calculating rates and business plan

[bobzzz]

I have a question.I have seen plenty of people ask here how much they should charge for certain things in their business. I have also seen plenty of men ask here ask various other questions about starting out and other related questions.

I would like to know how many of you would find a book or books useful that shows you in easy steps how to do a workable business plan and how much to charge for your services.

 

[Octopus]

This has been done to death on here, search this section.

If you don't know what & when your fixed and variable overheads are + what you need to earn, you are sunk!

 

[bobzzz]

This has been done to death on here, search this section.

If you don't know what & when your fixed and variable overheads are + what you need to earn, you are sunk!

Thank you Murdoch

I am aware of how to run the business side of things and I am proficient in calculating all related costs of running an electrical contracting and maintenance business.

I was asking if anyone here would find a book like that useful, because I saw many men ask here and would like to offer them one of the books I found very useful to download for free. It has full examples and exercises to complete. It shows you how to calculate the real cost of employing people, shows you processes for developing a margin to cover your overheads and how to do reconciliation so you can see your estimated profit against your real profit. Plus a lot of other useful information anyone might find helpful.

If anyone is interested just drop a message here and I can PM it

 

[bobzzz]

I thought I would post a short piece of the book if anyone might be curious. I still want to give this to people on here as I really think it is a very useful resource to have.
None of the work below belongs to me, but it may be shared.

MINIMUM HOURLY RATE FOR A SOLE TRADER
The following sample calculation shows the process required to determine a minimum hourly rate for a sole trader operating in the local area, performing a combination of service work and small installation jobs. The rate is developed to allow for low sales of materials.

For this example, it is assumed that the contractor operates the business from home, and has no unnecessary overhead commitments. It is assumed that the contractor is able to achieve a productivity that allows 30 hours per week as chargeable work, with the remaining 8 hours lost on non chargeable tasks such as traveling, preparing quotes, bookwork, etc. This 8 hour non productive time becomes an overhead.
On costs are assumed to be 38%, which reflects a common value for many contracting operations.
The contractor has chosen to aim for a wage of $35.00 per hour.

Labour cost per hour = $35.00 + 38% = $48.30 per hour

Overheads are as follows
Van = $15,000.00 per annum (includes all running, insurances and depreciation)
Telephones (mobile and land line) = $3,000.00 per annum
Insurances (public liability, fire, theft) = $2,000.00 per annum
Accountancy fees = $1,500.00 per annum
Advertising, petty cash, entertaining, etc = $100.00 per week or $5000.00 per annum
Tool replacement = $1,500.00 per annum
Non productive hours = 8 hours x 44.2 weeks = 353.6 @ $48.30 = $17,078.00

Total overheads = $28,000.00 + $17,078.00 = $45,078.00

Hourly overheads = total overheads = $45078 = $34.00 per hour
productive hours 44.2 x 30hrs

Therefore the minimum hourly rate, to achieve a wage (without profit) is
$48.30 + $34.00 = $82.30 per hour

If this is not available in the market, the contractor should not continue to trade, or should change the area of trading.

 

[Cbigfoot]

interesting but your maths are not working out!

 

[bobzzz]

interesting but your maths are not working out!

Thanks. The calculations or work is not mine, but I will appreciate if you can point the fault out, so I can amend it.

 

[MDJ]

For a start it is in Dollars and 99% of the forum here deal in Sterling.

 

[bobzzz]

For a start it is in Dollars and 99% of the forum here deal in Sterling.

Would you mind to explain how that would influence basic mathematics? Whether you use XYZ or ABC in your equations it wont have a difference.

 

[MDJ]

Would you mind to explain how that would influence basic mathematics? Whether you use XYZ or ABC in your equations it wont have a difference.

No because your ideas are based on your thoughts, I wouldn't consider pricing in your way at all. I would work out how long the job takes and multiply the hours on the Job by my rate. I would then add 15% onto the top of the materials supplied, easy, simple and it works.

 

[Cbigfoot]

You appear to have have added in the non productive hours twice. in the on cost 38% at the beginning and at the end.
If this is not the case then the38% on cost is for what? justified how? its a random figure based on nothing much, and a dangerous figure to use if judging by the currency used is based on US business. It is giving nearly 18,000 of further overheads.

While i would agree the base currency is not relevant, a book which is giving business advice written for the US market has little value in the UK due to the completely different tax, employment, H&S, etc. etc. laws. While some comparisons can be drawn it is not a reference I would use.

You have arbitrary figures for stated overheads which do not reflect real world, certainly at this time in business.

Also i do not know anyone who is self employed who only works for 44.2 weeks per year. 8 WEEKS HOLIDAY!!!!!!

Oh yeah right!

 

[Octopus]

I like the $3,000 for telephones - I spent a paltry £236.00 last year!

 

[bobzzz]

No because your ideas are based on your thoughts, I wouldn't consider pricing in your way at all. I would work out how long the job takes and multiply the hours on the Job by my rate. I would then add 15% onto the top of the materials supplied, easy, simple and it works.

I fully agree with you. I also would not use a method to work out an hourly rate and use that to price jobs. That would be foolish. Your method is sound. The example above shows how to calculate your minimum hourly rate without profit added.

