Hourly rate

[Rich]

I just read through the responses to a post on what to charge for travel and I noticed one thing missing-no one mentioned what THEY charge per hour.
I cannot make a profit in my business charging any less than $100.00/hr, but I saw one post in particular where they said that another business (might have been a plumber) charges $65.00/hr.
I was wondering if anyone could tell me how their business could charge less than what I find I have to charge and still make a profit? Is it by somehow having extremely low rent? (mine's not high) By working out of your garage? By cutting back on insurance or maybe by having none at all? (I won't go for that one though). Or something I haven't thought of?
Thanks,
Rich

[sofadoc]

I guess it all depends on how you break it down. The plumber's rate may not include service call fee. An upholsterer's rate may not include profit made on material and/or supplies.
I can't justify the high cost of insurance. If my building burned down tomorrow, I could take a couple grand, buy everything necessary to get up and running, and work out of my garage until I got a new shop.
But if you're just talking raw "un-doctored" numbers, you're probably right on.

[Rich]

An upholsterer's rate may not include profit made on material and/or supplies.

That's true, if 10 yds. costing $18.00/yd is marked up 100%, that adds to the overall profit. But, if the shop is charging let's say, $65.00/hr for a 10 hour job, the total "profit" becomes 10x65+180 or $830.00 and
The part that makes it hard to see a profit is the overhead costs which demand so much from the sales revenue.
We might look at the 100% materials mark up and think it's pure profit, but profit is something that is realized only after all the costs of doing business are subtracted. Example: If, in those 10 hours of time, $600.00 of overhead expenses and $180.00 in materials costs had to be paid, the profit is only $230.00 for everything. ($65.00x10 hrs=$650.00+$180.00x2=$360.00, total=$1010.00)
So you end up making $23.00/hr. in profit
Rich

[mike802]

I was wondering if anyone could tell me how their business could charge less than what I find I have to charge and still make a profit?

The cost of doing business is much like the cost of living and changes from location to location.  My sister lives near Boston and she pays only a third for groceries what I pay in Vermont, but her housing is three times as high. But over all her living expenses are lower than mine.  In Vermont you can expect to pay anywhere from 65.00 pr hour to 100.00 pr hour for a mechanic.  Plumbers and contractors usually run between 55.00 and 75.00 pr hour.

Upholsters in my area are cheap, most work for less than 35.00 pr hour.  I would not bother working for less than that because I would'nt be able to make any money.  On the other hand if I tried to charge 100.00 pr hour I would'nt make any money either because I would'nt have any business. It takes approximately 15 hours to upholster a wing chair, that would mean charging 1,500.00 just for labor, I don't know where you live, but it aint happin here.

[Rich]

she pays only a third for groceries what I pay in Vermont,

Wow! that surprises me b/c my wife and I have traveled up and down the east coast (not Boston though) and have found grocery prices to be the one fairly consistent factor in our purchases, but I realize that overall living expenses vary greatly from region to region. I'm located close to the Washington DC area where prices can be quite high on many things.
Yes, labor can run too high on some reupholstery work with the amount of labor involved but I think any shop needs to wind up with an average labor rate that works out to earn a profit. If the most that can be charged for one item is $65.00/hr, then somewhere it has be a good bit higher to make up the difference. Maybe small repairs can be the money maker.
I know what I have to charge as a general rule, but I was just curious if others could tell me how they keep their expenses down to insure a profit.
Thanks,
Rich

[Rich]

100 yards/mo, are you selling yardage in addition to using it in the work you do?
At that yardage amount, using my example of $24.00/yd profit, you'd be realizing an average of about $2,400.00 in profit. Add in the profit on foam and supplies and it seems to me you stand a better chance of covering your overhead than if you only used the fabric in your work since your not limited to the labor times.

Like the items you mentioned, overhead expenses are those that are not tied to a specific job, but they do of course, have to show up in the labor or material charges in some way.

I'd say not having rent, mortgage or health insurance expenses puts you way ahead and enables you to keep your hourly rate lower than someone like me who has to pay them. I pay rent and health insurance. The latter being my largest expense, and getting larger :o

According to the census info I checked, Conyers GA is in Rockdale county which ranks right around the US median for household income, about $55,000, so it's probably a good place to compare labor rates to. They charge $120.00 for custom work. Custom, like we do every day.
Rich

[Rich]

After my last post, I noticed that this thread went from 2 pages to 1, eliminating about half of the posts that had been there. Is it just my computer or did something go wrong here? Anyone know?
Thanks,
Rich

[sofadoc]

After my last post, I noticed that this thread went from 2 pages to 1, eliminating about half of the posts that had been there. Is it just my computer or did something go wrong here? Anyone know?
Thanks,
Rich

Yeah, everything is out of kilter during the server change-over. It's possible that some posts are gone for good.
We had an interesting conversation going about this "hourly rate" thing. I'll wait for things to settle down before I re-post.

[Rich]

Thanks,
Rich

[sofadoc]

Maybe things are back to normal now, so we can pick back up on this.
Think about this:
Two upholstery shops in the same area. One owner has a monster mortgage, as well as kids that need braces, tubes in their ears, etc.
The other owner lives alone, and leads a simple life with no mortgage. Who's rate is higher? They're probably about the same.
Despite the first guy having more overhead, and living expenses, he really can't charge much more than the "going rate", can he?
I realize that one of them can create a greater perception of value, and therefore charge more. But he's still going to have to stay in the same ballpark.
I've been told that the price of ANYTHING isn't based on overhead, manufacturing cost or any other expenses. The price is based solely on what the consumer is willing to pay. So even if you think that you're factoring overhead into your hourly rate, are you really?

