I called my local dealer today to get a copy of an invoice. For some reason they emailed it to me, which was good. Except they sent a copy of the workorder with their costs included, markup shown. I tried to include it here, but that didn't seem to want to work. I also had second thoughts because this had to be a mistake, and posting it here could only hurt someone, likely me! So anyway, long story short, parts were marked up about 50%, labour and travel a lot more. On average, my cost was three times times their cost. Travel was $1.60/km my cost, $.56 their cost. labour $118, my cost $321. The crappy part was the environmental fee $10(they used a laptop and a voltmeter) and the consumables charge $25(again, a laptop and a voltmeter) Nice.
Their in business to make money are they not? Im sure you markup every thing you do above costs too
did you know their hourly and mileage rates before you requested the service? get an estimate as to what it will cost you? you should have, and if agreed to them, it doesn't really make any difference what their margin is
There really isn't enough info there to decide whether that was overboard or not. Many of the software programs now days have work arounds in them to get to the billings. The way repair work is done that the bean counters bill it has little to do with reality. Consumable and environmental charges are done by every shop down here now and are supposed to be accrual accounts for things like solvent tanks, wash racks, paper towels, environmental reporting and on and on. In my experience it is just an add charge to hide what the shop's real hourly rate actually is. Most of the time I figure about 6% add on to the shop labor rate over what they state.
50% markup sounds a little on the high side but not too bad. Their mileage rate seem to be reasonable, those mechanic trucks are not cheap trucks. When I bought my tach mini hoe I checked all my local dealer for machine prices, resale values, major part cost, road time charges... anything you can think of. but I didnt want to be blindsided by road time or something.
As with everything in our industry it cost alot to provide services after the sale.After all his overhead from insurance,ss.ect.he probaly needs about a 300% mark up. Some times we don,t understand other peoples cost but this looks about right for the service industry. I can remember when I started out as a ASM for JD the mark up was around 2.25 times pd.labor rate.
I'm with the OP, they are in business to earn money working on machines and selling them, they are not a trucking company and therefore needs to charge cost on mileage and i am sure that thier $.56/km is including price of truck, fuel etc. on top of that they also charge "windshield time" at there regular shop rate just for the guy to drive the damn truck.... Yeah i know it sucks but everyone charges it so what can u do abou it Pj
50% markup on parts are nothing around here, the average for eartmoving equipment parts are 3-400% when you go to a dealer. the same goes for labour rates when you compare what a dealer charges inhouse versus external.
Paper cost is something every company should have a rough idea of, for every unit they own. This is handy for estimating purposes and knowing if your going deep into the red on a per job basis. For example lets say you own a 330, a rock truck and have two operators. Well to run that stuff for 1 hour it should cost something like this: 330-$200 Truck- $180 Those "costs" have to cover the operator, fuel, wear and tear, breakdowns etc. Now lets say the hoe breaks down. The truck can't self load so you have two machines sitting (no real cost other than the parts) but you still have to pay your operators. Lets say one guy makes $30 and one makes $20. Normally your cost would work out to say $42 as the company still has to pay for benifits, vacation pay, xmas bonus etc. $84/h to sit and wait. Now that's YOUR cost. As you own these machines to make money (not to mention the money you make pays YOUR salary, and you have to pay for your shop, shop workers, bean counters etc) you charge the customer more then what it costs you to run the machine. Now say you are billing out 330-$320 Truck-$200 In a 10 hour day you make $1400 "profit" but it's only a 4 day job and it costs you $1000 per machine to get them moved to the next site. If you aren't charging mob/demob to the customer you're down $4000 out of your $5600 'profit' which means you have $1600 left to pay yourself. Minus any other possible costs that came up. What happens if that mechanic who came out accidentally ran over the laptop and multimeter? All of a sudden they are looking at a $500 loss for that one job, even after their markup to you. Also middle men. Know why there are things like Wal-Mart and Costco? Because they sell things for dirt cheap because they