Tell me more ×
Answers OnStartups is a question and answer site for entrepreneurs looking to start or run a new business. It's 100% free, no registration required.
up vote 2 down vote favorite

I'm planning on changing the pricing model of my company from an hourly rate to a fixed rate. If that's not clear enough here's an example:

My current model is: customer asks us to install a power supply for an equipment, I'll charge 1 hour for that. If the customer asks us to install a power supply and a CPU for an equipment, I'll still charge 1 hour for that. But if it's a conveyor belt replacement, I'll charge 6 hours for that.

My gripe with my current model is, the man-hours for the job can be "different" from job to job. Instead of having a fixed charge per labor done.

New labor I want is similar to the way car dealers work when it comes to repair, for example: install power supply = $5. install CPU = $10, replace conveyor belt = $125.

So I guess what I'm saying is that, depending on the part to be installed/replaced/serviced, I'd like to have a fixed charge for that so all my engineers/sales has to do is add things up instead of having a man-hour estimate.

Now, what I don't know is how this is identified WITHOUT having a machine and doing multiple "time attacks" on servicing a certain part as this will involve tremendous investment of time and resources both on employees and the training equipment.

Hope this was a clear explanation and I hope you guys can help me out.

share|improve this question

2 Answers

up vote 0 down vote accepted

You will need to do data collection and analysis of this and then you can come up with flat charges for certain tasks. For example.

Replace CPU. Performed 200 times. Minimum time for task: 15 minutes. Max: 2 hours, average: 30 minutes, median: 30 minutes. Travel Time, min, max, average, median.

Based on this data you can calculate what it will cost you in man hours, equipment, etc and what can you charge so that you come out in black. Same with conveyor belts, and power supplies.

After that simply come up with codes for your engineers if you haven't already and that's how you do your billing.

share|improve this answer
Alright. Good plan. Is it 'okay' to charge for travel time going on site? Especially if that trip is going to be about 3-4 hours each way? – Jared Nov 28 '12 at 0:14
@Jared Depending how many clients you have that way you might want to hire a local. But I would. Though not the full amount. – Karlson Nov 28 '12 at 2:19
up vote 0 down vote

What are you creating the table in? I think what you are missing is the minutes per task. Change cpu = 15mins. Change case = 90 mins. Then you have an hourly rate, and calculate your figures that way. You can have a minimum rate of 1 hour labor. Or round up to the nearest 15 minute increment.

When you charge based on time, and multiply against an hourly rate, you can adjust your hourly rate and have all prices update. You can also get creative and have hourly rates based on the total hours. So for jobs of 1 hour and less your rate is $100 per hour. Jobs 2-8 hours its $75 per hour. And jobs 9-100 hours its $50 per hour.

The formula is simple.

Sum up all the tasks based on their minutes. Determine rate bracket based on the total sum of minutes. TotalMinutes x (HourlyRateThisBracket / 60)

share|improve this answer
It's just in excel so it's nothing too complicated. This is also a helpful idea. Thanks! – Jared Nov 28 '12 at 0:16
Excel makes it even easier. The best part of having it in excel is that its so fluid you can make changes quickly. If you ever turn it into a software application or web based app then any programmer could simply look at the excel and quickly understand your goals. Best of luck!!! – Frank Nov 28 '12 at 14:42

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.