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T&M vs. Flat Rate

2K views 14 replies 7 participants last post by  eskals 
#1 ·
hey all. i wanna ask you something. now i am not talking for jobs that are under lets say 100 or even 200 dollars. i am talking about jobs that are lets say in excess of 500 dollars? i am finding that when i give a flat price for a job that i dont come out with that much, even if we work fast. and even if we are working fast something usually happens, or the guys can only work for so long. now i find that if i price a job for T&M the guys dont have to kill themselves when they work, they are happier, if something unexpected happens, ex. your backhoe breaks down and you need to rent one, that that machine is getting paid for no problem for as long as it is there same rate. or if you figure on one number and that number is too low, you are covered, or the customer asks you to do this, and instead of giving another price all you have to do is get it done and bill them for it. do you guys know what i am saying? i find that i make better money off of T&M i really do. however there are some things that i do still keep flat rates for.
 
#2 ·
Hello,

for smaller jobs, I'll say 2k and less, time and materials may work.
Also, if you know the client very well, have a very good relation, and feel confident that they trust you on your pricing, then you may be alright.

However, as jobs get larger, time and materials will not cut it. People will want a price, and to come to them at the end of the job and say 'well, the machine broke down so I had to get another and therefore its an extra $1000' will lead to some huge problems. I can't even imagine doing this.

As for the idea that your men can now take it easier on these jobs because they aren't rushed anymore..........that could lead to some MAJOR problems. What it, one day, the homeowner comes home, and sees your guy sitting around for a 2 hour lunch. Sure, its 100 degrees, they just busted there balls all day, and you got a lot done, but when you hand the homeowner the labor bill and they say 'all i remember seeing is your crew sitting around all day, I'm not paying this', what all you gonna do. If you have to push your men to 'extreme' work speed to make a profit all the time, then you aren't pricing the job high enough.

If you are having trouble pricing jobs out, then you are doing something wrong. One of the hardest parts of giving estimates is coming to the conclusion that you ARE NOT charging to much. As you have learned, the unexpected does occur, and that has to be accounted for in you estimate. Experience is always a big help in determining this.

Pricing jobs is kind of like gambling, and is a risk of the business. You can make very accurate, solid bids, but off course, there will always be a job or two that will not turn out as expected. Sometimes, you have to think of it in a yearly sense, as you may make more money on one job and less on another, but in the end, have a profit.

As for continueing with T&M pricing, I would say move away from it. It will lead to some major problems down the road. Think the job through start to finish, add the 'fudge factor' and give the price to the homeowner. I too, feel guilty handing out some of the estimates that I have and have said "that price seems a little high". Then, 2 days into the job and something happens out of the ordinary, I thank myself dearly for the price I gave.

steveair
 
#3 ·
T & M Do you really think it makes you money? Most guys should rethink their work if they believe they are doing good with T & M. Using Stonehedges figure of a $1000 per day per man (gross sales) I would guess your not going to come close to making that. If you say material cost you $500 of that $1000 you would have a hard time making $500 on a 8 hr day just for a laborer.

Do we do T & M, yes but not very offen, I hate to send guys out for it but we do:( AS far as what to look for in your sales/work completed we shoot for $100K to $150K per year per man, so if your not doing that you might need to raise your sights up some.
 
#4 ·
Rarely use T&M here... only once in a while on cleanups that the maintenace crews do... on T&M the guys have to work harder(not that they are expected to work any other way, on any job)because I find the customer is watching every move...don't want to here any complaints on guys standing around. There is no way that a customer who is forking out 40k for a landscape job, dosn't want to know the final cost upfront...crew of 3 should be grossing about 15k a week.
 
#6 ·
I find it funny, "we have to work harder when we are on T & M"
Let's look at this....... say you are charging $30 to $50 per hr. your men are costing you $ 18 to $25 per hr. and you are happy making that???? Not me I would rather figure out a flat rate than put my guys out there trying to make money that way. Think about it some..... what happens if they finish early and your charging by the hour? You're not making the money you should! Most times a customer is happier when he is getting a one rate job but he never sees that you are really charging more for that flat rate than T & M.
 
