roof crevices, etc).
He just works the 40 hours per week, but gets a lot done in a day; a little eccentric though - some of the other technicians mentioned he talks to himself a lot. He doesn’t do overtime due to other commitments outside work which he is quite secretive about (we don’t think it’s anything sinister, although he does seem to look a little beat up sometimes).
Here is a breakdown of costs for Peter:
If the hourly rate is too low, cashflow will always be tight especially at peak times during the month.
You’ll find yourself sweating it out hoping there will be enough money in the bank to pay staff and suppliers, frustrated that profits are disappointing after another year of hard slog.
Or if your rates are too high, you will be losing too many jobs to your competitors.
So how have you worked out your hourly charge-out rates?
Some base their hourly rate relative to the skill level of their technicians, others go on gut feel and adjust pricing to how much work they have. Some even guess what their competitors’ rates might be and base it on that.
These are factors you should take into account, but this is not the right way to price and will get you into trouble.
To price right, you first need to start with your actual costs.
Let’s take a look at our friendly neighbourhood employee Peter Parker as an example.
Peter is a good reliable systems installer on a salary of $65,000 per annum. Although his previous job was as a reporter, he is surprisingly agile at getting into difficult places with cable (crawling under floors, roof crevices, etc).
He just works the 40 hours per week, but gets a lot done in a day; a little eccentric though - some of the other technicians mentioned he talks to himself a lot. He doesn’t do overtime due to other commitments outside work which he is quite secretive about (we don’t think it’s anything sinister, although he does seem to look a little beat up sometimes).
Here is a breakdown of costs for Peter:
Note: Overhead cost calculation: These are all costs that are not directly related to the jobs (ACC, administration staff, office expenses, advertising, vehicle expenses, etc). To calculate this accurately for your business, take all overhead expenses for the year divided by total paid technicians hours to get an hourly rate. This can range somewhere between $15 - $25 per hour depending on the size of your company.
Although we originally thought Peter was costing $31.25 per hour, actual costs are $73.57 per hour for work done.
To make profit off Peter as a technician, here is a good formula to use:
Salary Rate Per Hour X 2.4 + Gross Mark Up = Hourly Charge-Out Rate
Example:
$31.25 per hour
x 2.4
$75.00 per hour
+ 20% Mark up
= $90 per hour charge-out rate (plus GST)
Anything less and you won’t be making profit!
If after reading this you're worried you aren’t charging enough but don't know how to increase prices while still keeping your customers happy, or you suspect one of your employees might be Spiderman, then email me (your friendly neigbourhood business coach) to set up a free 30-minute Pricing Strategy Session.
Daniel Fitzpatrick
Business Solutions
Although we originally thought Peter was costing $31.25 per hour, actual costs are $73.57 per hour for work done.
To make profit off Peter as a technician, here is a good formula to use:
Salary Rate Per Hour X 2.4 + Gross Mark Up = Hourly Charge-Out Rate
Example:
$31.25 per hour
x 2.4
$75.00 per hour
+ 20% Mark up
= $90 per hour charge-out rate (plus GST)
Anything less and you won’t be making profit!
If after reading this you're worried you aren’t charging enough but don't know how to increase prices while still keeping your customers happy, or you suspect one of your employees might be Spiderman, then email me (your friendly neigbourhood business coach) to set up a free 30-minute Pricing Strategy Session.
Daniel Fitzpatrick
Business Solutions