I like the hypothetical about taking 10 yards to do a 6 yard job. Of all the spreadsheet numbers out there, I think I like YPH (yards per hour) the best. THAT'S a number that I can wrap my head around.  Example: wing chair .6yph    church pew 3yph.

[Rich]

I think it was in one of the lost posts that I said what you pointed out; Price has to be based on a customer's perception of the value he is receiving, but first, the business owner has to be aware of his costs. There's no point in charging a little more b/c you think the customer will pay it if your still not covering your costs. In my opinion, when that happens, you either find a way to get your customer to pay more, lower your costs or stop doing that type of work altogether. but you first have to know your cost of doing business. I spent many years not knowing and I feel pretty confident that many business owners are in the dark also.

On charging more than the next guy, here is where it can be very helpful to know your competition. Everyone has weaknesses and maybe the competition's weakness is the other owner's strong point. That's something the business owner who wants to raise prices can use to his advantage. There are many other factors too and I've been pleasantly surprised to find customers who are just looking for a good reason to pay the higher price. They will do it if they are convinced that they've found what they're looking for. I think that the public gets a dim picture of a business person when they feel they are dealing with  someone who is afraid of losing the job and won't charge what he is worth because of it. We are skilled craftsmen doing work that has taken a long time to learn and I think we should be charging more than much of the prices I hear about.

Do you mean to use a factor of say .6 to multiply by the yardage used? Then that would be 36 minutes per yard on a wing chair? That might be a good rule of thumb to give a quick quote to a customer since you can spend a lot of time estimating a job for someone who ends up not having you do the work.

[byhammerandhand]

I'd say that's half right.   When I learned classical economics, price is determined by supply and demand.   Your comment includes the demand side.   Of course, if a service provider would provide service at $1 an hour, there would be a lot of demand.  He/she might be busy, really busy.  But there would be a cap on demand, as demand is not unlimited.   Maybe at working $1 an hour the work would be shoddy and reputation would catch up with them and there would be little to no demand.  But what would you call an upholsterer who would work for $1 and hour?  A broke ex-upholsterer.

In your example, manufacturing costs, overhead, in addition to advertising, commissions, delivery, service, etc, do factor into the supply side.  If you can't make a profit factoring in all expenses, you won't be in that business.  This is why someone with a handle on expenses can do better than someone who doesn't.  An efficient market will weed out the inefficient producer.

There are outlying points such as monopolistic markets and elasticity of demand.  I am reminded of the extreme cost of food and drink at places like Disney World and sports venues.  My wife came home from a convention center and said the small Cokes were $3.  Presumably, they make more profit selling 20 $3 Cokes than 200 $1 Cokes.  Or maybe they don't know, they just charge what they want thinking they are making more money.   Elasticity refers to how much demand changes to changes in prices.  This is effected by a number of factors such as availability of substitutes (new vs. reupholster, for example), total expense (few people care if the cost of toothpicks goes up 50%), and want vs. need (think food vs. luxury goods).

I've been told that the price of ANYTHING isn't based on overhead, manufacturing cost or any other expenses. The price is based solely on what the consumer is willing to pay. So even if you think that you're factoring overhead into your hourly rate, are you really?

[Rich]

Maybe at working $1 an hour the work would be shoddy and reputation would catch up with them and there would be little to no demand.

Or maybe few potential customers would want to take a chance on such a ridiculously low priced service. That's a factor too. But I think too many upholsterers fall into the category of charging in the "zone". That pricing area where they feel they'll have the least amount of price resistance. Eventually, like you said, the market tends to weed out the inneficient producer, but with the "zone" mentality, (always responding to the market out of fear of being too highly priced) the charging price either goes even lower, or never rises to compensate for increased costs. It's a bad way to think at any rate.
Rich

[sofadoc]

Rich, Keith: Believe me, your points are not falling on deaf ears. I will take them under advisement. The comments about charging "in the zone" have caused me to re-think.
In the past, I have always raised my prices until I sensed resistance. But it IS easy to become complacent with a pricing structure.   
I still don't expect to even sniff $100hr. labor, but I do intend to increase rates on the less profitable jobs.
I'll try to keep you posted on future changes.
Thanks for your input.

[baileyuph]

[I'd say that's half right.   When I learned classical economics, price is determined by supply and demand.  /quote]


Yes, and profits largely depend on vendor efficiencies.

For example, we get new furniture upholstery repair work, and would not think of fabricating new cushion covers knowing what the prices are for factory original replacements.  They are much more efficient than our custom shop.

Most business owners do not flourish in a general approach to some product or service category, they develop a nich so to speak that they shine in or are very efficient; ultimately much more successful at. 

This is not that profound but I will say anyway that I know some custom auto shops will not do anything but headliners and only specialize in the glue in type.  The older cars with bows, they do not touch because they can't make money doing them, due to their inefficiencies.

I probably could have used the term "specialize" and made the point more succinctly.

Doyle