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Starting new shop/how much do I charge?

17K views 31 replies 15 participants last post by  poncho62 
#1 ·
Hello guys.Im just starting a little hotrod garage and need to no how much to charge an hour.Its just me with very little overhead.Any advice would be great.Thanks
 
#2 ·
In order to stay in business you need to get enough to cover the rent of the building..how much would it cost you for a comparable building on the open market? Monthly utilities and phone bill. how much for consumables used in the shop? Advertising? cost of office equipment? Add all that expense up for the year and divide by 2000 and that gives a figure for projected expense of operations and do not forget the shop truck in that budget. Then figure your labor rate which is the expense of an employee (you) considering your hourly wage plus state labor and industries. social security taxes and unemployment insurance and then when you have all this together then a shop fee can be determined..

Sam
 
#3 ·
supersmurf666 said:
Hello guys.Im just starting a little hotrod garage and need to no how much to charge an hour.Its just me with very little overhead.Any advice would be great.Thanks
I opened a shop with the knowledge you have, ZERO, it didn't go too well. :pain:
Listen, you REALLY need to get some business education. Because you can do the work out in the garage only means you are a guy who can do some work out in the garage, it doesn't make you a BUSINESSMAN which is what you need to be!

Forget what you THINK you know about business, you know NOTHING. Get some knowledge, take a course or two in your local community college. Read some books, do something! But don't think because you can work on cars you can run a successful business.

I struggled for 13 years before I went out of business. I have since gotten a lot of info thru following jobs (working for the man :rolleyes: ) and think how valuable this knowledge would have been about twenty years ago when I had my shop!

You are going to be running a "time factory". You need to sell time for more than you paid for it, that is the basic of a service business. You then have to cover overhead and the like. Now, if it is just you and very little overhead just set you hourly labor rate at a dollar an hour, right? NO, but that is what you are asking.

You need to be paid for what you are worth, you need to know what similar shops in the area charge. You need not to sell yourself short. If there is one thing about a service business there is ALWAYS work. If you are doing restorations, you can have a friggin shop FULL of restorations, it isn't hard to find work! So don't give away the farm! Charge what the going rate is, I don't give a crap if you are making 500% GP that is what you SHOULD be doing, getting as much as you can.

Believe me, if you give away the farm, the "image" of your farm will be small.

Brian
 
#7 ·
supersmurf666 said:
I use to own and run an 18 wheeler so i no a little about buisness but thats a whole nother kind of work.I can use some of that buisness sense at my shop but its way different.I new what it cost to run my truck so ill use that logic with the shop.
That is the first thing you need to forget, this business is NO different! Business is business, I don't care if it's a parts store, a cat house or farm, business is business.

Brian
 
#9 ·
Brian's advice is dead on. Most states and counties have a small business economic development office. These offices usually have seminars or classes about starting a business. The costs of operation to consider are many. In addition to the usual overhead costs (rent, utilities, etc) there are also the non-obvious costs like business license, any EPA or environmental compliance costs, the cost of your accountant, legal advice, insurance, etc. Don't forget the investment in tools and equipment and depreciation of that equipment. There are consumables (parts cleaner, hand cleaner, paper towels, etc.). There are disposal costs for "hazardous waste" - which is just about everything these days. There's certification costs.

You need to start by understanding exactly what costs will be incurred over a year, then figuring out how you plan to allocate these costs to a particular job.

Oh, then there's always the issue of how much you pay yourself.
 
#10 ·
It will be some heavy thinking..I have a small parts business that I do and I have to think of all of the expense in that in order to keep it running. Accounting and bookeeping is another thing to work on as you do need good books in order to tell just how well you are doing or not doing..

Sam
 
#11 ·
One More Time has hit a lot of the basics- but don't forget to add profit.
Too many guys figure that the hourly rate covers that but if you could
make as much or more working for someone else than why take the risks
working for yourself. Remember that risk equals reward so figure that you
need to add a markup for profit at the end of the numbers to compensate
for it. There is a reason that shops charge so much- the costs of doing
business are much more that most people realize- and they are going up
all the time as the states look at business as a cash cow and raise the
fees and business taxes all the time, Get a good acountant to go over
all the needed license's, permits, and insurance costs- then figure that
the will increase by 50% over the next two years. Just one of my
government fees doubled last year and there are changes to the law
dealing with lead paint that will probably cost me somewhere between
1200- 1500 in imediate costs plus about $5000 a year in additional
costs. Jim
 
#12 ·
No one has mentioned the skill level factor so far, and its a major factor if this is something you've never done for money in the past. Equipment is another, as it influences the time it takes you to get the job done.

