You can’t ‘do and charge’ your way to success
Before you get all flustered, let me explain…
Say you have 1 tradesman, and over an 8-hour workday you’ve worked out that he costs your business $60 per hour (a total cost of $480 to your business every single day!)
So, you decide to charge him out at a competitive rate of $90 per hour, giving you a gross profit of $30 for every billable hour he works.
Then, for example, say your tradesman heads out and takes 5 hours to complete a job and it’s the only job he does for the day.
So, you might be cheering thinking that you’ve just made $450 in labour revenue ($90 x 5 hours) and $150 in labour gross profit ($450 - $300) for the day!
But that’s actually not the case at all…
You haven’t considered all the non-billable time throughout the day!
This could be the travel time to and from site, the scheduled dead time before and after the job (half-day harry), and so on.
So, what are these 3 hours of non-billable time ACTUALLY costing your business…?
Well, let’s look at the math…
Tradesman Cost Per Day ($60 * 8 hours) = $480
Tradesman Charge Out Rate = $90
Tradesman Job Billable Hours = 5 hours
Tradesman Job Labour Revenue = $450
Tradesman Day Labour Gross Profit = $450 - $480 = -$30
Your labour might’ve been profitable on the actual job itself, but because of all the non-billable time during the day, your labour is actually unprofitable for the entire day!
However, if you were to quote the same job, you would’ve very likely been able to put a bit of fat into it and quote the job for the full 8 hours.
This would’ve ensured you were covering ALL the non-billable hours for the day and made a profit on your labour of $240 ($720 - $480) … NOT -$30 using the ‘do and charge’ model.
So, whenever it’s feasible, try to actually quote your jobs beforehand with take-off or fixed pricing, instead of just offering a base hourly charge out rate all the time.
This is how you will build a successful trade business!
There are exceptions to the rule: Certain ‘specialty’ services allow businesses to significantly pump up their hourly rate, making their business well and truly profitable! But even in those cases, they’d be better off quoting!
We’re NOT saying eliminate ‘do and charge’ altogether: There are times where it is necessary for certain trades and/or services to use the ‘do and charge’ model (e.g., service and maintenance work), and the ‘do and charge’ model can even be used to provide businesses with the opportunity to get their foot in the door and then potentially offer a larger ticket service that’s quoted (e.g. blocked drains and pipe relining)… HOWEVER, we see plenty of businesses out there who are just using ‘do and charge’ all the time, when quoting is the far more appropriate option!
If you're an electrician, plumber, painter, carpenter, or any other tradie business owner who is looking for assistance with your tax, accounting, and bookkeeping - click here to learn more!