#7 ·
paul... not sure if you were referring to my post...We DON'T do T&M unless it is to what i refered to in my post...I wish I had not said the line about working harder on T&M it is just that when guys are out on T&M it is almost like you can't even take a break or the customer is complaining...All our landscape jobs are set price(flat rate) ahead of time.
 
#8 ·
The other problem with T&M is how equipment usage figures into the equation. T&M works for a guy with a rake, but put the same guy on paul quad and you are in a whole different price range. Do you bill the customer only for the time the equiptment is running ? He may insist on this if he has spent the day watching you. Do you charge him for the time the equiptment is tied up, say waiting for a stone dilivery ect. ?

The bottom line is if you know your trade, bid jobs fairly and hire reliable people you will allways have work and make good money.

Jim L
 
#10 ·
why would you work harder at time and materials jobs? when i do work for a flat rate i bust my butt, as do my workers, i make them work harder. however they dont work really really fast. we do good work, but it takes time. if we work time and materials we work, but we dont kill ourselves. the customer knows that they are paying for good work, so they dont mind paying like that. even today the customers gave the guys food and drinks and what not. yes a break ordained by the customer. these guys just dont want to work the 10 - 12 hour days. if they would do that then i would go for flat rates. however like yesterday it was raining and they would not work. we only got a half day in, and finished the full day out today. i really think that my problem is my workers. but they do good work and would be tough to replace after all i have put into them. so this is what i am talking about, yes we do milk the jobs. sorry!
 
#11 ·
oh, and some other things too. when a customer is home- they dont watch, ever. and if they do watch they just watch how we do things, and that is really only with the tree work which is flat rate. and with the T&M i am not saying for 40,000 dollar jobs. but for something that is up to lets say 5,000.00 because obviously 40,000 dollars if you finish early you wont be happy, and if you finish too late then the customer wont be happy. i think that this has a lot to do with how you word a contract, in regards to the unexpected. and yes i do feel that T&M does have its place in this business.
 
#12 ·
I'm not saying don't use T & M, I'm saying your not going to make as much! Put it this way, we work 8 months a year, say 50 hrs a week, charging $35 per hr you'll only bring in $60K per man, now your not going to charge them for delays or shop time so i'd figure less, now thats a long way from the 100K to 150K per year I like to see.
 
#13 ·
Lawnboy -

Did I read that right? "It was raining, so they would not work?" I hope this isn't a case of the tail wagging the dog.

10-12 hour days are pretty normal for our industry.

My guys understand (or I quickly educate them) that my expectations are our expectations. If I leave them to complete a part of a job, they work until it's done. If that means a 14 hour day, then it means a 14 hour day. I can't run my business if my instructions/wishes are left up to their interpretations or moods.

And if you're doing T&M and your people are only working 6-8 hours per day, is the customer paying for your drive time? I think I'd be displeased as a customer if I was paying you for twice as many return trips as I should, because your people didn't want to work long hours or work in the rain. And that's a double-edged sword - if they aren't paying for your drive time, then you are. And you're paying twice as much as you should. Paying wages for extra hours spent riding on a cushy bench seat, because you aren't putting in a full day.

To really appreciate this, imagine the extremes - let's say you have people who are only willing to work one hour per day. Let's also say it takes to 20 minutes to load up and drive to the site each day, 20 minutes to return. So, you have only 20 minutes of productive time, where these people are actully earning you money. Let's say it takes 100 days to complete this project this way. This works out to 33.33 hours of actual on site work.

For that same project, let's say another company has people that'll work as many hours as you want, 24/7 if you ask. For this company, it'll only take them two days to do the job, working 16.66 hours each day, plus 40 minutes drive time per day (there and back). That's 34.66 hours of time you're paying them for, instead of 100.

If they both charge T&M (and accurately estimate the price to the customer), who do you think the customer will hire? Done in two days for a lot less money, or not done until summer is over, and for loads more $$? Sure, you pocket more money in labor for a longer job, but you'd pocket that money moving on to another job, too, and then you'd be making $$ on the materials of the new job, too.

