# What should I make from an employee?



## paintr56 (Feb 4, 2005)

I am a painting contractor residential repaints. I have hired before, but I would like to do it right this time. About how much after all expenses should I expect to make form each painter? Either as a dollar amount or as a percent of what he is being paid.

Jim


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## buildenterprise (Dec 4, 2007)

That's an impossible question to answer without knowing your overhead. Just like asking a mechanic to tell you what's wrong with your car without him looking at it.


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## Bill (Mar 30, 2006)

I agree. There are just too many variables involved. What I need to charge and what you need to charge are 2 different things.


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## Mike Finley (Apr 28, 2004)

Plus 1 painter might do X, that doesn't mean 2 painters will do 2X.

The most productivity gain will be when you hire 1 employee. After that the 2nd one and the 1st one tend to do some, looking, staring and helping of each other. It's just the nature of it, at least in my world.

I'm sure the painters here will tell you where the sweet spot is in crew size. The good ones should know there productivity where it rises and where it will finally fall off.


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## George Z (Dec 23, 2004)

Jim,
50-55% of hourly charged is for labour and materials.
But these are our numbers.
There are paint contractors that could make money with 30% profit margins,
but I don't know how.


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## paintr56 (Feb 4, 2005)

Poorly worded question let me try again. After all expenses both direct and indirect is there any rule of thumb to go by starting out with employees to determine if they are worth the trouble? If I am paying an employee $15 per hour and after all costs am able to put two dollars and hour back in the company is that acceptable or should I be looking for more like $15? If I am putting $20 back in the company should I be satisfied or should I be paying him more? Any guidance would help for a starting point.

Jim


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## Mike Finley (Apr 28, 2004)

Once again different stuff, but gross sales to labor is about 12:1, or every dollar spent on employee generates $12.


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## HopeinHim (Aug 1, 2008)

Hey Jim,

Inless you already know the productiveness of the hired labor, possibley it would be good to allow him to work a coulpe days and as you find and study their abilities you can find what they're worth. You can have two workers and they will say pay me $$$ an hour, well in the toedum poll of painter experence you'll find there are stages from beginner to pro. If you find a job for example and lets say its 1000 sqft. you bid the job $2 sqft.

So its a $2000 dollar job

Material is 45% $900

30% profit is your goal $600

that means 2000 -1500 = 25% $500 is left to pay Labors

If you hire two guys at 15 an hour they need to finish that job before 2 days or they will be eating into your profit. 

$15x8hrs=120 a day to make $120 a day means they need to paint at least 1000 sqft + a day if they can't produce that then you may have to adjust the right pay rate.

I understand there are a lot of factors but hopefully you will improve your judgement and be able to make the right moves.


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## marc (Mar 18, 2005)

Based on my overhead numbers ............. each employee or subcontractor needs to make the company 300% of their wages or subcontractor fees.

Example.........If I pay an employee $50,000 we need to produce at least $150,000 in business ($50,000 x 300% = $150,000) just to break even.
Of course we want to make money so the number needs to be higher.

These numbers include myself & my business partner and of course are based on our overhead costs.


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## Jason Whipple (Dec 22, 2007)

I'm not understanding these calculations at all.:blink:

Using the 12:1 ratio a $25 per hour guy should be billed out at $300 per hour?

Using the 300% ratio he should be billed out at $75?????

I don't get it.

By my calculations, my $25 per hour guy gets billed out at $45 per hour. This takes care of time to make the pay checks & paper work, Comp. & Liability ins, matching taxes, unemployment ins, and so on. Keep in mind I have little overhead and a low comp rate (15%). There is some left for actual proffit after all this is figured in but, I'd rather not post that amount on a public forum.

When I figure labor costs, I figure time involved with types of labor. Our labor breaks down in 4 separate billing rates. Project Management, Forman, Carpenter, Helper. Each has a different rate for billing and each has a cap for payable. I may pay one carpenter $16 per hour and another $18 - $20 but the billing rate is the same.

When I figure job costs I simply figure out who I need to get the job done and how many weeks with that crew. I might have a need for 1 Forman, 2 carpenters, and 1 helper on a project. If i think this crew will do the job in 5 weeks, the calculations are simple. If I think 5 weeks is tight, I'll add an extra week.


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## mdshunk (Mar 13, 2005)

Jason W said:


> I'm not understanding these calculations at all.:blink:
> 
> Using the 12:1 ratio a $25 per hour guy should be billed out at $300 per hour?
> 
> ...


You're forgetting about the markup on all the material the employee is installing in that hour, and how much productive effort the employee is putting toward bid jobs that are not T&M. 

I've never heard of the 12:1 rule before, but after some poking on the calculator, that seems pretty darned close.


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## Mike Finley (Apr 28, 2004)

Jason, it all comes down to what people are including and not inclduing when doing these calculations. I wouldn't call what I posted a rule by any meands, just a quick look at my labor costs on some projects and the gross sales of those projects. I can only speak in averages and I'm sure industry to industry, business to buiness, heavily using subs or not, material intensive or not, who is supplying, marking up or not, nothing is going to match exactly.


