Question about billing methods on professional custom build

Discussion in 'Fiberglass and Composite Boat Building' started by nickireson, Apr 10, 2017.

  1. nickireson
    Joined: Jan 2011
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    nickireson Junior Member

    Question for those who professionally build boats (this question also applies to REBUILD), on a built to order basis....How do you charge for the time/build?
    A very short background: I own a fiberglass shop, we produce boat parts and we do fiberglass repairs. We also do entire rebuilds on boats. All fiberglass, and mostly 17-30 foot high end fishing center consoles. Over the past few builds we have experimented with different ways of billing the customer, as far as tracking time vs. estimating time.
    We have built about 5 boats at this point under the current business configuration, and are really looking to dial in our cash flow process. For our current build, we are essentially working on only this one boat as an entire shop. No other jobs in. 3 man crew plus part time shop helper.
    Is there an industry standard to how boat builders bill for their time? Its hard to predict everything exactly, as we all know.
    So.. how do YOU bill time for working a one off boat? Is it expenses + profit margin paid on a weekly basis? Or build per hour in some type of cycle?
    Thanks in advance, Nick
     
  2. gonzo
    Joined: Aug 2002
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    gonzo Senior Member

    I've always worked on a contract with a fixed final price. Any changes or modifications are straight time plus materials. If you already built five boats, that should generate a reasonable baseline of your time and materials.
     
  3. nickireson
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    nickireson Junior Member

    Each boat has been a different size, different purpose, different finish requirements, etc etc. More than anything just wondering how others do it.
     
  4. gonzo
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    gonzo Senior Member

    Does this mean you have never kept records of how much time each job takes? That is the usual way to be able to estimate a job cost. It is hard to find a customer that will open a tab without knowing how much the price of the job is.
     
  5. TANSL
    Joined: Sep 2011
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    TANSL Senior Member

    The "time each job takes" is only part of what can be called labor on a budget. Also take into account the price/hour for direct labor and indirect labor, which is not as easy as pointing "time each job takes".
     
  6. gonzo
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    gonzo Senior Member

    If you know how much time the job takes, then you multiply by the labor rate. It is really easy.
     
  7. Sparky568
    Joined: Jan 2017
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    Sparky568 Junior Member

    The time and material with overhead and profit factored is only half the battle. As you brought up cash flow, what percentage do you ask for up front and how many billing cycles till the job is complete? Monthly or actual progress payments. I'm not sure there is an industry standard. Most builders in the NE will ask for 10% up front for a new build or major retrofit. In most cases that only gets you a spot in line up.

    However you figure that out a very clear and detailed contract should be written and agreed to. Including payments and schedule based on what keeps you in the black (to pay suppliers and workers) as well as interest (If any) on an unpaid sum. The last thing you want is for your parts business to support your rebuild end. That's is typically the kiss of death for any business.

    I come form the building contracting business. We use a "schedule of values" based billing system. We apply values to certain aspects of the particular project and bill based on the percentage complete or provided. For instance lighting packages are a large value of any sizable building project. If our cost for the light fixtures as a whole is $150,000 we will list it on the billing schedule for say $180,000. Fixtures have relatively short lead times (six to ten weeks) When they are delivered we pack them into as many storage containers as it takes on site and bill the total the current month. If accepted we will be $30,000 in the black. And so on and so on with as much upfront equipment and materials as we can get in short order. The industry calls this front loading.
     
  8. AusShipwright
    Joined: Aug 2016
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    AusShipwright Junior Member

    I would also be interested to understand more about this. Having done an apprenticeship in boat building, this is something that I feel comes with experience and everyone's costing methods will be different. Can you reference anything from your previous work? I would think quoting at an hourly rate for direct/indirect labour + materials with set target payments would help generate cash flow. Hopefully this would also break down the job into smaller targets and make your goals easier to achieve.
     
  9. waikikin
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    waikikin Senior Member

    Hi TANSL
    Seems a little petty to imply that reasoning.
    The labour is just one component, the only time I've included some material within a labour rate is on steel/mig welding where the consumable cost of wire & gas is negligible and covered by a good book out rate.
    All other line items should have a margin of profit and wastage applied, at days end insurances etc need to be allowed for and that is often applied at a percentage against turnover so that needs some fat.
    Generally a comfortable arrangement that covers the contingency of either the vessel owner or business finding financial troubles is best.
    I have at times worked in advance payment of a fortnight plus, in this scenario if the arrangements are correct the work always belongs to vessel owner & not subject to works in progress issues where I'm at. Arrangements for site cost is sometimes important if the owner runs short of funds that the floor space taken by the job be covered let alone access for that space for other works. The OP seems to work in the trailerable size range so not such an issue.
    At every stage the intention must be to make a profit, doesn't always work & there needs also a percentage put aside for warranty & rework. It galls me sometimes that on the fringes of business the passionate refrain "just for the love of it"... just doesn't pay the bills.
    Jeff
     
  10. TANSL
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    TANSL Senior Member

    Waikikin, then you agree with me that the final budget can never be equal to the total hours / man multiplied by the price/hour. In this case, which will always be a rare case, establishing the correct price/hour is not an easy task.
    In any case, what I wanted to make clear to the OP is that making a budget is not at all simple, as might come out of some minor comment.
     