elminate middle men. A $1.00 (cost to make) bolt has to pay for the factory, so they charge $1.10. It gets shipped to a main warehouse (add $0.05). Then that guy sells it to say Cat for $1.30 (he has to make money to pay for HIS stuff). Cat sends it to your local dealer for $1.40. Now it has to get put on the correct shelf, take up space until someone buys it, then the guy spends 20 min on the phone looking through parts diagrams finding the right one, 5 min finding it on the shelf, then another 5 min talking to you and filling out the bill. That $1.00 to make bolt just cost your dealership $1.40 bolt cost, 30 min labour (@ say $20/h so $10) so $11.40. Now they still have to pay for warehouse costs etc so they charge you $20. You get the bill and go WHAT? I could order 1000 of those from the factory for $1.00 each. But you don't need $1000 worth of bolts, so you pay for everyone handling that bolt betweem the factory and you. Everyone has a cost they have to pay for, plus they need a profit to stay in business. Basically what I'm trying to say is anyone who is in business, is in to make money. You can't make money by just charging what your cost is, and you have to charge enough to cover yourself for when things go bad. Some things you can get away with marking up higher than others, and some things you end up almost losing money on or just breaking even. Ask me about 627 scrapers sometime, on a good day they will just barely pay for themselves...
Yeah, they have to pay for rent, power, water cars, all their tools and the list goes on. Lots of people think they only have to pay wages and for parts
lol and think of the markup the factory gets from the dealer. We should let the government set the maximum amount that can be marked up, just so it's fair for everyone
You left out a couple of biggies, insurance and depreciation, plus your own office costs (including quoting jobs, which is a major cost in my operation and has to be made up somewhere). Also it could be argued that time when there is no work for the machine has to be factored in. Unfortunately most private customers don't understand what it costs to run machines and expect me to charge bugger all.
Under the capitalist system, competition is supposed to dictate what the market is willing to pay. Having the government involved is probably not a good thing apart from setting the base rules.
fug THAT noise....i don't want the government setting anything!. it pees me off that for every dollar NOW i send to DC, i get about 62 cents in benefits...send all 535 of em home.
Ive worked for a dealer for a while, I look at what they charge and those stupid systems they use dont make a bit of sense to me, glad all I do is turn wrenches and I get to stay out of it
this is no dif than going to a homeowner's forum...and reading posts saying...can't believe this excavating contractor i hired...he fugged up on the invoice he sent me....showed his costs!!! you can't believe what he charged me!!!!
I agree. That is crazy I took my machine into a dealer to get serviced, paid for the service, received back my machine, and a year later after using it I took it to the same place and received a call from the owner who told me that my machine had not been serviced in years and needed service immediately. I asked him what was wrong and he proceeded to tell me everything. I only put a few hours on the machine thankfully and when I produced the invoice stating what work was completed on the machine last time I had it there including labour, parts ect he was speechless. You always have to be careful I guess
Very true, well thought out and logical.
When I used to work for Mack trucks a factory branch, the parts guys told me mark up on Mack parts was 100% mark up. The order of money making profits was #1 most money was made from selling parts. #2 used truck sales. #3 New truck sales. And #4 the (necessary evil) service department.
Using that rational, why don't we see if the Gov't can set prices for dozers, excavators, etc. That way our customers will all know what their costs are.... ointhead
LOL, I was being sarcastic guys. Living in Louisiana and going through Katrina and now BP. The only good our government is good for, is taking our money and ummmm, nothing else comes to mind. Though we do have the best military in the world
I thought you were but couldn't resist the urge to be a smart ass.
i used to work for a guy that had a sliding scale of mark-up. I don't remember the exact numbers but for the cheap stuff that he paid like 5 or 10 dollars for, he would double the price to the customer. The more expensive the part, the less percent he marked it up. Like a $5000 part he would only mark up like $200 or so. like: $1-$50 cost = 100% mark up $50-$100 cost = 75% mark up like I said, I'm not sure of the numbers but that's the system he used...