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## Jason Whipple (Dec 22, 2007)

mdshunk said:


> You're forgetting about the markup on all the material the employee is installing in that hour, and how much productive effort the employee is putting toward bid jobs that are not T&M.
> 
> I've never heard of the 12:1 rule before, but after some poking on the calculator, that seems pretty darned close.


Could be I have a different approach when bidding. When I do my material take off I figure cost plus waste plus profit and overhead. It's much easier for me to track actual job costs and profit throughout the project. I can track production much easier too when I don't over complicate things by mixing the two.

I don't do T&M work I just figure time with crew size and positions needed and then calculate the cost with my billing rates for those postions and time frame.


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## Jason Whipple (Dec 22, 2007)

Mike Finley said:


> Jason, it all comes down to what people are including and not inclduing when doing these calculations.


Yeh, I get that. I can understand that a Forman at $25 per hour/on the books should be able to produce $300 in value to the job every hour on most jobs. Some hours will be better than others too. You might have a hard time hitting that number when hanging sheetrock but it's made up for when the finishes are installed in a kitchen or bath.


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## marc (Mar 18, 2005)

Jason W said:


> I'm not understanding these calculations at all.:blink:
> 
> Using the 12:1 ratio a $25 per hour guy should be billed out at $300 per hour?
> 
> ...


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## paintr56 (Feb 4, 2005)

I pay an employee $15/ hour. That costs me $22.50/ hour add over head of $23/ hour and materials of 10%. 

If I use the 12 to 1 ratio should he be producing a $180/ hour worth of work? That seems way too high. 

$180 (income/ hour)- $23(overhead) - $18 (materials) - $22.50 (cost of employee) That leaves a profit of $116.50 If I had one employee that could do that I could quit painting.

Lets forget the formulas if we can. If you pay an employee $15/ hour how happy are you if after all expenses associated with what he is doing you have $15/hour left in your pocket. What dollar amount would make you happy?

Jim


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## orson (Nov 23, 2007)

What is the 1 in the 12:1 ratio in regards to? hourly wages paid or actual emoloyeed costs?

Michael Stone says that you should do 350k in sales for emoployee #1(presumably yourself) and then add close to that for each additional employee(the sales amount diminishes per employee depending on the # of employees and bottoms out around 300k). Mike's numbers are based on averages of established professional construction companies. 

I would guess a painting company to have much lower sales numbers per emoployee due to materials costs being a much lower percentage of sales.

The most important number you need is how much your employee is going to cost you when you add their pay and other costs(labor burden: WC insurance, holidays*, vacation*, FICA, health insurance, life insurance, visioin and dental insurance, etc.)

You also need to determine your increased overhead expenditures due to the extra employee. This could be things like uniforms, vehicles, cell phone, or aditionial equipment you need to have available to the employee.

Now you need to come up with either an hourly figure of cost (labor + burden+overhead).

*Don't forget: If you are arriving at an hourly cost by totaling your yearly costs and dividing, don't figure on 52 weeks a year. Federally recognized holidays alone account for 4 working weeks a year. Now, most contractors I know work several federal holidays, however, 48 is a good conservative number of working weeks to use for wage caculations.

Now you have your real cost per hour, add some profit to it and you have your hourly rate. How does it look? If it seems low, add some extra profit. If it looks high, take some profit out. If it is not at least 1 penny higher than hourly costs, don't bother hiring.


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## Mike Finley (Apr 28, 2004)

paintr56 said:


> Lets forget the formulas if we can. If you pay an employee $15/ hour how happy are you if after all expenses associated with what he is doing you have $15/hour left in your pocket. What dollar amount would make you happy?
> 
> Jim


$15 /hr net profit would equal 160 hours a month x 15 = $2400 a month profit.

Nope wouldn't be happy.

So I guess you just add 100 painters to the pay roll and then you're making $240,000 a month. 

Unfortunately it doesn't work that way. Bummer. As you said yourself forget the formulas.


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## Jason Whipple (Dec 22, 2007)

Mike,

Do you pay yourself from that profit or do you figure your own time in separately?

My time is figured in and billed all by itself. If I'm making my own paycheck and the company is profiting 2400 a month per employee, that would make me happy, especially with 4 to 6 employees.

Paintr56,

You'll need to adopt some type of formula to figure it out time after time. What would you be happy with. What pays the bills and gives you room to grow? Are you figuring in equipment replacement costs so you don't have to dip in to the profit?

It takes just a few surprises to make that so called profit disappear.


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## Mike Finley (Apr 28, 2004)

I draw a salary, but when it comes to job costing it gets tricky since my salary could be considered overhead at times and straight labor if I am doing production on the jobsite like anyone else.



Jason W said:


> If I'm making my own paycheck and the company is profiting 2400 a month per employee, that would make me happy, especially with 4 to 6 employees.