  11. waikikin
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    waikikin Senior Member

    To a degree, of course in the very simplest scenario of say a journeyman that arrives and wields his tools with skill but the owner supplies the premises & material resources required for the job the man hour multiplication can be appropriate for him to walk away with the cash in pocket... as soon as this man gets his wife to prepare the billing and post the invoice then bank the proceeds and keeps the books of account for taxation etc the complication arrives where their time must be fairly accounted for & so forth with every level of complication that arrives in the natural progression.
    What appeared to be the case was yourself imply a low level of understanding for another person in an unfair way, it is very simple to arrive at a formula charge for a process with allowances for complication, a case in point might be teak overlay decking applied to the cockpit sole of a power vessel - reasonable estimates can be made for material at thickness applied with wastage, M2 & LM rates for adhesives and seam compound, adjustments for styles of margins & number of hatches and steps with application and finishing, the other costs are in time advertising, meeting & quoting & sales of the "product/service" but before long a generic range per meter square can apply similar to the carpet & vinyl industry, just more though in that case, painting of vessels can be similar in preparation, small repairs, sanding and application of coatings follow a pattern. The issues arise once premises and employees enter as the unavoidable fixed costs and down time etc. As you allude one the list gets long the rate must grow & many surprised to learn what they need to charge to make it a worthwhile endeavour. When in business I ran a diary of reasonable detail of the day, matched with invoicing very useful in reflection.

    Regards from Jeff.
     
  12. TANSL
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    TANSL Senior Member

    Of course, I agree, you can set scales. Many designers charge per meter in length, for example. The structure of the hull can be budgeted on the basis of some Euro/kg, and so many other things. But to get those rates, you need to have a lot of experience and do a lot of calculations. You can know the price at which your steel supplier sells, but knowing the total amount of steel you need to order requires a lot of knowledge of your design and production resources, materials and human.
    On the other hand, it is necessary to distinguish between the total cost of the ship and the selling price.
     

  13. rxcomposite
    Joined: Jan 2005
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    rxcomposite Senior Member

    First, you have to establish your labor hourly rate and it is not just the cost of the wages you pay per hour. You have to sum up the wages, the benefits, health and insurance cost, leaves if any, transportation, accomodation, and all the cost associated with labor. Then average it. You will be surprised at what comes out after averaging. Might seem petty but the 8 hours you pay for the labor is actually 7 1/2 hours actual work only if you factor the mandatory coffee breaks. When bidding, it is usually scrutinized as you are not allowed to make profit on labor. You just need to cover all bases.

    Second, if there is a requirement for engineering or specialized skill. You have to add that to the cost.

    Third, you have to amortize the cost of handtools that you will use for the project. Handtools do not last more than a year, even with minor repair. If you have to bring in heavy equipments, add the hourly operating cost and transportation cost.

    For the materials, you need to canvass the least cost landed. Most make a mistake of not adding the shipping cost if materials are not locally available. The least mark up for the materials is 5% with some going up to 20%. You can mark up OEM parts (like engines) for only a small percentage since there is no cost for you to build it. 10 to 12% will cover the cost of money otherwise the owner will just buy it themselves and ask you to install it. The perks is in the discount given to you as a boatbuilder. As much as 30% off that a regular walk in customer will not be given.

    Sum all material and labor and add 10% for the fudge factor or cost exigencies. Add your profit which can be 35% of the Labor and Material cost for big projects, and up to 100% for small time jobs. Deduct the taxes you have to pay to know your net profit.

    Now for the downpayment. 20-25% down is standard, balance paid over time of duration of project. 10% is usually withheld before final acceptance so you can collect only up to 90% of the project until it is fully accepted.

    On big projects, downpayment is by the cost of the initial materials delivered on site plus advances on labor. That way, you are covered and you don't have to fork money for the initial layout. If you are short on finances to cover you project, you can borrow money but you have to add the interest to the project cost. That is called "cost of money".
     
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