I know if I was an employee and found out that the work I paid for the customer was being charged 3 or 4 times that I would find that dishearting at best. My local mechanic pays his people between 50% and 60% of the labor cost of the repairs they do and they make very good money at it. Just my 2 cents YMMV. Also just curious about your employee turnover rate?
I began my very young career as an Accountant working for a big 8 Accounting firm. The national average for service industry is about 18-20%. If your lawyer charges you $140 per hour, then he cannot be paying his assistant laywers more than $35 per hour, if they bill $80 for paralegals then they cannot make more than $20 per hour. If you check into this, maybe go to the liabrary research section and look it up, I think you will see that I am not just blabbering about something I no knowing about.
BTW- auto industry states that total payroll and commmisions to salesman must be about 18% for a healthy run distributor or dealership. Also if you read my P&L's for resturants if they are fast service the payroll target it 20%. So you will see this figure come up over and over again across many industries.
Here is the deal..... The business has to pay for advertising say 10%, rent say 10%, utilities 3%, tools, furnature, signage, lighting, insurance, vehicals, manager salary all before the technical employees......all before the first dollar walks into my or calls me.
If I take a number of calls each month and divide them by my total overhead it comes out to about 50% or tiny bit less like 45%. So If I take a call that I wanted to get help with and give 50% of it away then I don't make any money at all. 3-5% is no real margin that will keep you in business. So look at it like this, the house keeps half for expenses and then how you split the other half between yourself and your help/contractors is between you and them. I feel that I should keep half or more. So that leaves 20-25% to give to someone else.
I'd say your mechanic is in trouble unless the people he is paying are family.
For many years when an SBA loan became delinquent the SBA or SBDC would call me and ask me to consult that client to help him become profitable and catch up on his SBA loan payments. The SBA paid my fees. So I have had a wide range of experiences that I am hoping to share with you. However anyone who wants to be more generous do so at your own peril.
This is why you have seen me say a dozen times on this forum that a new business is much more likely to underprice himself out of the market than over charge. Case in point Pizza techs. They think if they charge $45 because they work from home and have no expenses they can kill all the established businesses and grow bigger. Truth is $45 per client is not enough to stay in business.
My employee turn over seems to be that I have average keeping a decent tech for about 9 months. A bad tech I go through in a few weeks. I have kept my managers for 2, 3 and 5 years (who began as techs). Over paying bad employees doesn't help you lower your turn over rate much.
Since you brought it up, you have to find employees who are motivated by the work and the industry. Trying to find and keep people who are money motivated will end up training your competitors and then they will go out and compete with you as they are in it for the money as much or more than for the non intrisic joy of doing a good job working with people to find and solve their technology problems. Pay and how good an employee are or how long you keep them do not corolate in a positive fashion. I know this is counter intuitive but I suggest anyone dealing with employees buy and read some Human Resource books as you are getting a bit off the deep end without a lifevest. You cannot afford to waste the resources that you get. There are great hero stories of overpaying your employees and growing and BS,BS,BS,BS. No evidence just urban myths.
It is true that you can can pay someone a slightly lower wage in exchange for a big title, or company car, or some benefit, or for some profit sharing bonus plan.
The amount you or I or anyone pays their techs is more directly related to the size of our company. A company with $150k annual sales cannot afford to pay more than $x.xx, and a company with $250k can afford a bit more, and a $1/2 mil can afford more.....Up intil you are hiring 30,000 emloyees. Those guys might get $20 per hour, health beni's, well not no more they don't. So be realistic, there are no more santa clauses out there.
From the employee standpoint.....It really doesn't matter how much he/she will take to work, there is someone in line who will do it for $10-12 per hour.
