Disparity in Plumbing Cost
Why can plumbing pricing be so different from contractor to contractor even in your general area? Here is a breakdown of how pricing is estimated. Please remember not all plumbing contractors will include all of the steps included here but all of them should. Hopefully this gives some insight on the how and why of plumbing pricing, by the way it should translate well with all the service trades at least in theory.
Labor whether you are union or non-union, has a base wage, plus any fringe benefits (Fringe Benefits – are any non-wage benefits an employee receives which includes but is not limited to health insurance, retirement, unemployment insurance, life insurance, etc.) the employer pays. For the benefit of this article lets put the base wage @ $35.00 p/hr, the average amount of fringe benefits in the US is about 38% of payroll expenses which bring you to $48.30 per hour.
Now we know that the raw cost labor rate of $48.30 per hour. Companies now attempt to figure out what their fixed overhead costs are in relation to their overall sales volume. The average mechanical contractor realizes anywhere between 15% and 21% overhead costs.
For this article overhead costs include, clerical help, utilities, worker’s compensation and general liability insurance, building rent or mortgage, office equipment, fuel, tool rental, executive salaries etc. We should point out that a significant percentage of service contractors have owners that are working on the business not performing the service calls, so they have salaries as well. We will make the average overhead 18%, that adds another $8.69 per hour for a total of $56.99. At these numbers the above company hasn’t made any profit yet, they are just covering their respective costs. On to how labor is estimated.
When a consumer or commercial customer asks for a plumbing estimate on the phone some say “I don’t give pricing over the phone,” others resist and try to explain. Here are the reasons why it is difficult to give pricing site unseen. #1 without seeing the repair or problem it is very difficult to give an accurate price and #2 if a price is given and the plumbing repair proves much more difficult than described it is very difficult to charge more for the project. The amount of variables in even the simplest job can mean the difference between a 1 hour job and a 4 hour job. Contractors that do give pricing over the phone will take into account how long the average plumber takes to do a certain job. They do not bid a prospective job to the quarter hour, it leaves no room for variables and they also do not figure a job taking their best technician into account. A contractor might consider his best plumbers when putting together a complex job to win a bid but it isn’t practical for every service job. For example, a prospective customer has a new kitchen sink faucet they want installed they say it’s “just a simple remove and replace”. The plumbing tech has to take the old faucet off and install the new simple right? The plumbing technician gets under the sink and finds that the basin nuts are fused to the faucet and they can’t be removed with a normal basin wrench. The project just became infinitely more difficult. So what a plumbing contractor will do is try and take these things into account when relaying the price to the consumer.
Drive Time Woes
Consumer customers have a real problem with drive time. Most plumbing technicians are paid by the hour so if they are going from one call to the next they are getting paid to drive. This time is included on each estimate. There is no way to bury that time into over head, it is therefore passed on to the customer. This is also a sticking point on time and material jobs as well. You have no idea how many times a plumbing contractor hears “you were only here for an 11/2 hours but you charged me for 2 hours. Normally a contractor will not charge drive time if it the first job scheduled for the day because that is the first place the serviceman has to be.
I Don’t Want to Pay for Profit on the Plumbing Material
Most service companies base their profit forecast on making a profit for both the labor they provide and the material they sell. Consumers DO NOT like to see 10%, 15%, 20% mark-up on the material but it is essential to the fiscal reality of a service business.
So Enough with the Explanations What’s the Bottom Line?
Let’s add it up, labor rate with fringes, the estimate of how long your service tech will take to complete the repair and you know your overhead and you know the material costs for the job. What is a fair profit margin to make on the job? We can’t answer that question and no one really can but would it surprise most to know that the average profit margin in the mechanical industry is just 3%? Most would love to make 10% net profit but it rarely happens. All of the above is added up and the owner decides what profit is fair and what profit they think the market will bear.
The curve ball in all of this is there are quite a few owner/operators who find it perfectly acceptable to work for wages and some fringes. This is up to the consumer to decide as to the value of the service.
If there are any questions you’d like to ask or comments you’d like to make please do not hesitate to comment. In these difficult times this subject can be volatile one for most are just trying to get by. We value each and every opinion and we will treat them all with respect and open-mindedness.