Lets say you're charging $70/hr as an average of the high and low rates you've found in your area. To do that, you'll need to have several years applicable experience and a shop that's very well equipped for the type work you're doing. Without both, you'll be grossly overcharging, and probably spend as much time arguing about charges as you spend working.

The best way to get around this is to work on fixed estimates as much as possible. The customer knows up front what its going to cost, and you don't have to worry about keeping up with every minute you did (or didn't) work on his project. When you quote prices up front its pretty easy to tell where you are realtive to the competition. If you get every job you quote, you're too cheap. And if you don't get any of them, good chance you're a little high. You do want to keep an accurate account of the time you spend on each job, not for the customer's benefit but for your own. Over time you'll likely find you make a lot better hourly rate on some types of jobs than on others. This is common in all types of similar businesses. Keeping up with the time allows you to adjust those lesser paying jobs upward when you quote similar ones in the future.

Obviously some jobs are going to have hidden problems that can't be estimated until they're uncovered. That's why any work agreement needs to spell out exactly what's being quoted, and what's excluded from the quote. If a problem is found, the customer needs to be notified asap so he can decide whether he wants you to fix it as well, or if he wants you to just complete the originally agreed to work and let him worry about the hidden stuff later.

And then there's the ones where its near impossible to work any way but on an hourly basis. Someone drags in a frame that's been rusting since the 50's and wants you to turn it into a rolling chassis. If you were starting with a new pair of rails, and fabricating all the crossmembers, etc from new material, then you could quote a firm price. But starting with something 60 or 70 years old means any up front price will involve lots of guessing. Is it twisted? Is it cracked? Is there massive rust between the inner and outer rails? Will the riveted joints be loose as a tambourine once the frame is blasted? Will blasting show up spots where you can see daylight thru the metal? The list goes on and on, and the likelihood of the repair bill being substantially more than the cost of going with new (assuming its something where new is available) is high. That's the place where you have to be up front with the customer about possible costs, and let him bear the risk if he wants to proceed.

All that said, you'll find you can get a lot more work by quoting fixed prices rather than hourly rates in any case where the work to be done is well defined. I've been in various phases of the metalworking business for 30 years, and if I have some work I'm looking to sub out to someone, and a drawing or other good description of the work involved, then they're wasting my time and theirs if they think they'll get me to bite on an hourly rate and give them the job. If a man isn't familiar enough with the work to know what it's worth, the he surely isn't familiar enough with it for me to open the wallet and trust he'll do me right.
 
#13 ·
TubeTek said:
All that said, you'll find you can get a lot more work by quoting fixed prices rather than hourly rates in any case where the work to be done is well defined. I've been in various phases of the metalworking business for 30 years, and if I have some work I'm looking to sub out to someone, and a drawing or other good description of the work involved, then they're wasting my time and theirs if they think they'll get me to bite on an hourly rate and give them the job. If a man isn't familiar enough with the work to know what it's worth, the he surely isn't familiar enough with it for me to open the wallet and trust he'll do me right.
You know, I never thought for a second in this thread that we were not simply talking about how much to charge an hour. Your "hourly rate" is merely that, what you charge per hour. It doesn't mean that every job is an open check and how ever many hours you work on it you will be paid. I too feel sorry for the poor dolt who would turn over a project to someone without so much as an estimate as to how much it will cost.

However, this doesn't change the fact that you need SOME KIND of idea what your "hourly rate" is before you give that "fixed price".


Brian
 
#14 ·
MARTINSR said:
You know, I never thought for a second in this thread that we were not simply talking about how much to charge an hour. Your "hourly rate" is merely that, what you charge per hour. It doesn't mean that every job is an open check and how ever many hours you work on it you will be paid. I too feel sorry for the poor dolt who would turn over a project to someone without so much as an estimate as to how much it will cost.