I have a friend of mine who is now the sales manager for one of the larger equipment dealers tell me pretty much the same thing. Except New sales would be #4 and service #3 He said they price the new machines right to get them out the door since parts is where they make their money.
Setting a Shop Rate I know how you feel. You may wonder if you are hiring an attorney or a mechanic. (Not that one is better than the other) We work with our Heavy Equipment Owner clients on the issue of why they need to set a Shop Rate for work by their own maintenance and machine repair work. This is also what a dealer has to do. One ROUGH Internal Shop Rate estimate for a Heavy Equipment Owner is 2.5 times the fully burdened labor cost. (This is pay rate plus taxes, insurance and other payroll costs.) For example, $18.00 per hour plus a 25% Burden (could be 100% or more) = $22.50 an hour, times 2.5 = $56.25 Shop Rate Cost. A dealer could easily be more than this due to required technician education, special tooling (hundreds of thousands of dollars), higher labor and shop costs. I doubt this will make you feel any better but you should always compare apples to apples. If you are interested in learning what the 2.5 mark-up multiplier is for, send me a note.
Mr Rooks, I don't know about rates in Florida but loaded rates that I have seen in the Northwest are probably the highest in the country and I haven't seen anything over $45.00 per hour yet. That loaded rate includes industrial insurance, vacations, unemployment, sick pay, retirement and all the rest of the government requirements. The 25% markup is a lot more than the dealer shops charge in this area. By your tally that would make a $112.50 shop rate for a dealer. The Cat dealer in my area charges $99.00 per hour. All the other shops are a lot less. Almost all the dealerships are aiming for 100% absorption. Most come fairly close without the 25% over loaded rate. When I ran end user shops the tools over a $1,000 were capitalized and depreciated over seven years. The buildings went against the real estate and were written off that way. We included a few dollars in our loaded rate but it would never come to 25% to the owners. Basically all those costs are weighed in on the operating income of the machinery anyway. Running that kind of overage on an end user would put them out of the bidding for all of the contracts in my area. So maybe you should explain why someone should put on a 25% markup for internal work.
Hi John Thank you for taking the time to share your thoughts. Perhaps my writing was not as clear as it could have been. The 25% is NOT a mark-up. It represents whatever percentage that needs to be added to the employees pay to cover industrial insurance, vacations, unemployment, sick pay, retirement and all the rest of the government requirements. I have seen companies run from 22% to 110% for payroll burden or as you say Load. I did believe this burden could be 100% until the owner proved it to me. On the high end I am thinking about a heavy equipment operations in Boston, also in certain Canadian cities. This would be your base cost before all of the other cost related to a mechanic. The 2.5 multiplier is covers the other cost related to a mechanic. As I said this is ROUGH way to calculate these other costs. They need to be itemized and calculated. In some operations they could be less, in others, more. The real issue is: Are you getting to your True Cost for a mechanic? If you can equip a technician for $1,000.00 (as you may be able to) in shop tools, then that is what you use. I can assure you that many shops spend much, much more per technician. Hand Tools may be minor if the Technician supplies them himself. Dealers on the other hand are required to have very expensive unique tools and machines that a private shop may not need. Shop real estate and property tax needs to be charged to the shop overhead. It does not belong in the general overhead of the business because, If you rented machines or contracted for machines you would not have this expense. Some shops have a shop manager who no longer works with tools. His salary and his shop assistant who handles paperwork need to have their payroll and burden covered in every Billable hour worked. Also shop computer, Software, share of Accounting services and share of senior management time. A shop must be run like a separate business which it is. Billable hours of a tech may be as low as 1,000 hours to 1,600 per year, per full time tech. A tech may be on the job for 40 hours a week but seldom have 100% billable time. There is lot of time lost for vacation, winter or weather, cleaning, sorting, running for parts, study, recall, etc. We have not even covered service truck expense yet I like what you said about including all maintenance and repair cost into the cost per hour for a given machine. In the end an owner makes a decision about how to calculate his cost. Knowing cost may be more important than price. The question that needs to be asked is how many dollars do you want to pay someone for the fun of working for them. This is what happens if you price your machines at less than true cost to meet the local "market". You help establish the "market". Find ways to lower your cost as in LEAN principles (part of Toyota Production System). Be the low cost producer, not the cheapest in town, for your services.
