Small, but Excellent Shops Can Compete, TooI am writing in response to John R. Hall’s article “Survival of the Smallest” [Nov. 20, 2006] about one-person shops. I need to preface my comments by saying that I was one day away from opening my own business when plans suddenly changed, and I was invited to go teach at the technical school I graduated from. This was an opportunity that was too good to pass up, so my business plans changed. My comments are from what I found during the six months of planning and organization to attempt to do it right.
I wanted to open my own shop because I was looking for the quality and the idea that “I can do it right if I do it myself.” I feel too many contractors out there lose sight of the customer and start just looking at the numbers. I believe there is a loss of ethics in a lot of business and I no longer wanted to be associated with this.
I sat down and listed the advantages of making this business a success. The bottom line came to independence.
I felt I could compete because when developing and planning a rate structure, I had an idea what the market was - having dealt with customers in the area for a long time. I could have remained competitive, treated the customers fairly, and still made money. I believe that companies who treat customers properly will fall into their niche market. Those that do shoddy work will eventually disappear and this is a very good thing!
Porter and Chester Institute
Making Money Even When Customers Supply the PartsThis is in response to Paula Pellegrin’s letter published in the Oct. 30, 2006 issue, “Selling to One and All and Feeling the Impact.” In it she states, “We don’t make money off our labor rate. That covers wages and overhead. We make money selling parts off a job. But too many of our customers now buy direct and cut us out completely. So we had to increase our labor rate on jobs where the customer supplies the parts. Still, it doesn’t help much.”
If you’re like me, you’re not overly comfortable with charging a higher labor rate for people who supply their own parts than those who do not. May I suggest that you go flat rate and include everything you need, including profit, in your labor rate, which the customer never sees?
All you’ve got to do is add up every expense you had last year, with the exception of what you paid supply houses, and divide it by the number of billable hours per year. That gives you your “break-even point” - the amount of money you need to charge per hour to pay all your bills and employees.
To make a 20 percent net profit, divide your break-even point by 0.80.
If your company is like most companies, you’ll find that parts comprise a very small percentage of your total expenditures. Contractors who depend heavily on parts sales for income typically use a complicated formula involving different multipliers for different parts prices to set a selling price for parts.
Since you’re making the vast majority of your income and profit on labor, you only need to divide your parts prices by 0.80 to make a tidy 20 percent net profit on them as well.
Using this method, which is very common, it doesn’t really hurt you when they supply their own parts.
This works best when your company is departmentalized.
Fort Myers, Fla.
Fuel Cells: An Energy Conversion DeviceIn Greg Mazurkiewicz’s article, “To Drill or Not to Drill” [Oct. 16] Senator Byron Dorgan categorizes fuel cells as a renewable energy. Fuel cells are an energy conversion device like a battery or an engine generator; they are not a source of energy. They typically convert hydrogen into electricity. The vast majority of our hydrogen is currently manufactured from natural gas.
Larry Schlussler, Ph.D.
Sun Frost, Arcata, Calif.
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