Labor and profit - Same thing?

[Chris Weishaar]

For your own accounting purposes, I say you can think about it however you want. However, when you are invoicing the client, I think it should all be built into your labor rate. Whether you split it into "labor" and "profit" or not, it's all money that goes into your pocket.

Derek,

I whole heartedly agree with this statement. I work in the architecture and construction business. I am very used to paying O&P to the general contractor or developer. This is pretty much standard for the industry and it represents the time and materials needed to manage and coordinate the sub-contractors. For instance the electrical quote could be $10,000 and I would pay 8% or $800 to the GC for his managing the bid and scheduling and inspecting the work of the electrician.

Now due to time constraints and other issues I have hired a cabinet maker a couple of times for work around my house. When I send drawings to him I am only interested in a total cost the work. The number that I am given includes all time, materials and profit. I then decide if that is reasonable or not. I don't care what the break down of labor and profit is. I hope he is making enough profit to make it worth his time.

In short I would say that breaking out labor and profit as separate items would depend upon what others in your field and area typically do. As a consumer of cabinet work and furniture I am only interested in the overall cost to me and whether the cost is worth it to me. If I saw an estimate that broke out labor and profit I would believe that I then have the opportunity to negotiate the profit portion in order to get a better price. I do that with GC's and develors all of the time.

Chris

[Scott Loven]

I would do the above as a reality check to help me determine my minimum price and then charge what ever I think they would be willing to pay.
Scott

[tim rowledge]

There's a difference between how you see your costs and profits and how your clients should see your charges.

You need to decide on how much your labour is worth and charge that to the project. You need to make a profit on top of that in order to make it worth running the business. You have to pay fixed costs and split them up between projects by some division that makes sense to you.

Your client needs to see a simple, intelligible cost, just like you don't want to see bills from the lumber yard split into labour, profit, land costs, coffee, mileage etc.

If you are good at what you do and would consider $X/hr a sensible wage then take nothing less *unless* you can't get work at the final cost that it implies. That of course will tell you that no-one else thinks you are worth that much.... Your duty to yourself and your family is to charge as much as you possibly can and maintain a sensible work/life balance. If you can make enough money to feel comfortable whilst working 10hrs a week - good on you! Enjoy the fishing or whatever.

[Neal Clayton]

Or possibly, he/she has wasted so much time estimating/designing a client's request, and then only to realize that the potential client, "did not really want to pay that much", that he just recognizes what will be more profitable for him/her, and which requests will more than likely be a waste of time.

so why wouldn't such a person charge a non-refundable deposit past the initial inquiry to weed out such people?

i don't mind paying for skilled work, and if it takes more time than the person in question can spend, that's fine, tell me "hey this is gonna take too much time, sorry i just don't have that many hours in a day". that's completely understandable. no one appreciates being lied to, and speculating that the person doesn't want to hear the truth doesn't really justify it.

[Gary Breckenridge]

Labor pays the worker.
Profit pays the owner.

[William OConnell]

There are two ways to bill for you work: "Time + Materials": and "By the Piece" or "Fixed Price". When you go to the fine furniture gallery to purchase a hand made piece, it's price is marked on the tag. It's one fixed amount, not $X for Materials plus Labor at $Y/Hr. In that case, the profit is built into the total price for the piece, but the purchaser has no idea whether it took the craftsman 30 hours to build or 300.

If you contract to do a job on a time and materials basis, the hourly rate you bill for your work should take into account your skill/proficiency level and a reasonable profit. It's hard to separate these two concepts (skill level and profit) and most people just lump the two together, with the more experienced craftsman commanding a higher hourly rate.

In my business - law practice - I normally bill my work on an hourly rate basis. My hourly rate includeds my overhead and takes into account the fact that I've been practicing law for 30 years and it's higher than a first-year lawyer right out of law school. This takes into account that it will probably take me less time to complete the project than a less expereinced lawyer and (hopefully) I bring more value to the task by virtue of my experience. Sometines I sell my work on a fixed fee basis: I'll do this job for X dollars. When figuring what I'll charge for a fixed fee, I figure my hourly rate for the estimated number of hours it will take me to complete the project. If the first year lawyer is going to do the job, I figure more hours at his lower rate plus some of my time to review his work product. This calculation will give me a fixed fee for the job. Billing this way is something of a gamble. If it takes me longer to complete the project than I anticipated, I lose money. On the other hand, if I complete it in less time than I estimated, I come out ahead.

It's similar with selling a piece of custom woodwork. You can charge for it on a time and materials basis or on a fixed fee basis. If you're contracting in advance to produce the work for a fixed price, you're like me agreeing to to complete a project for a fixed fee. You're assuming the risk of unanticipated difficulties that will complicate the task, and might choose to build some cushion into the price for such contingencies to protect yourself. If you're pricing the piece after you've built it, there's less risk - you already know how long it took to build and what it cost you. But in any case, in charging for your work, you need to cover your costs then pay yourself for your time and your experience and include in your rate a reasonable profit for your work. That's why you're selling your work. Don't give it away.

My $.02

Hank

Well put Hank
Ive been making my living as carpenter working wood for 30 years
I charge by the hour for myself and employees and the rates are different with theirs being lower than mine. I make a profit on their labor
Either way workers compensation, taxes and profit are figured into the hourly rate.
However having said that I find it better to give fixed rates for each job and always up front.

[Frank Hagan]

Well put Hank
Ive been making my living as carpenter working wood for 30 years
I charge by the hour for myself and employees and the rates are different with theirs being lower than mine. I make a profit on their labor
Either way workers compensation, taxes and profit are figured into the hourly rate.
However having said that I find it better to give fixed rates for each job and always up front.

As a consumer, I actually like a contractor's quote for the total job cost, rather than seeing it broken out into materials and labor. It removes the burden of worrying about the guy's workers taking too many smoke breaks that I have to pay for. And I know exactly what its going to cost.

I'm surprised there isn't something like the Construction Estimator books for woodworking projects. Maybe there is (I'm only familiar with the plumbing books out there).