Like I said it all depends on the circumstances, the company and the work. It just doesn't work so simply. If you have 100 employees you can grab an average dollars generated by employee and use it to do projections of growing your business. 

If you have no employees you can't do it. Adding the 1st employee is probably going to be WAY more profitable then 6 months from now when you add the 3rd. 

The 1st employee might be worth say $50,000 in that you're working with him hand in hand, the 2nd might only be worth 30,000 to the company in that he will end up being a helper or you move out of the field and the 2 guys work together and they will never be as effective once you are removed. The 3rd might only be worth 20,000. 

Taking the 50K, 30K, 20k you get an average of 33K per employee. adding the 4th, 5th and 6th may be worth 33K each. But now look back and try to use that number to figure out #1. It shows you how impossible it is.


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## Jason Whipple (Dec 22, 2007)

Same here. There's no 1-2-3 punch to figuring this out. So much comes into play; cost of living, risk per job, and so on.

If I handle high end things, my "profit" margin has to go up because of the risk of replacement due to human error. Things happen, no matter how good you are. You gotta cover your a$$ so you don't cut you're own throat.


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## Brian (Jun 9, 2004)

paintr56 said:


> Lets forget the formulas if we can. If you pay an employee $15/ hour how happy are you if after all expenses associated with what he is doing you have $15/hour left in your pocket. What dollar amount would make you happy?


I would be unhappy with $15 an hour. I don't have my exact numbers available now, but I'd need $25 to $30. As a general rule, labor for a painting contractor should be about 30% to 35% of the selling price. 

Brian Phillips


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## Savren (Jun 1, 2008)

*Charge out calculator*

It won't let me post a link.

Check a post by Excellencee on 02-06-2008

Its a calculator on a plunbing site for hourly charge out. You input all your overhead and profit percentage.


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## TigerFan (Apr 11, 2006)

I believe 300% is a good rule of thumb.

When I was in technology, working for a very large service vendor, the company needed to bill 300% of your gross in order to justify your position. If you made $50k gross, they had better be able to bill $150k from that revenue area you worked in.

I find that is pretty close in this world too. Salaries may be a little less, but overheads and insurances are certainly more.

Although I once billed $60 an hour to a customer who had my $20 an hour guys unload his furniture and move it to his third floor master bedroom we were building out - he wasn't happy.


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## mmike032 (May 30, 2007)

what do you need to make from an employee?

how bout a profit


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## paintr56 (Feb 4, 2005)

I know I can be slow but I would like to try this one more time. I see a lot of references to over head expense being a huge variable. Some say they need to be billed out at x times their wage. I am thinking that means they are covering overhead with this number. My question is after all costs are payed including but not limited to payroll costs, insurance costs, advertising costs, office costs, estimators cost, equipment cost, supplies cost etc. how much would be considered good to have left for profit from a $15/hour worker? When has he earned a raise?

Jim


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## Mike Finley (Apr 28, 2004)

After that get's answered, I'd like us all to work on :

*Why doesn't glue stick to the inside of the bottle?*


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## Jason Whipple (Dec 22, 2007)

Just charge what you think your market will bare for a $15 an hour guy under your leadership. If you do well for a few months, bring it up a little more. If it's not going over well, bring it back down.


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## Carport King (Jan 7, 2008)

Mike Finley said:


> After that get's answered, I'd like us all to work on :
> 
> *Why doesn't glue stick to the inside of the bottle?*


I think they call it air!


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## MALCO.New.York (Feb 27, 2008)

Put them all in Skirts and put them on a corner Downtown. Betcha make a bunch that way!!!!:laughing:


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## aapex james (Mar 2, 2008)

I like the glue in a bottle. I think it will stick if you take off the lid.


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## Double-A (Jul 3, 2006)

paintr56 said:


> I know I can be slow but I would like to try this one more time. I see a lot of references to over head expense being a huge variable. Some say they need to be billed out at x times their wage. I am thinking that means they are covering overhead with this number. My question is after all costs are payed including but not limited to payroll costs, insurance costs, advertising costs, office costs, estimators cost, equipment cost, supplies cost etc. how much would be considered good to have left for profit from a $15/hour worker? When has he earned a raise?
> 
> Jim


Jim, you realize that this is a vague as asking, "How much entertainment should my $15.00 buy?"

In order to have a meaningful discussion about what you should pay your help, you first have to know all of your numbers and what they are called in business jargon. Why? For the same reason you have to know how to paint and be able to communicate your expectations to your employees.

You don't tell your folks to "Go paint the bedroom", you tell them to clean, prep, prime, mask/cover and paint with a specific paint color and grade. You tell them 1 or 2 coats. You also tell them what to do with trim and the ceiling and the closets.

So, before we try to answer how much profit you should make off of paying someone $15.00 dollars an hour, you need to understand that figure can be anything from a -15.00 to several hundred depending on your business model.

Put another way, "How much entertainment should I get for my $15.00? I have a couch, some chips, a TV guide, a big screen plasma with the surround sound junks, some friends coming over with cold beers..."

Are you starting to see the problem here?


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