Time and Materials

Many painting contractors think that estimating by time and materials (T&M) insures a profit on every job. This view can be very misleading.

For example, a contractor agrees to perform a job on T&M at $35 an hour. He will likely think that this $35 is going to go straight into his pocket. But that $35 must also cover overhead and profit. If his overhead is typical (about 50% of the selling price) his actual net income is reduced to $17.50. And if he is aiming for a 10% profit, his income drops to $14 and hour.

Because of this, T&M can build a false sense of security. The contractor mistakenly believes that he can’t lose money. Working for $14 an hour is simply not worth the head aches, stress, and other issues that accompany owning a business. At that rate, the contractor would likely be better off working for someone else.

A further problem with T&M is that it can be a lazy way to estimate. Rather than learning how to accurately estimate a job, the contractor essentially becomes an hourly employee.

This is not to say that there is no place for T&M. There are situations where T&M may be appropriate and beneficial to all parties. But I think those situations are far more rare than most contractors believe.

© BEP Enterprises Incorporated 2008