 

[bobzzz]

You appear to have have added in the non productive hours twice. in the on cost 38% at the beginning and at the end.
If this is not the case then the38% on cost is for what? justified how? its a random figure based on nothing much, and a dangerous figure to use if judging by the currency used is based on US business. It is giving nearly 18,000 of further overheads.

While i would agree the base currency is not relevant, a book which is giving business advice written for the US market has little value in the UK due to the completely different tax, employment, H&S, etc. etc. laws. While some comparisons can be drawn it is not a reference I would use.

You have arbitrary figures for stated overheads which do not reflect real world, certainly at this time in business.

Also i do not know anyone who is self employed who only works for 44.2 weeks per year. 8 WEEKS HOLIDAY!!!!!!

Oh yeah right!

You appear to have have added in the non productive hours twice. in the on cost 38% at the beginning and at the end.
If this is not the case then the38% on cost is for what? justified how? its a random figure based on nothing much, and a dangerous figure to use if judging by the currency used is based on US business. It is giving nearly 18,000 of further overheads.

While i would agree the base currency is not relevant, a book which is giving business advice written for the US market has little value in the UK due to the completely different tax, employment, H&S, etc. etc. laws. While some comparisons can be drawn it is not a reference I would use.

You have arbitrary figures for stated overheads which do not reflect real world, certainly at this time in business.

Also i do not know anyone who is self employed who only works for 44.2 weeks per year. 8 WEEKS HOLIDAY!!!!!!

Oh yeah right!

The 38% comes from other costs associated with employment: PPE, Training, pension, annual leave pay, sick pay, redundancy pay, public holiday pay and other you might add to that depending on your situation.

The figures used I believe the author used them for illustration purposes. At school when we learned a new formula for physics I did not go and use all the values the teacher used in the example. I used the values that was asked in the question. Likewise you use the values in your situation not values some guy on the internet writes.

Yes in the book there are certain things only applicable to that market, but 90% of it can be used in any country. Most business owners would know their tax etc or their accountant could give them the numbers they need.

The 8 weeks is not 8 weeks leave. It was broken down as this:

Annual holidays .......... = 4.0 weeks
Paid public holidays – 9 days ……… = 1.8 weeks
Paid sick/family leave – say, 10 days … = 2.0 weeks
Total non income earning weeks ………. = 7.8 weeks

 

[Cbigfoot]

The 38% comes from other costs associated with employment: PPE, Training, pension, annual leave pay, sick pay, redundancy pay, public holiday pay and other you might add to that depending on your situation.

The figures used I believe the author used them for illustration purposes. At school when we learned a new formula for physics I did not go and use all the values the teacher used in the example. I used the values that was asked in the question. Likewise you use the values in your situation not values some guy on the internet writes.

Yes in the book there are certain things only applicable to that market, but 90% of it can be used in any country. Most business owners would know their tax etc or their accountant could give them the numbers they need.

The 8 weeks is not 8 weeks leave. It was broken down as this:

Annual holidays .......... = 4.0 weeks
Paid public holidays – 9 days ……… = 1.8 weeks
Paid sick/family leave – say, 10 days … = 2.0 weeks
Total non income earning weeks ………. = 7.8 weeks

So you ARE using the same figure twice.
The 38% is for annual leave pay, sick pay, redundancy pay, public holiday pay, and then you add in holiday pay again!


When i was at school the teachers did not give us formulas which were incorrect, lacking detail, or worked out with figures which were not relevant or realistic.

This is the first time you have mentioned any detail of the content of the 38%

It is dangerous to put formulae on here for people who may use them as a business model, without a complete explanation and breakdown.

In addition if someone fully understands the tax requirements and company legislation of this country then working out an hourly rate is the easy part!

 

[bobzzz]

So you ARE using the same figure twice.
The 38% is for annual leave pay, sick pay, redundancy pay, public holiday pay, and then you add in holiday pay again!


When i was at school the teachers did not give us formulas which were incorrect, lacking detail, or worked out with figures which were not relevant or realistic.

This is the first time you have mentioned any detail of the content of the 38%

It is dangerous to put formulae on here for people who may use them as a business model, without a complete explanation and breakdown.

In addition if someone fully understands the tax requirements and company legislation of this country then working out an hourly rate is the easy part!

I am sorry but I think there is perhaps some misunderstanding here.

The 38% was mentioned in the example as ON COST. Most business people will know that relates to the costs mentioned. I still fail to see how the number is used twice that you mention.

The 8 weeks is subtracted from the 52 week year. That is time lost that cannot be charged for so you have to calculate your earnings with the remaining time in the year that you will actually work.

To put it in other terms I would say that It is time you cannot charge for and at the same time you have to pay your employee/yourself for that time "lost".

I cannot see how those 2 things can be seen as the same thing.

I also did not put this formula here as the be all and end all. I put 1 part out of a whole book that I thought most people running a business would be able to relate to.I did that to see if anyone might be interested, so I could send them the entire book. In previous sections it shows you how to calculate On Cost etc and and in later sections it shows you other calculations etc.

You say that working out the hourly rate is easy, perhaps you could add that value to other people here by showing us an example.