% per job question

Good evening.

I have a question, not sure what it exactly falls under but the basic question is how should the money be distributed in a business.

For example you have one job for the day, a $1050 job. Takes two guys the day to do.

How should that $1050 get split?

What should be:

% for two techs
% for office person
% for taxes
% for profit

etc…

Is there a good book about this someone can recommend or a way some of you guys do it?

I think if I want to build a business I have to raise the prices and always have a certain percentage split between all these different aspects of the business.

First of… what are all the different aspects I should split and by how much?

You will probably get a lot of people telling you to read the book profit first. Which is a good suggestion I agree. I don’t necessarily implement the whole profit first system in my business but aspects of it can be applied. Honestly if you’re also just good with money I think that says a lot. But if you can keep your employee wages to 30 or 40% that’s typically enough to sustain a growing business. Some say the rule of thirds. A third for employees a third for the business a third for you.

At this point I keep things pretty simple. I pay my technicians commission and then I pay myself a monthly salary and the rest stays in the business. When my business account hits a certain number I take $10,000 out as a disbursement and put it into a savings account. The number I selected allows that I will always have enough in my business account to operate as well as make any purchases that might come up as well as emergencies such and fixing trucks or even buying a new one if there is a car crash. This is seem to do pretty good for me. I keep enough in my personal account as well as the business and my employees are happy with the money they make. So everything’s groovy

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Do it on a weekly basis. Take out all of your expenses, including estimated taxes, sales tax, winter money etc. From there, distribute to yourself.

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I pay 20% off the top to my son for 2 man jobs with me and 40% when he works solo. He also gets a 3% pension contribution, medical insurance, medevac insurance and unlimited vehicle usage. This is higher than the industry standard but his work is stellar and he also assists with other management tasks.
I kind of think my business manager tasks should pay around 8% of monthly gross but I have a lot of uncertainty about what is a reasonable range for that percentage. I get a modest monthly salary as a salaried employee of my S-corp. The last couple of years I have been spending $ on equipment and vehicle upgrades to minimize “voluntary” IRS contributions (:rage::rage::rage:).

Yeah that’s what I think.

40% goes to techs.

Between 30%-40%.

40% to an A technician.

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We do 40% for the truck. Meaning if one guy is working he gets 40% or if it’s 2 guys each get 20% and so forth. When I work in a crew I am still payed as a technician and it’s still divided up into how many people are on the truck(job).

If you have multiple day jobs where different guys are on this is what I do. Each tech keeps track of how many hours they were on the job. At the end we total all the man hours on the job and the 40% commission is divided by that number to get a per man hour rate. Then each tech is paid that rate for hours spent. Example:

$3000 job equals $1,200 for employee pay

Tech 1 did 5 hours
Tech 2 did 8 hours
Tech 3 did 2 hours
Total man hours are 15.

$1,200 divided by 15 equals 80 which is the per hour rate. So for that job the tech is paid:

Tech 1 did 5 hours = $400
Tech 2 did 8 hours = $640
Tech 3 did 2 hours = $160

This has worked for the past 6 years for me and keeps things simple. Yes it’s maybe more than others pay and by all means if 30% is good pay for your guys stick with that. I did 40% because I wanted to pay them well when I first started and I certainly can’t change it now. But employee retention is great so there something to that as well. Even in the slow season they stick around since they pay is good when we get going. Not having to find new guys every spring and train is with the extra money in my mind. Just my 2 cents on how we do things.

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Thanks for your informative response.

So I assume you used to be hourly, what made you switch to commission?

I assume the best benefit is employees don’t collect time, they probably like it more.

I’m most likely going to do the same.

40% goes to techs, how do you distribute the other 60% if you don’t mind me asking?

Agreed!

@Narcos

@Deanswc Is a really smart dude. Below are some introspective questions to consider (I generally find these helpful when someone else suggests questions for me to consider):

  • How much do your guys produce the company per hour in gross profit (after cost of goods sold)
  • What’s your cost of living compared to other areas around the nation?

Take this number and use it in comparison to your market. For example hypothetically;
California’s cost of living is

$80,000/year for California’s average wage for a blue collar worker
$50,000/year for national average wage for a blue collar worker

$80,000/$50,000 = 1.6x
Which means California’s average wage for a blue collar worker is 60% higher than the national average

@Kyle has good insight into what healthy profit margins are for a decently sized company

I’m sure everyone already knows this but it’s worth restating here for people new to business.

Net profit does NOT include wages paid to yourself, those are considered an expense to the company. Think of it like this. You have a storage business, and work 1 hour a month in it. you get paid $100/hr.

Income - expenses $900,000 (including $1,200 you get paid for the 12 hours of work you did in that 1 year period) = Net profit $98,800.

As my company has grown my net profit ironically has remained in a similar spot as previous years. I think @Bruce may have been the one who gave a word of wisdom years ago, “dissolve the bottom, build the top”. Meaning - if you scrap the work with the least benefit to you (lowest profit margins, takes the longest in time, energy resources equipment etc) I’ve heard (but don’t quote me) your net profit margins will shoot up 30% automatically. It’s the principle of the 80/20 rule or 90/10 rule.

Another principle I recently came across that will dramatically effect the percentages allocated to each category is the principle of 3 and 10. Every time something triples (like the number of employees on staff) or grows by multiples of 10 (developed by someone Tim Ferriss interviewed in Tools of Titans, but I forgot who). So each time something triples or grows by powers of 10 it has to be built from the ground up, causing the need for more resources, time, and ultimately finances, which lowers profit margins and creates more “chaff” in the business process.

That was all a shotgun blast of random thoughts I’ve been processing recently… I hope some of it’s helpful in some way to you.

Here’s how my budget looks:
30% gross revenue to employees (if 1 employee works the job by himself)
15% each if 2 guys are working the job, or hourly wages (efficiency goes down typically by 25% per person when 2 are working together)
7%-8% taxes & GL insurance on employees
15% ISH office wages
14% owners wages
5% auto expenses
.5%-2% Bonuses
15% marketing

Those are ROUGH numbers based on Revenues between $150,000-$300,000 currently with 4 employees, 2 techs, 1 office person, 1 sales person/operations (job fixer-upper if there’s a problem).

DM me if you want more help.

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I assume, correct me if I misread something, that you are still working in the field in your business or as the office manager. 14% owner on the 150-300k net is $21-42k.
I put myself in a salary. my first year I took 60%, 2nd year 42%, 3rd year 38%, and this year should be 32%. I want to grow until my owners take is the same salary I’ve had but only 15%. that should happen in the next 2.5 years.