$50 per hour.
That was an easy question to answer. Or was it? The reality is that $50 per hour is only a benchmark and it is a benchmark after expenses. How much a dealer can make depends on each dealer. What do they do differently? How long have they been in business? What is their skill set? How motivated are they? How fast can they install? How many mistakes do they make? Should we be talking about how much a dealer can make per hour or per job or per year? So many questions!
To give you a bit of an idea of the process, one way is to look at a typical day and a couple of jobs and run through the numbers. A typical day for a sole trader security screen dealer will include tasks like dealing with customer enquiries, travelling to job sites, arranging and completing measures, orders and installations as well as invoicing and other paperwork. Each of these tasks takes time and has a cost that must be passed through to their customer. If we simplify it as much as possible, these costs can be divided into those costs that can be directly attributed to each job, and other costs that can be factored into each job depending on time. Without boring you too much with accounting terms like fixed and variable costs, let’s look at the main cost factors a security screen and door sole trader dealer is likely to see.
Leads are new customer enquiries. In this context lead costs will include any marketing and the whole process, money and time spent gaining new leads that results in sales. In Australia, dealers use social media, their own website, referral marketing and word of mouth. Word of mouth is essentially called doing a good job. Getting known amongst your community is one of the best ways to get work and lower your lead costs but it can take a long time to gain a “good” reputation. But work on this. Doing a good job is supremely satisfying while reducing your lead costs. Perfect.
The most popular way for consumers to find security screen and door dealers is to search Google. Ahhh good ole’ Google. If we thought Yellow Pages was expensive, Google made Yellow Pages look like a rank amateur. The amount of money Google rakes in just to allow one of our dealers to be seen and found on Google is staggering.
How staggering? Google Adwords will stiff you big time. How does $1 or even up to $10 every time your potential client clicks on your Google search advert sound? And that is not to get a sale, or even a new lead! That is just to get the Google searcher (your potential client) to click on your Google search result advert and be taken to your website.
How much can you spend to get an actual sale from Google Ads? $100, $200, $1000? There is a whole industry and multiple online tools that dealers can use to work this out. But do dealers have time for this? No way. There are lead generation agencies that dealers can use and we will look at Hi-Pages – one of the more popular ones in Australia – in order to nail down what typical lead costs can be.
A general rule of thumb is that lead marketing should be no more than 8% of a sale. The average job in our industry is about $2,000. We will look at the numbers for different value jobs but on a $2000 job the lead cost can’t cost more than $160. But Hi-Pages leads only cost $20 each we hear you say – not $160.
Hi Pages leads go to three different businesses. Law of averages says you will win one out of every 3 quotes you send out. That’s only $60, right? Wrong! As a dealer your time is worth at least $50 per hour. The other two quotes you went to and quoted that you didn’t win cost you at least 1hr each. $50 x 2 = $100. Now you are at $100 + $60 = $160 to win that $2000 sale. That’s more realistic.
Lead costs are very real my friend. If you aren’t factoring them in properly your business will fail.
Business Running Costs:
Next up you have the costs associated with running a business. This is what an accountant would refer to as your fixed costs. They include things like your premises, vehicle, admin, tools & equipment, fuel etc. Is it possible to break down these fixed costs into an hourly rate? Yes. Think about these costs and how much you would expect to spend on them per year.
|Other expenses||$ 3,000|
$45,000 per year. If we try to break that down to an hourly rate per sale, we need to know how many sales a dealer can make per week. We were looking at a sale of $2000. In order to know how many $2000 sales a dealer can make per week we need to know how long it is going to take a dealer to gain, measure, order, order and complete (get paid) that $2000 sale.
Given our experience it is realistic to surmise that a dealer can install an “average” $2000 job in 6 hrs. Not a hard job or an easy job – an average job. A really hard $2000 job might take 2 days to install. A super easy $2000 job might only take 2 hrs to install. But after decades installing we can calculate how much a sole trader screen dealer can install per year.
We believe a dealer should be able to sell, measure and install one $2000 job per day. That’s $10,000 per week or about $500,000 per year. But this is if they are good. Really good. Let’s factor in some extra time when a dealer is not going to be totally flat out – like over winter for instance or if they take any holidays. Let’s reduce that turnover by 20% to $400,000 per year. That’s more realistic for a very busy and productive dealer who sells and installs mostly “average” jobs.
$50 per hour is $100,000pa. Marketing or lead expenses on $400,000 in sales is going to be about $30,000 – as we explained already. Adding our $45,000 per year in expenses to that means a dealer needs to make a profit per year of $175,000. If a dealer’s total sales per year are $400,000 then their screens, doors and material costs cannot be more than $225,000. In accounting terms this is called COGS – Cost of Goods Sold. The profit margin per “average” sale is:
((400,000/225,000)-1)*100 = 77.8%.
We have factored into this that a dealer is only going to be productive 80% of the time. A week is about 40hrs. 80% of that is 32hrs per week or about 1600 hrs per year. We know a dealer needs to profit $175,000 per year. So their hourly rate they need to factor into each job is $175,000 divided by 1600. $109.38 per hour (rounded up to $110 per hour) is the hourly rate that you should be basing your services on.
Now we have this number it becomes far easier for a dealer to think about how long a job is going to take them, how much a job is going to cost them, and use that to work out their selling price.
Example: A dealer thinks a job is going to take them 8 hrs to measure, order and install. They need to add $880 to the cost of their screens and doors. When they use Starline Security for their screens and doors they will know exactly how much their screens and doors are going to cost them. Work out the installation time, multiply that by $110 and then add that to our cost and you have your selling price. Simple.
Back to the numbers. If this makes your eyes glaze over, get over it. This is important stuff.
We know that our “average” job was $2000. We also worked out that our average profit margin needed was 77.8%. COGS (cost of your screens and doors) on a $2000 job calculated this way is $1125. If you add $880 to $1125 you get $2005. That’s pretty close for a quick way for a dealer to work out their selling price.
But what if I’m a highly skilled and fast dealer and I think I can get that $1125 COGS screen job done in only 4hrs? Then you can sell that job for $1125 plus $440 and beat your competition. Or if you think it is going to take you 16 hrs to measure, order and install $1125 worth of screens you will have to try and sell this job for $1125 + $1760. Or you can earn less.
This is why there is a lot of price variability and why some jobs seem to cost more than others for the same product. Or why some dealers’ prices are different than others and why a price estimate from a dealer can and does change after they complete their site inspection.
More expensive does not necessarily equate to better. A better, more highly skilled dealer is often is cheaper than a newer dealer for the same product because they can measure and install it a lot faster. This is why Starline Security vetts all dealers and why we restrict who we recommend and pass our consumer leads to. If you are a security screen dealer and want our leads, contact us.
If you are a consumer reading this article you can rest assured that any Starline Security dealer your enquiry is passed to knows what they are doing and can complete your installation in a professional and timely manner at a competitive price.
Get in Touch:
Head to the Starline Security online portal to learn more about becoming a security screens and doors dealer today.