However, this doesn't change the fact that you need SOME KIND of idea what your "hourly rate" is before you give that "fixed price".

Brian
Very true Brian. My point being we don't have enough information from the OP to even begin to guess where his shop rate needs to be.

Pic below is a pair of parts I make and sell. For size reference, the largest diameter is about 2 1/4". The two parts sell as a pair for $45, and represent $3 worth of material and a total of 9 minutes of time on a cnc lathe.

The same parts can be made on a manual lathe in about an hour apiece, using the same $3 worth of material, but they're still only worth $45.

My theoretical shop rate on these parts would work out to $280/hr, while the shop rate for doing the same thing on a manual lathe is $21/hr. In reality, I can gross between $200 and $225/hr on these because there's always something here or there that eats up time. Because there's 2 dimensions on each part with a +/-.0003" tolerance, they'd likely have an actual gross more in the range of $15/hr on a manual lathe due to increased scrap rates.

The price of admission to make the jump from $15 to $200+ is $100,000 worth of machine and tooling. The real question becomes how much CAN I charge rather than how much SHOULD I charge. The answer in this case is $45/pr because I own about 90% of the worldwide market for this relatively low volume part. Doesn't matter if someone else spends 6 hours making the same thing, because your competition sets your price, and I'm the competition for this item regardless of where you're located. The OP is faced with the same problem of prices set by the competition, so he really has to look at what the competition charges for various jobs and work backward from there to see what his rate would have to be to make himself competitive based on his own skill level and available equipment. For any of us to make even a halfway guess at a competitive rate, we'd need to know more about his skill level, equipment, and the type of work he plans to seek out. Unfortunately, there's no flat rate manual for what I do or what he's planning to do.
 

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#15 ·
I may be missing something you are trying to say. But the flat rate would be the very same between you and the guy on the manual lathe. The difference would be, he took longer to make the same part. You on the other hand make it faster thus earning more in the same time. The cost for that higher efficiency is the cost of the CNC. If you can't make enough of them to pay for the higher efficiency you might as well have made it on the manual lathe.

A body shop in town with one little booth and no trick equipment has the same shop rate as the shop I work at with two down draft heated booths a computer controlled squeeze type resistance welder, laser measuring system, etc. They don't do it as fast, thus we make more GP on labor. Hopefully we do it fast enough to pay for the equipment. :mwink: But the fact is, we still have the same shop rate per hour.

Brian
 
#16 ·
supersmurf666 said:
Hello guys.Im just starting a little hotrod garage and need to no how much to charge an hour.Its just me with very little overhead.Any advice would be great.Thanks
Ask this question to Seth that owns Twisted Minis. When he started out on here he was in school, graduated, then decided to open his own shop with not too much of an idea as to how he was going to do it or how much he was going to charge. He is now pretty successful, been in numerous magazines with his builds and just recently moved into a larger shop. Here is from when he first started in 2008 http://www.hotrodders.com/forum/finally-opening-up-shop-140573.html



A word of advice though, when you go in other places of business you see there signs posting the hourly rates. Unless you know exactly what you are doing and can get it done quick, you will not be able to charge rates even close to that. Most places have rate manuals that give times as to what it takes to do a specific job. Can you do the same job in the same amount of time? What is your experience mechanically? Are you as good as you think you are, or as good as a mechanic that has been doing the same type of work for 30 years? Not trying to sound like a smartazz but just being realistic. You will have to charge time and materials. So say that you charge $30/hr and you have to rebuild a carburator. Can you do it in a few hours or is it going to take 16 hours to do it? If it takes you (2) 8 hour days to do it, that person will just go buy a new carb. Now if you get it done in two hours then you are making some money. Not a good example but an example non-the-less.
 
#17 ·
The thing is, you MUST charge the same hourly labor as other guys! If you do a flat rate job and take 12 hours for a 8 hour job, that is your "punishment" for not being good enough.

If it is a time and material job and you spend 12 hours you SHOULD have done in 8, well then you charge the customer for eight and eat the time you wasted as a "punishment". But you don't adjust your hourly labor down because you are slow!

