Pricing the Labor
When estimating the price of labor, the best way is to establish how many hours the job will take and multiply by a fully loaded rate or what you charge per hour.
Fully Loaded Rate = average wage x (1+overhead markup) x (1+profit markup)
The fully loaded rate is arrived at by looking at historical information over a reasonable period of time. Longer consistent histories provide the most accurate results. If you don’t have a year’s worth, go for 3 months or 6 months. If using 3 months or 6 months be careful to keep seasonality in mind. If you perform better in the summer than the winter you need to be aware of that while using 3 months of info to predict your average performance over the entire year. If you use one year’s worth of info, you don’t need to worry about it. If in doubt, consult your accountant.
Average Wage
Average wage is the average price paid per hour to painters out on the job; not support staff or office people. Don’t include employer contributions for taxes like FICA (social security and medicare) or 401k matching; just what you pay the painters per hour. List all of those painters, how many hours they worked, and how much you paid them. Total up the hours and total up the money. Divide the money by the hours to arrive at the average wage.
Make a list of painter’s like this to figure this out:
| Name | Hours | Wages |
| Frank | 360 | $6480 |
| Will | 380 | $6460 |
| Lisa | 350 | $6540 |
| TOTAL | 1090 | $19,480 |
Note: This example is over the course of 3 months.
Average Wage = $19,480 / 1090 = $17.87 per hour
Overhead Markup
Overhead or burden is separated into fixed and variable expenses. Quite simply, we like to look at overhead as everything you pay in order to break even. Essentially, take how much you pay per hour to a painter and increase it until you reach your break even point. That’s what we call your overhead markup. Take all of your bills, excluding what you pay to painters’ wage (those that are actually out putting paint on walls; those that you accounted for in the avg wage before). Include what you pay to all other employees. Do not include expenses for materials. Include your contributions to payroll taxes, insurance premiums, rent, loan payments, advertising, paid time off (everything else except for materials and what was paid to painters). Add all of that up as total overhead. Divide the overhead by the total wages to arrive at the overhead markup.
Make a list to figure this out:
| Expense | |
| Insurance | $3000 |
| Rent | $4000 |
| Loans | $3500 |
| Advertising | $1000 |
| Office Staff | $6250 |
| TOTAL | $17,750 |
Note: This example is over the course of 3 months.
Overhead Markup = Expenses / Total Wages
17750 / 19480 = 0.91 = Overhead Markup
Overhead Markup is 0.91 (91%)
Profit Markup
Profit markup is how much you want to increase what you charge so that you can put money in your pocket. Decide how much money you want to make during this time period. Divide that number by the (total raw wage + total overhead). That is your profit markup. Let’s say we wanted to make $15,000 in profit over 3 months time. $15,000 would be our target profit.
Profit Markup = Target Profit / (Total Wages + Total Overhead Expenses)
Profit Markup = $15,000 / ($19,480 + $17,750)
Profit Markup is 0.40 (40%)
What about my Salary?
The owner’s salary is overhead and should be accounted for in the Office Staff line in the list of overhead expenses.
Putting it all Together
Fully Loaded Rate = average wage x (1+overhead markup) x (1+profit markup)
Fully Loaded Rate = $17.87 x (1+0.91) x (1+0.40)
Fully Loaded Rate = $47.78
Note: This example is over the course of 3 months.
If you had a job that was 100 hours. You would charge $4778 for labor. This would allow you to pay the painters, cover all overhead, and contribute the needed amount to reach your $15,000 profit per quarter goal.