How Much Do You Need to Charge for Labor, Parts, and Materials?
This pricing calculator will determine your breakeven point on parts, materials, equipment, sub-contractors, and labor charges. It will also breakout your overhead by department. Of course, this will indicate your actual net profit for that department. When you enter your desired net profit, your retail price markup on labor and material markup will be determined.
Do not use commas or currency symbols. Example: Enter $250,000 as 250000.
Don’t be intimidated by this calculator. It is very important. The information it offers is crucial to your management success. Please spend some time with it and post your questions.
Please Note: We are working on the formatting of this calculator. We know that the table spacing needs to be improved and we will get the formatting fixed.
|How To Use This Break Even Calculator
All fields are required. It is best to use a full year (last twelve months) of financial data. Do not use a single month of financial data. Enter data in the fields according to the steps below. Be certain to read the Disclaimer. Click the Calculate button. Print the results if you wish. Do not use commas or currency symbols. Example: Enter $250,000 as 250000.
Once you have completed all of the fields, double check your answers and click the Calculate button. For an explanation of what the answers mean, please see the Glossary of Terms below. Print the results if you wish. To try again, reenter information as needed and click the Calculate button. The ‘Reset Fields’ button clears all of the fields.
Glossary of Terms Used in this Price Calculator
Total Direct Costs (Expenses) for Department: Costs incurred that can be directly attributed to, and associated with, selling goods and services. They are sometimes broken down into two main categories; labor and MESO (materials, equipment, sub-contractors, and other). Examples may include sheet metal, furnaces, and installation labor.
Gross Profit for Department: This is the amount of money you profit on something you sell using direct cost only. This ignores the effect of other expenses in determining the markup rate. Sales reduced by Direct Costs.
Calculated Overhead for the Department: Expenses which cannot be attributed to an individual item of output, such as utilities, rent, etc. Also see variable and fixed overhead from the glossary section. Net Profit for Department: The excess of income over costs and expenses of a business. Sales reduced by Direct Costs reduced by Overhead.
Breakeven Labor Rate: The amount for which you must sell your labor for to make exactly zero dollars (no net profit). In other words, you can pay all of your bills but you have nothing left over at the end of the year.
Hourly Labor Rate to Produce Desired Net Profit: This is the amount of money that you must charge for one hour of work to breakeven and produce the net profit you specified on labor.
Average Breakeven Multiplier for MESO: The multiplier that you must use to create a retail price that you must use to make exactly zero dollars (no net profit). In other words, you can pay all of your bills but you have nothing left over at the end of the year.
Average MESO Multiplier to Produce Desired Net Profit: This is the multiplier that you must use to produce the net profit you specified on materials.
How the Price Calculator Works
This labor fee calculator gives you access to a powerful management tool which allows you to determine the proper percentage markups to achieve true break-even (no net profit but all overhead is covered). From this, you can determine exactly how much you must mark up a product or service to make a certain net profit margin.
The method used by this calculator is commonly referred to as the “Dual Overhead Allocation” method. This method has been used for many years by finance professionals with very good accuracy. However, it has been found to be somewhat inaccurate for businesses who sell jobs that are highly labor or MESO intensive.
Experts have overcome this deficiency through the use of a sophisticated algorithm. This correction is reflected in this calculator. The result is a far more accurate reflection of your true break-even than what the old dual rate system can provide.
The problem with most labor calculators is that they do not distinguish overhead by department or by product group. That is, they do not breakout overhead by department or by product group (labor or MESO). This methodology is highly flawed and dangerous to use. What makes this calculator highly unique and powerful is that it first calculates overhead for a specific department – even if you do not know the amount yourself. The labor calculator then determines overhead by product group prior to calculating breakeven. The result can be a highly accurate report of your breakeven point.
Here are a few points to keep in mind. This calculator is only as accurate as the information you enter into it. Please verify your numbers prior to using. Breakeven amount is based, among other things, on total annual sales. The calculator assumes your sales will be the same as the prior year. If your sales go up, your breakeven amount may go down. If your sales are lower than last year, it is possible that your breakeven amount will go up. If you have a budget, please use the numbers off your budget to perform the calculations. With a budget, you can price labor and MESO today, based on what you predict will happen in the future.
With this calculator, you are utilizing one of the most sophisticated mathematical formulas, for calculating breakeven, available to the contracting industry.
Why Other Pricing Calculators Don’t Work
We have examined dozens of “breakeven” calculators on the web. None of them, that we tested, were designed specifically for HVAC, plumbing, electrical, and appliance contractors.
While they seemed accurate with respect to the basic breakeven formula, they are largely useless to contractors for several reasons. In order to determine your breakeven with the traditional formula, you must have your overhead accurately broken out by department. Each department must have fixed and variable overhead separated. If you have all of this information available, you still cannot calculate breakeven on labor and MESO (materials, equipment, sub-contractors, and other direct costs) separately. As you know, you cannot markup labor and MESO the same way. Labor must have higher margins.
If you wish to price labor and MESO separately (you better!), you must have overhead separated by which product type it belongs to. For example, how much of your rent should be allocated to producing labor and how much for selling MESO. You must know this in order to use a traditional breakeven formula. Very few contractors will ever have access to this type of detailed information.
Why Is This Calculator Better
Through some fairly sophisticated and unique methods, we have overcome these challenges. Our calculator will first automatically create profit centers. In other words, it will calculate overhead based on department. Next, the calculator determines overhead based on the product type – labor or MESO. Currently, no other calculators can perform these functions. But eventually, some copycat will steal our stuff and create their own.
What Do I Charge If I Can’t Complete All of the Fields?
We recommend that you use the calculator, even if you have to spend some time getting the answers. However, while there is no substitute for a complete and proper analysis of your financial statements, here is a good rule of thumb. Take the amount that you pay your technicians (direct labor cost per hour), multiply it by 3.00 and divide by 75. This is your retail selling price. Example: Let’s assume you pay your technician $18.00 per hour (we hope it’ss not any less). $18.00 x 3.0 equals 54.00. Divide $54.00 by .75. This equals $72.00. $72.00 is your retail price of service per hour.
Where Can I Get More Information?
If you like this calculator and are interested in getting more detailed financial information about your company, you should check out Total Office Manager from Aptora Corporation. This field service management accounting and scheduling software program includes financial ratio analysis, departmentalized general ledger, and key performance indicators (KPI’). Please also see their Easy Labor Calculator. This is a desktop labor breakeven calculator that offers more features than our free labor rate calculator.
|This labor breakeven calculator is written in Java Script. In order to use it, you need a Java capable browser and the “Allow Java Scripting” option activated.|