It's easy to think that this is the equation you need to use to when writing up a wood floor estimate:
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Shutterstock.comIt's easy to think that this is the equation you need to use to when writing up a wood floor estimate:
Labor + Materials = Price
The basic principle behind job costing is to know as accurately as possible how much money has been or will be spent in the different areas of each individual flooring project. It is very important to make sure you are not losing money on the jobs that you accept. Here are a few estimating principles that will help you.
Real Labor Costs
Since the majority of our estimates are based on a square footage figure, it's important to know what everything costs per square foot, including labor. Even for installers and finishers who are paid by the hour, this equation is easy to do, though the rate will obviously change based on the crew and the difficulty of the floor. The hourly wage times the total hours on the job times number of employees on the job yields what you're paying out in labor. As an example, let's say a two-person crew is able to install, sand and finish a 1,000-square-foot floor within six 8-hour days. For hypothetical reasons let's say we're paying each employee $20 per hour. The calculation would look like this: $20 per hour x 48 hours = $960 x 2 guys = $1,920 in labor to install, sand and finish this job. If we divide that by 1,000 square feet, so far we're talking $1.92 per square foot going to your employees.
However, worker's comp, health insurance, retirement benefits and taxes can add 30 to 50 percent or more to the cost of each employee. Keeping on the high side, let's say this adds another $10 an hour per employee. With that being figured in to the above equation, you're looking at $2.88 per square foot-an extra $0.96 per square foot! That is important to factor into the equation.
All of these pieces together create an equation that looks like this:
E Ă— (W+B) Ă— H------------A
A = Area of the floor
E = Number of employees
W = Hourly wage
B = Cost of benefits per employee
H = Hours of work
Estimating Travel
With gas prices as high as they are, it is important to factor travel into the cost of doing a job. Imagine the job site is 20 miles away from your shop. From the initial 40-mile round trip for the estimate to the final trip to pick up the check (or, heaven forbid, make repairs) your guys could end up making that 40-mile trip a minimum of 12 times (once for the estimate, one or two times before the job starts with stain samples, once to deliver materials, once to prep the floor, twice to install, three times for sanding and finishing, again for the final walk-through, etc.). That's up to 480 miles for one 1,000-square-foot job.
Assuming you're lucky and the gas price is around $3.50, your van that averages 12 miles per gallon is going to eat up $140 in gas.
And don't forget your guys are on the clock as they're driving. Assuming they can average 60 mph, they're spending eight hours in the van over the course of the job per employee. At $30 per hour (including additional benefit costs) for two employees, they're earning $480 en route.
All in all you're looking at $620 spent traveling to a 1,000-square foot floor, which breaks down to another $0.62 per square foot.
Adding this to our $2.88 per square foot cost above, we're now up to $3.50 per square foot.The calculations break down like this:
Cost of Gas = ((2D Ă— T ) Ă· M) Ă— G
Cost of Driving = (W + B) Ă— ((2D Ă— T ) Ă· 60)
Cost per Square Foot = (Cost of Gas + Cost of Driving) Ă· A
D = Distance from shop to job
T = Number of trips
M = Miles per gallon
G = Price of gas per gallon
W = Hourly wage
B = Cost of benefits
A = Area
Overhead Expenses
Whether you work out of a home office or a downtown showroom, you have to take overhead expenses into account. Utilities, phones, Internet connections and regular equipment maintenance won't pay for themselves. To figure out your overhead per square foot, take your total expenses for all of the prior year and divide it by the number of jobs you did. Say you did 150 jobs last year and spent $10,000 in overhead. That works out to $67 per job. If the average area of those 150 floors is 1,000 square feet, you're adding another $0.07 cents per square foot. (You could also work out the percentage of historic revenue to determine a more accurate cost per job since not all jobs are equal).
Time spent writing bids, meeting with clients, calling distribution and calculating payroll should be compensated as well. To get an idea of how much this costs, multiply the total hours committed to these tasks by the average hourly wage (and don't forget about benefits). Say the total administrative time is six hours for the 1,000-square-foot job. At $20 per hour with an additional $10 cost in benefits, you're adding $180 to the job-$0.18 per square foot.
So far, costs are at $3.75 per square foot of flooring-without having factored in materials yet. The overhead per square foot equation we are using is:
(O Ă· J)------A
O = Annual overhead cost
J = Number of jobs in same year
A = Average area of floors
Materials Estimates
Let's start with the wood. My total estimate usually includes the price for the wood, 7 percent waste, and the tax paid on the wood. Make sure you call your distributor to get the current price of the product you're using. For this example, let's say the wood costs $3 per square foot and tax is 8 percent.
For a 1,000-square-foot floor, you'll need 1,070 square feet of flooring (1,000 x 1.07). At $3 per square foot, you're spending $3,210. With 8 percent tax (multiply by 1.08), it will cost $3,466.80. And don't forget the delivery charge, which we'll say is $50. Divide $3,516.80 by 1,000 square feet to get a real cost of $3.52 per square foot of floor space.
Had you shared the $3-per-square-foot cost with your customer, leaving out tax and delivery, you would have already been out a total of $306.80.
Our cost of wood (per square foot) formula is:
Cost of Wood = (PĂ—1.07) Ă— (1 + T) + (DĂ·A)
P = Price
T = Tax rate
D = Delivery charge
A = Area
Wood isn't all that goes into a floor. Remember subfloor prep material, testing equipment, vapor retarders, fasteners, adhesives, new blades, sandpaper, trash bags, finish, applicators, tape, plastic, rags, wood filler and on and on. For this 1,000-square-foot oak floor with, let's say, three coats of premium water-based finish, I would expect to spend another $0.75 per square foot ($60 for underlayment, $60 for a box of fasteners, $80 in abrasives, $500 in finish, $10 in applicators and $40 in wood filler all divided by 1,000).
With material costs as laid out here, your total cost per square foot is now $8.02.
Calculating a Profit
Now that we have the hard costs, we can determine profit-because none of us are in this business to work for free, right? Business profit pays for the owner's salary, callbacks, vehicle maintenance, unforeseen equipment repairs and new equipment purchases.
Building in a 20 percent margin, $8.02 per square foot divided by 0.8 (or 1 - 0.2) becomes 10.02 per square foot. The $2.00 per square foot on a 1,000 square foot floor brings in $2,000 in profit. But on a 200-square-foot floor, your profit is only $400-barely enough to keep the lights on. I would not calculate my jobs for a penny less than this-preferably significantly more! Keep in mind that an easy way to grow your bottom line is to offer simple upgrades.
Your profit equation looks like this:
C Ă· (1 - M) = Price per square foot
(C Ă· (1 - M)) - C = Profit per square foot
P Ă— A = Profit for the job
C = Total cost
M = Percent profit margin
P = Profit per square foot
A = Area
You're Worth It!
One markup doesn't work for everyone. In all probability, you are undercharging your customers for your work. Where do you think that will lead? Remember that this is a hypothetical case showing the correct math formula to arrive at the correct sales price for your work. We all have different expectations, desires and overhead expenses; therefore, we all have different financial needs and goals for our companies. Most importantly, you now see why so many companies go broke-most contractors do not charge enough.
There's no need to undercut yourself or your business by negotiating price with an unreasonable customer. These are the customers who ultimately cost you the most money in the long run. If the deal doesn't work for you, thank the homeowners for the opportunity and walk away. Wait for the projects that will work for you in the time frame that you need.
Deal with actual numbers, and you'll find your business will be simpler-and more profitable.