If anything by your basic business "rules" you would RAISE your hourly labor or you lower your overhead to make up for your loss!

If you were starting a parcel delivery service and had an 2010 F350 that costs you $60K and gets 15 miles to the gallon and the competition has a Ford Focus that costs $20K and gets 35 miles to the gallon, if you charge just what they do you go broke because of your overhead. If you charge what you NEED to charge to make up for your truck and poor gas mileage you don't get any business and you go broke.

You would need to charge a competitive price but get your overhead in order to meet the competition and get the business.

Now, if it were the other way around and THEY had the F350 you can cut your price a LITTLE and get more business AND make much more profit! :D

Brian
 
#18 ·
Kevin45 said:
Ask this question to Seth that owns Twisted Minis. When he started out on here he was in school, graduated, then decided to open his own shop with not too much of an idea as to how he was going to do it or how much he was going to charge. He is now pretty successful, been in numerous magazines with his builds and just recently moved into a larger shop. Here is from when he first started in 2008 http://www.hotrodders.com/forum/finally-opening-up-shop-140573.html

VERY GOOD advice Kevin! LOL, the "friends" part, LOL.

EVERYONE is your "friend" when you own a shop! LOLOL. I had a fellow business owner in town who said the funniest, yet most profound thing ever on the subject. We both had the same customer who would go back and forth between us. This guy was odd to say the least, first off he couldn't read or write, but made good money working for the "Union Sanitary district", yep the guys who keep the sewers running nice. :D Good job, I'll give you that! Anyway, he was from Hawaii and so was this other business owner. In fact, they knew each other there. But they both spoke a Hawaiian broken English.

The guy that went back and forth between us had a chopped Deuce three window. Anyway, I was chatting with this other shop owner one day and he told me how the customer was trying to get him to do something for him and he called him his "Friend". LOL, I still laugh out loud with my brother when we remember this. The shop owner told me how he told the customer in his broken English. "You not my friend, you never come to my house for my boys birthday party, we never go fishing, we never go to ball game, you not my friend". LOLOLOL, is that profound or what! LOLOL He went on to say "you my customer, you only know me because I fix cars". Yep, so true so true.

Yes, that thread has some good stuff in it.

Brian
 
#19 ·
Martinsr, I think that you are 100% right WRT to some businesses, and WRT to what it takes to make a profit, but you're slightly missing the point about what you can charge in this kind of business.

Tubetek I think is dead on...

In your case you're coming from a fairly standardized business that in general, you know that it's going to cost so much to do X and it does that every time, occasionally you might run into hidden damage that will change it, but even that is pretty predictable in body work.

The sort of totally custom work that he's talking about getting into that approach is probably not realistic. The extra skill and equipment that you talk about being a cost/benefit analysis, that X should take Y hours and if something lets you get done in half the time that's added profit that you have to weigh against the extra cost won't fly in that kind of work. Most of the work does not have a set X hours value and sure, you can just assign one and charge that but it seems like that means that you're either screwing yourself when it takes longer or the customer when it takes shorter, and somehow, someone always gets some impression of that if that's what you're doing.

Instead, in this kind of work, the extra abilities (whether they're yours or some machine's) is the difference between being able to do work and not, stay in business or not... and you have to weigh if you need to be able to do it, or if you can farm it out for a reasonable charge...

My best suggestion is to take a job working in a similar shop for a while to get a feeling for what works and doesn't, and what type of work is around in your area and what services are missing (someplace you may corner the market or if there is a reason why someone should stay out of that part of the market, like you might find that _no matter what you do_ that with cerntine things the customers will never be quite happy, it either costs too much for 90% of them, or you can't compete with another company (in quality or price or final product) or something...).

You'll learn how much that shop and others charge for that work, how much of that work exists, what you really need to get that done and you'll probably get some impression of the types of employees available in the area, zoning, taxes, shop overhead, what you need to get the work done...

