At one of my recent seminars, a young contractor asked me if it was possible to make a good living as a one-truck operator; “I don’t want the headaches of being an employer,” he said. “But I want to operate professionally and generate a respectable salary for myself and one other employee – just like a doctor or a lawyer.”
There is no question in my mind that you can enjoy a wonderful standard of living as a one-truck operation, as long as you adhere to sound business principles. In order to do so, you must dispel the myth that it costs significantly less to run a one-man shop than it does a multi-truck operation.
True, your costs of doing business are going to be much lower in total dollars. However, the one-truck operator is severely limited in the amount of time he can spend turning wrenches in the field to recoup those dollars – i.e., “productive labor.” This limiting factor means the cost per productive hour of a one-man shop usually is equal to or higher than that of larger contractors.
The $80,000 Question: For instance, the fellow at the seminar stated he needs to earn $80,000 per year to feel that he is well compensated for all the risk involved in running a PHC service business. I think it takes more, but I always ask my students what they need to feel comfortable, so we will allow him to set his own comfort level. This $80,000 must also cover health and life insurance, vacations and sick days, a retirement account and other normal benefits enjoy by most people in the working world outside of our industry.
He stated that he has been working 3,000 hours per year performing all the tasks necessary to keep his business running – purchasing and receiving, preparing bids, truck maintenance, paying bills, collecting taxes, shop clean-up, telephone calls – whew! – in addition to time spent working in customer homes. It averages out to 50 60-hour work weeks a year. Anyone who has worked for himself or herself – as I did in my youth – knows this is no exaggeration. It’s what it takes to get a business off the ground and sustain it.
Divide $80,000 by 3,000 hours and you get $26.66 gross wages per hour, benefits included.
Pause to Reflect: Hmmm. Before we continue, ask yourself if there might not be other jobs available where you could make an equivalent amount in wages and fringes with fewer headaches and no risk of capital. Ask yourself if there might not be jobs available at comparable compensation that take closer to the normal 2,000 hours per year of work to perform. Ask yourself how much is worth all that extra time spent away from your family.
Worse, I know from talking to thousands of contractors that $80,000 is two to three times more than most of them have ever made in a single year. I recently spoke with a plumbing contractor whose wife keeps the books and handles the phones, a typical industry arrangement. Last year they filed a joint income tax return listing $20,000 in income – combined. Over the years I’ve encountered some who make even less.
I commonly find owners who top out at around $30,000 a year – in a good year. By and large these people earning 20-30 G’s work no fewer hours and no less hard than those who make upwards of $100,000. It’s not how hard you work that counts, but how smart you work, and how much you charge.
Divide the common owner’s compensation of $30,000 by 3,000 hours of work, and you get $10 an hour. Heck, a security guard at Wal-Mart can earn more than that.
Or consider that unskilled assembly line workers in a GM or Ford auto plant can earn around $44.50 an hour, including fringe benefits. This projects to $89,000 a year for a 2,000-hour year. Suppose one were fortunate enough to rack up 1,000 hours in overtime during a year – at a premium pay. That person would surely tickle $100,000 a year in income alone, aside from fringes. This is for people who work no harder, and require a lot less training than the average PHC contractor or tradesman.
Billable Hours: Now can you see why I support contractors making a six-figure annual compensation? Never mind matching what doctors or lawyers earn, if they’d just be compensated equal to UAW auto workers the industry would be in much healthier shape that it is!
Now let’s take those 3,000 hours of work and ask how many of them represent actual field labor that can be billed, i.e., “billable hours.” Most one-person operators can bill no more than half, or 1,500 hours in a year. A few can squeeze as many as 2,000 billable hours of work out of a year. However, keep in mind that as the years go by the hands on the clock start spinning faster. In your 20s you might get away with 2,000 hours of wrench-turning year after year. But it catches up to you.
By the time you hit the 40s and 50s and beyond, those 2,000 billable hours get closer to 1,000 hours before physical fatigue overwhelms you. If you wish to produce an income of $80,000 on 2,000 billable hours, it comes out to $40 an hour that you must build into your selling price just to cover owner’s income, or $80 an hour when you get older and slow down, or somewhere in between at the number of hours most contractors can bill while still working with the tools. Remember, you still have to cover all of the non-productive time you spend as a slave to the business as well as utility bills, truck and tool expense and all other components of overhead.
The Big Question: So back to the main question, is it possible to remain a one-man operator and still earn a decent living? Yes, but only if you have selling prices that build in that reasonable owner compensation rate ranging between $40 to $80 an hour – plus cover all the overhead needed to run a legitimate PHC business in an era when government requires so much of us.
Will someone please show me how that can be done at the “going rate” of $55-65 an hour that prevails for service labor in our industry? At those prices, something has to give. Usually it is the quality of life of the owner and service technicians. This is why I hear so many people in our industry, upon reaching middle age and beyond, look back on their lives with so much regret.
Why did I work so hard? Why don’t I have anything to show for it? How could have I been too busy working to watch my kids grow up? It’s so sad, yet all so common.
I asked another recent seminar attendee how things were going, and he replied that he has more work than he can handle, yet he’s on the verge of going bankrupt. Turns out he charges $28 an hour for his labor.
Most young contractors worry too much about getting work. Rest assured that you will never have any problem getting work if you price yourself low enough. But is that the point of being in business? Just to work? If that’s all that motivates you, I can point you to plenty of worthy charitable organizations that could use a good plumber willing to work for free or close to it.
But it seems to me that one goes into business not just to work, but to earn enough money to support a decent standard of living. Keep that in mind, and you’ll do fine as a one-truck company.