I guess I'm still not sure where you are coming from. We have always figured loaded rate as all the associated employee costs divided by the actual working hours of the employee. Those costs include all the government add ins and fringe benefits up front. There was never any need to put added percentages on top of those costs in order to figure out what you needed to be charging for employee. If you are saying you would figure base wages times 25% you might have a ballpark figure. Generally though I have used known factors such as type of job, working hours, availability required, production and age of the equipment to figure my labor needs to keep a machine or a fleet of machines running. When I'm an end user I'm not making profit on my mechanic. I'm making profit on my operating machines. Once I know how much my iron is going to operate I generally can make a accurate estimate of how much maintenance and repair is going to be required and I can determine my labor costs by whatever strategy I need to fit the situation. That might be using only a vender or having my own personnel. When I was talking of the cost of tools being a thousand dollars I was saying that those costs are capitalized and depreciated over time, not that I could or would equip a mechanic for that. They are not direct costs to the machinery unless they are permanently installed on the machine. These items might be things like big floor jacks, porto-power sets, computers and software for troubleshooting and so on. If I am a dealer or for profit entity, those items are usually paid for in the first week they are used. As an end user those items are just expense against the bottom line. As far as real estate with shops and such, you cannot run any operation without some kind of shop and storage or warehouse facility. All the operations I have worked for as an end user roll those items into the general business ledger. I have run dealer shops and yes I would figure all those items the way you are suggesting simply because I charge my customers that way. In a dealer situation though the machine, or profit center, is now the mechanic. I suppose governments also work the same as a dealer because they are working on a charge out basis to other parts of an agency. I have found out though that building charge outs to other parts of the company actually hurts the bottom line efficiency of the shop or personnel. The mentality becomes the shop versus production on costs. I can see we are talking around the same thing but working from two completely different angles. In my world the costs of operating the business are determined from the potential amount of profit at some period of time. You are apparently working from the other end determining costs before the profits are known. The problem with working from your end is that once a bid is in, your maintenance and repair budget is determined for you and you have to work with what you have. That works fine when we are a dealer using mechanics as a profit center. The profit is only limited by the working hours of the mechanic and their not making mistakes that cost you money. If I am a coal mine or a construction company though my cost per ton, yard or hour determines the extent of my maintenance and repair budget. Thanks for the discussion!
Hi John C. Thank you for taking the time to comment of my post. You said "... all the associated employee costs divided by the actual working hours of the employee" How did you calculate the actual working hours? Is this man hours worked or actual "Billable Wrench Time"? I agree with you on many points. Perhaps you might want to start a new thread topic. "How do you calculate your mechanics cost?" Maybe we can get others on HEF to weigh in on this important topic.
It's been awhile since I've set up an end user maintenance plan so bear with me a bit. Figuring a 52 week year, an employee could possibly work straight time approximately 2,080 hours. In reality there is vacation time, holidays, possibly sick time, extraneous time off such as medical visits and personal time and so on. Basically that 2,080 hours becomes somewhere between 1,200 to 1,500 hours depending on the company. However you are still paying for the 52 week year or the 2,080 hours of work. Say you are paying a mechanic $50,000 a year, which comes to around $24.04 per hour. We would divide the lets say 1,500 hours by that dollar figure to get and actual cost per hour in wages for the mechanic. Now you come up to $33.33 dollars and hour. We then added the government costs and fringe benefits to that to give us base line loaded employee cost. If I were at a dealer I added profit on top of all that to figure my charge out rate. The wild card in all this is the amount of overtime you put on your employee. I've seen this played out a couple of different ways and it can be pretty complicated on how you sell your OT strategy to the owners. Most of the time OT is cheaper than hiring another employee with all the government costs and fringes. Other times the nature of the project determined how the issue was solved. As an end user running a fleet I tended to put employees on shift work instead using OT. Lots of OT wears down employees causing mistakes and accidents driving unplanned costs. All this is very fluid when you run a fleet of equipment. The trend in the industry over the last fifteen years is to computerize maintenance tracking and cost projection. Unfortunately the other side of that trend has been to use computer personnel and accountants to manage fleet repair instead of experienced and trained staff who actually have their hands on the iron. Thanks again for the conversation. Enjoy the rest of the labor day weekend.