Also, if your people only work that many hours in a day, if you are going to grow your business, you're going to need to hire twice as many people to grow to a certain level as a company is with people who work 10-12 hour days. You'd be signing up for more personnel troubles than it'd be worth for the volume of work you'd be doing.

I'm worried that you're letting your people dictate your hours and work conditions (rain, etc), and your efficiency is suffering because of it.

But that's just my opinion. You should do whatever you think is right.
 
#14 ·
Hello,

Stonehenge hit the nail on the head with his response on why T&M doesn't work and why, someday down the road, the homeowner you work for is going to 'wake up' and get a price from someone else who will do a job just as good as you do (believe me, your only kidding yourself to think that your work is the best, that I've learned) for half the price you did it for. Just like good work gets spread around by word of mouth, expensive work get spread around too.

I'm working on a basic paver job this week, and will say I could not imagine giving a T&M pricing on it. It's only a small 60 ft walk, and I priced it out low (I needed to fill gap in my schedule). I started last week, and sure enough, we have had rain ALL week. What this means, is I have been 'mucking' around on this job all week, trying to get something done but really getting no where. I have spent 10 hours on site now, and quite frankly, should be almost done. Yet, I am only 1/4 done.

Now, if I were to have bid this out T&M, my price would probably be in the $20 sq foot range. I know these people do not have the money for that rate, and I know they would just laugh at me if I came to them with that price.

When the job gets done (which I pray is soon), I will have made a profit, but it will definitely be far from one of my more profitable jobs. This is part of the business. Next week, I start a job, and if all goes well, I should make enough to cover my slight loss on this one and then some. Then again, who knows, something may happen to stop that. All I know, is I will make enough money to cover my expenses, pay my bills, but may not be buying that 'big screen' T.V. I've had my eyes on for the past couple of months.

Also, what I do know, is that I will be handing the customer the invoice at the end of the job and it will say the same thing that I said before I started. No worries on 'did I charge too much' and no worries about paying my bills this month.

A few years back, I did what was a big job to me (I was probably in a 'little over-my-head) for a 'acquaintenace at work' on a T&M pricing schedule. What a disaster that job was. It was a job that included a lot of mulch (60 yards) and a lot of soil (80 yards), planting (they were going to buy the material - another headache), and relocating a row of boulders. I decided to do the job myself (1 person - what the hell was I thinking), and rented all sorts of equipment, a case 580, smaller kubota tractors, etc. When the job was done, I had a rental and transport cost in the bill for about $2500. Also, I had delivery charges for soil and mulch around 500. Later on, I met up with a excavator, and it turns out I could of subbed him out the job for about 1000, with him as an operator and him running all the loads. The job would of taking way less time (which was also charged to the client) and the excavator would of done all of the deliveries as part of the fee along with cut me a better deal on soil and mulch (he had better connections than I did) Boy, I am glad my client didn't know this! The bill would of been 4k less easily if I had the sub there.

The 'job I should of never done"



From that day on, I decided to never give a T&M price again. Ya, I did get paid, but I knew my business would never grow if I ran it like that. I think the lesson I learned most from the job, however, is to not take jobs on that are outside my range. Maybe, maybe not, but it sounds like this job may have been a little bit bigger of a step than you should of taken at his point in your company. Just a guess.

In retrospect, I use to think T&M was great because it covers all of those 'unexpected' issues that come up during a job. Now, I realize that what T&M does is cover the fact that I didn't know what the hell I was doing. I'm glad I didn't get 'caught onto' during that time, and have learned my lesson well.

steveair
 
#15 ·
I would say that the biggest problem with time and material pricing is that people are only willing to pay so much per hour. What they are willing to pay per hour and what you want to get per hour are far apart. Now, you take those hours times the amount that you want per hour and give them a price per job, and they won't blink an eye.

T&M does have its place. Like greens1 said, it is handy for those little add-ons that come along.

Eric
 
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