That said, I have worked in a shop like that in the area, I babysat the counter some times, and I also contracted work to the shop either doing custom work (making small custom parts...) and full installs/projects (they were more speed and muscle car oriented then strictly hotrod). I was the goto guy when something didn't exist anymore and they needed one for whatever project the shop was working on, and like I said, some of the projects eventually started coming home with me to my personal shop. I know what the shop owner was not able to get or what others were not able to make, what it took me to do it and how much I made and how much it got marked up to the customer. I know what the customers were happy with and what caused problems, and I made mistakes (thinking I was doing the right thing or even fixing a problem) on both ends, the actual fab work/installs and on the invoicing a customer/selling them parts/work end (in other words, I saw things that I thought were causing problems and found out why they were like they were as well as found things that could be done much better).

I found that I could build things well enough that I could charge more than the going rate for similar parts/work (that wasn't done as well as mine) and that customers were willing to pay more than what I needed my labor to be worth to make it worth my time, and that the owner of the shop could still mark up enough to cover his costs (including when accedents happen, that's important, **** happens in this kind of thing) and make a profit.

I ended up hanging a stop watch next to the door of the shop and would hit the start button when I walked in, stop button when I finished and would keep a log of my hours and billed accordingly, and found that for this kind of work, that almost always worked out better (both me and the customer were happier) then trying to work to a set price. Generally "this is what we need to do, but there can always be problems along the way, aftermarket parts don't always (usually? Ever?) fit and when they do they'll save money, when they don't fabbing stuff is your only choice...

And then I kept a photo log of the work, that way the customer could see what was happening (I could email them) with their stuff that was getting worked on off site, they would have pictures why something took longer than expected, and I would also have pictures to show manufacturer's of products if their stuff didn't work. Everyone understood what was going on and things were better that way.

There were a few things that I did for a set price, but they were things that I'd done dozens of times and I knew what they were going to cost and how long they will take, but if there was any question they got a quote and usually a call if there was a significant change (be aware that there are also state laws about automotive service work and estimates/charges, you need to know what applies and make sure your pricing/quotes cover you if they do apply).

No, that doesn't give you an exact $/hour. Sorry, I'm not in your area, I don't know what your abilities are, what equipment you have and what your overhead is. I can tell you that 3-5years ago, depending on the actual work that I was doing I could charge between $75 and 130/hr (or about 20% less if I'm contracting to another shop that is taking some of the risk and overhead off my hands) and locally the customers are happy with the work that they're getting for their money. Some of the smaller, piecemeal stuff I can make MUCH more if you work out an hourly rate because I have equipment others don't and can "assembly line" them and bulk order parts so I can do things faster and cheaper (and to be honest, the competition charges that much and if I charge significantly less that's as suspicious as charging more for the same work).

Of course, I live in a pretty expensive part of the country and the market has changed a lot the last couple of years, so that might not even give you a workable ballpark to figure off of. (3-5years ago because I went back to doing something in a totally different field since then)
 
#20 ·
Oh, and before going back to the previous argument, MARTINSR, you can look up in a book how many hours is allowed for replacing X and painting Y, and in that situation your argument makes sense, where there is no book (that I know of) listing "chopping the top 3.5 inches on a X" and "custom fabricating a new spring perch for Y."
 
#21 ·
We are pretty much on the same page and I am obviously not expressing myself well.

I have done PLENTY of custom one off fab work, and everything I said pertains to it as well as production work. Again, there really is no difference between a production shop and a fab shop or a tire shop or an ice cream vendor, business is business.

We have both said the same thing I will leave it at that.

Brian
 
#22 ·
I have found that once you have built your reputation the money will come to you.. :mwink: When first stating out you may have to give a little, But once you have your name out there, They will find you.. And like someone said there's no set book for the charges on chop top,New frames,body mods,and so on,, Charge what you feel you should get,(BE FAIR) And you will soon know if it's to much, are not enough,, If you have a waiting list to get in your shop, Like some do.. :D Then it might just be time to get paid more,, It isn't hard to find the spot you need to be at,, I have done job way back when, where I would get paid $$$$ and the guy would say.. I would have gladly paid you this much for what you did.. After hearing that a few times,, well you should know what to do..Like I said your work,skill level, and your reputation has a lot to do with getting the right amount of $$$$,, When I do a car. I treat it like I'm building it for me.. Give them what you would want.. And you will never be out of work... :mwink:


And most of all,, Never set any limits on what you can do..even more with a hot rod shop... :thumbup:
 
#23 ·
You can not figure what to charge for a rate until you know what your over head will be. You need to figure as close as possible what it will cost you per hour to keep the doors open. If you are in a labor intensive business you dont have as much parts markup to rely on like a general repair shop would have. We charge 75 per hour, so on a brake 2 wheel brake job we get .7 per wheel. That is 105 for labor, but we will also probably make another 75 markup on the parts.
We try as hard as possible to do every job as perfect as possible. Come backs can kill your profits in a hurry. I know everyone will think this labor is high but it takes time to do the job right, and quality parts cost more than the AZ crap . We take everything apart,sandblast all mating surfaces, re-lubricate everything and reassemble using a torque wrench. Customers don't mind paying if they are happy when they get their cars back.
Happy customers will come back and send their friends. Unhappy customers wont come back and they will tell everyone they talk to to avoid you.

Make sure you get paid when the cars leave the shop, you will not have time to chase money.
 
#24 ·
Thats some great advice and stuff to consider from ya'll.Thanks alot.Im going to be doing electrical,engine compartment design,engine detail and building engines.I have 28years of experience building hotrods and drag cars for me and my friends.I dont do chassis fab.I only do paint and body for me because I hate bodywork.I can do suspensions but I tend to be to slow at that.I want to build engines but I dont want the cars at my shop.Im working with a machine shop Ive used since I was 15 years old.My overhead is VERY low and its just me.MY shop is only 180.00 a month for a 12'x60'.All of my tools are paid for.So I no I can be cheaper than the big shops but I dont want to be to cheap.What work I want to do at my shop I am VERY good at.I dont want to do work Im not 100 percent comfortable with.
 
#25 ·
I see a lot of good advice here. I wish I had been told this much info before I took the plunge into business. I have been open for almost 2yrs. and it has been a crash course. My advice would be if you can afford the machine's to make life easier then do it, but they (machines) need to be running to pay for themselves. Friend's. don't let friends talk you into going into business. They will for the most part be the last one's that do business with you because you don't work cheap anymore. As for shop rate. If you are too low you will miss jobs because people will wonder why you are cheaper and will think they are not getting a quality product or service. Too high and they will think you did not do a good enough job. Always be specific what your customer is expecting (cheap, average,show,the best money can buy). Trust me you will have days that someone will come in a say that is way to high. Stick to your quote especially if you are not making much on it. Sometimes it is best to let them walk. Because if you are fair the good one's will come to you and they will come back if you treat them fairly. It will make you feel good when you charge someone fair price for the work and they tell you it's not enough for the work you done. "here is some more for your effort and treating me right". The other thing is do not build someone's project out of your pocket. Do a deposit and draw system for the work you have done and the parts bought for the job. In the end you need to be able to sleep at night , but also make aliving a what you love to do. That is a good feeling to have. Best of luck to you. Bryan Allen . . Allen Fabrication Service
 
#26 ·
supersmurf666 said:
Thats some great advice and stuff to consider from ya'll.Thanks alot.Im going to be doing electrical,engine compartment design,engine detail and building engines.I have 28years of experience building hot rods and drag cars for me and my friends.I don't do chassis fab.I only do paint and body for me because I hate bodywork.I can do suspensions but I tend to be to slow at that.I want to build engines but I don't want the cars at my shop.Im working with a machine shop Ive used since I was 15 years old.My overhead is VERY low and its just me.MY shop is only 180.00 a month for a 12'x60'.All of my tools are paid for.So I no I can be cheaper than the big shops but I don't want to be to cheap.What work I want to do at my shop I am VERY good at.I don't want to do work Im not 100 percent comfortable with.
Sounds like your thinking right..I think you will do OK,, You don't know till you try..Just remember there is a lot of good shop's that fail because of to many friends around.. You don't want to many hands in the cookie jar.. :nono: When it come to a business, Sometimes you lose friends, Are the ones you thought was your friends,,Be careful.. and good luck,, There is a lot of money in a hot rod shop..Keep your head up, and keep pushing forward..you will get there :thumbup:
 
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