Water Well Journal

things as much as possible—standard operating procedures." Kiltoff says Microsoft Excel and other low-budget meth- ods can be used for flat rate, but they do require a whole other level of maintenance. "QuickBooks can do it too with 'Group Items' and the like. I've heard good things about FieldEdge. Both of these solutions, ServiceTitan and FieldEdge, are really for larger companies—five to 10 people and bigger. I would suggest ServiceTitan is better at 20 to 25 people or larger companies. We're finding we're too small of a company to be able to use it effectively because it's so vast and compli- cated to work. We're just not able to run it at 100 percent of effectiveness." 5. Must Think of Everything Kiltoff says his company's purchase orders to vendors update the prices in the software while he's looking at the calculated labor rates about once a month to ensure it's still a good enough rate. "Then we throw on extra surcharges, just percentages of the job, on top like a cover your butt for warranty and 'Hey, we forgot this or that,'" he says. "That's the problem with flat rate is that you have to try to think of every- thing—all the parts you're going to use, and not every job is the same." 6. Getting Outbid for Jobs To account for every variable, Kiltoff's bids may include excessive parts due to not knowing what will be needed. This can lead to his bids being higher than others and thus being outbid for jobs. "That's the downside to it, it's geared to making more profit than higher volumes," he says. "But if you want to know what the charge is for a storage tank install, you take an iPad and you look up storage tank and there's the charge. It's up to date because I just bought float switches and float valves last week and those prices haven't moved, and you don't have to think too hard. Makes it easier to quote the work and we're running at great profit margins. "I see it as a tradeoff. I can do the job easier and at higher profit but not as many of them. "We're probably in the top 10 percent of the market pricewise, and I don't really care because the phone rings enough that we're constantly busy, which I think every decent water well contractor is in that same boat. If I'm constantly busy and get 20 to 30 percent more than ev- erybody else, I have to work that much less. It's kind of a self-feeding thing." A sidenote on bidding on work that one hasn't done before, Kiltoff recommends not bidding low to get it, but rather bid high until it's accepted. "Now you have enough money so you can learn how to do it and the next one you can bid it less," he says. "That's a foreign concept for a lot of people." Flat-Rate Pricing Example For someone interested in switching to billing flat rate, Kiltoff says establishing a cost for doing business on a daily and hourly rate is necessary: How much does it cost you to do business every hour or day your business is operating (regard- less of whether you're on a jobsite or not)? Typically, this re- quires that the business owner at least know their accounting system and job costs. They need to track hours for themselves and their employees, their inventory, etc. "For a simplified example, if I know it cost us $1 million last year to operate, less cost of goods sold, just expenses, and we had 20,000-man hours, I know it costs me roughly $50 per man-hour to operate, or about $446 per business-hour, assum- ing that the company is open 280 days a year from 8 a.m. to 4 p.m.," he says. "If I buy a pump and all the fittings for $750, and it takes me an hour to sell the job and do the paperwork, two hours or less to get to and from most of my job- sites, two hours to do the work, and an hour to clean up the mess from the work in the shop/truck, I'm six hours into this job. I know I need to cover the depreci- ation of my equipment, replacement on the equipment, and my annual expenses of $1 million. Now, we also have equipment expenses—service vans, hoists, drill rigs, etc. You need to factor in the operating costs, the depreciation loss, and the replace- ment costs, and put that into terms of costs per hour. Operating costs are handled as an expense, so we've covered that. Depreciation costs is the loss in the equipment from us owning it—meaning what it costs us to own the equipment over its useful life, or the purchase price minus the sales price when we dispose of it. For example, if we buy a pump hoist at $150,000 and sell it 10 years later at $25,000, it cost us $12,500 per year in depreciation to own that vehicle. I think when a lot of people look at depreciation, they are thinking about the tax losses, but that's not what we're talking about here. So, $12,500 divided by the busi- ness operating hours of 280 days a year for 8 hours a day, we're at $5.60 per hour to just own the truck. Now, we also need to replace it, so we must factor in the dreaded 'I' word—inflation—and calculate our replacement costs in, say, 10 years. If we assume 4% inflation for 10 years, we're at $222,000 to replace that truck. Take the sales price of our old truck out of that, and we must front $197,000 to buy the next one, which shows us we need to have $8.80 dollars per hour saved to buy the next truck in 10 years. So, our actual bud- geted 'cost' of ownership is $14.40 per business oper- ating hour (ownership costs + budgeted replacement costs). [If you finance the truck, you'll need to factor in finance fees and interest, then the payment for the current truck would come out of this budget, and you'd have enough money set aside at 10 years to pay cash for the next one.] So, $446 an hour in expenses plus $14.40 in truck 'ownership costs,' times six hours = $2762.40, times 120% for warranty and a reasonable profit margin = $3314.88 to install that pump. I can then take and use that as my flat-rate price moving forward. If we can get the job done close to that period of time, we're making money. If we can do it in less time, we make 22 n November 2022 WWJ waterwelljournal.com FLAT-RATE PRICING from page 21

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