I've done a few on my own. Let's see, I either did a frontal lobotomy or was that a bottle in front of me. I forget, but I did it myself.
It shows
Undercutting to get a foot in the door....EVERYBODY does it!
- Thread starter Papa Deuce
- Start date
It shows
you are absolutely correct...
but he is just starting out, and unless he does something drastic to get people's attention, he'll be just another name, charging the same price as everyone else.
I would hope he is smart enough to know that money will be tight in the beginning, and hope he plans to raise his rates once his foot makes it thru that door.
G
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Being part of a family business (constuction) I can tell you what the basics are for payroll cost. Paying a man $15 an hour as a laborer cost the company $27 an hour so you have to charge a minimum of $27 an hour for that man just to break even on his labor alone. This doesn't even take into account travel time etc. for that employee!
So adding 33% to that figure covers your cost plus a 10% profit on that man's wages which would be roughly $35 add another 15% and you are making a profit off of his labor, at $40 a man hour he should be making a profit if the wage he is paying is $15 an hour.
Then you add in markup on the supplies he is using (take the cheapest price you can find on anything at Lowes or Home depot and take off 15% to 20% from that price) he buys those items at contractors price, then subtract that from the per item price he is charging you and you have his markup. (by the way the invoice i show you has the "retail price" on it not the "contractors price" you get two invoices when purchasing as a contractor one for your billing and one for your payments! But then there is nothing shady about this practice because the contractor has spent his time (not on the job) getting these items together for the job!
Then there is also supervisory time which he may or may not charge for! There is also overhead vehicles, equipment etc. that still has to be paid for. For electrical and plumbing you are looking at maybe a ditchwitch or a small backhoe which he either owns or rented for this job neither of which is cheap, so there should be an additional charge for these things as well!
So adding 33% to that figure covers your cost plus a 10% profit on that man's wages which would be roughly $35 add another 15% and you are making a profit off of his labor, at $40 a man hour he should be making a profit if the wage he is paying is $15 an hour.
Then you add in markup on the supplies he is using (take the cheapest price you can find on anything at Lowes or Home depot and take off 15% to 20% from that price) he buys those items at contractors price, then subtract that from the per item price he is charging you and you have his markup. (by the way the invoice i show you has the "retail price" on it not the "contractors price" you get two invoices when purchasing as a contractor one for your billing and one for your payments! But then there is nothing shady about this practice because the contractor has spent his time (not on the job) getting these items together for the job!
Then there is also supervisory time which he may or may not charge for! There is also overhead vehicles, equipment etc. that still has to be paid for. For electrical and plumbing you are looking at maybe a ditchwitch or a small backhoe which he either owns or rented for this job neither of which is cheap, so there should be an additional charge for these things as well!
Around Cleveland, electricians make a lot more than $8-$10. They did not sound like laborers to me. They were doing unsupervised work.
Like I said, I understand the logic behind charging less starting out to get your name out there. But when he is charging 67% less, it shows that he only has 9 weeks of business experience.
also, Papa said he found the flier in the mail box, so this guy is also paying for some marketing.
I'm not sure if anyone here watches the office. Last season, the main character, Michael Scott started his own paper company. He simply undercut his old company. It didn't occure to him that he was selling the paper for less than his cost.
My point is I don't this guy realizes the costs that go into running a business.
If you are able to undercut the competition by 67%, you better be running a lean mean business machine that's driving in customers like crazy.
Thats what independent guys around here charge... dunno why it seems so crazy....:sqconfused:
I have no problems with new guys charging less based on experience _ I did when I was starting, and I'm still doing it now.
If someone DIDN'T start that way, I would consider them an unethical hack.
Where you stand in relation to the "market rate" in your area doesn't determine "undercutting" status.
My way of defining undercutting is this:
If it could reasonably be said that your offering on all accounts is comparable to, or even exceeds that of the average veteran providers in your area, and you are knowingly charging less for the same thing in a conscious (yes - malicious intent is key here) attempt to divert their business away from them, then you are undercutting.
If you know you are offering less, and are pricing accordingly or simply to gain a foothold in the market ("market share"), then you are not undercutting.
If someone DIDN'T start that way, I would consider them an unethical hack.
Where you stand in relation to the "market rate" in your area doesn't determine "undercutting" status.
My way of defining undercutting is this:
If it could reasonably be said that your offering on all accounts is comparable to, or even exceeds that of the average veteran providers in your area, and you are knowingly charging less for the same thing in a conscious (yes - malicious intent is key here) attempt to divert their business away from them, then you are undercutting.
If you know you are offering less, and are pricing accordingly or simply to gain a foothold in the market ("market share"), then you are not undercutting.
Not at all.
The difference is a license - which limits competition by estabishing an equivalent and exchangeable standard of quality (the code).
You cannot perform (supervise) electrical work for hire (legally) without a license. That stabilizes rates since there is no lesser quality alternative than the National and local codes.
The electircal trade has no "iPod electricians."
$40 is not an unusually low rate for residential electricians (especially right now). $135 is a union rate, mostly seen on commercial development sites.