Good post John. I like your analysis of dividing cost over actual "wrench time" as opposed to hours worked. Computerization of shop operations is a must if you have more than one technician, IMHO. The problem is that some owners stop there. I always recommend that to know Heavy Equipment cost, you cannot use raw accounting data. Caterpillar pioneered what is called today Dynamic (changing) Life Cycle Costing . Back when it was it was invented it was just called Owning and Operating cost. In a recent post on HEF I have more information on this. The difference between The CAT system and Historic Accounting records is that Accounting records do not reflect the fact that some of your biggest costs are coming. You cannot look at one year and say I made money. I am reminded of a large contractor who ask his shop foreman how much he was going to spend on tracks and final drives over the next 12 months. Tough assignment without Life Cycle costing. After two weeks work on this one project he came back and told his boss $300,000.00. The boss about came unglued. You cannot depend on accounting alone. As usual if someone wants to know more send me a private message.
Several people have commented on Watglen's original post regarding parts pricing. I do not want to defend dealer parts pricing or mark-up (they are capable of explaining their need for mark-up themselves). For just a minute suppose I told you that you had to stock 20 - 40 million dollars of parts as some CAT dealers do. What would it take YOU to cover your COST; of Ordering, unpacking and shelving incoming parts, entering stock into computer System, tracking and analyzing stock levels, turnover, obsolescence of parts, incoming freight, annual inventory, damage, parts returned in a box or pack with finger prints on it, Inventory Carrying Cost of Money, Inventory Shrinkage (who knows where it went but it is still in the computer), Hire one or more (20?) parts men or women to look up parts for your clients and mechanics, and put it all in a possibly nice warm or cool building? I do not know what this all cost but a lot of that 50% mark-up, just went away. Some private shops inventory commonly used parts, as they should. Even if they don't Stock many parts, ordering, running for parts, returning parts, damage to parts while installing them also costs money over the parts cost. P.S. WatGlen, I am not criticizing your feeling of surprise and shock at learning the mark-up on parts. I get surprised also at what it cost to stock parts. Any comments anyone?
i like the op but we all mark up our price so we can make the bucks
I'm in auto repair, most of the repair shops around me are hanging onto their business on a week to week basis.. We all charge a fair mark up and it's in line with what has been posted in this thread... we have to. It's that simple, if we charge more we plss off our customers, if we charge less we can't keep up with the overhead. The service industries are struggling in many areas.. A few owners get rich, most have to work into old age unless they saved enough retirement money and they are able to sell the business for what it should be worth. Recently a new car dealer that's been in business for over fifty years closed their doors and layed off all the workers. The owners have to watch everything and not get slopppy.. Tough times or good, it's expensive to run a repair shop. Wonder what will happen when the older mechanics retire.. There are few good younger people learning the skills to replace them.
I agree Irvin, Times are tough for many of us. It is interesting what the major car manufactures and some Heavy Equipment Mfgs. have done to help their dealers get good help. CAT has their ThinkBig program for training young people at community colleges and tech schools around the world. I have worked with TECSUP ThinkBig instructors in Lima, Peru. It is an impressive school. It is worth a look at http://www.cat.com/cda/layout?m=38370&x=7 Also John Deere has helped sponsor new technician training for years.