Profit margin

Tom-D

Tom-D

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Tom-D
When an A&P does your engine overhaul, how much money should they make?
I know. this is vague, but how much money would you pay any good A&P to do your overhaul.
that's to, remove, disassemble, clean and send all the repairable out to machine shops, then reassemble, reinstall, and return to service?

simple question, what do you think is fare
 
Parts + 20%
Outside work + 10%
Shipping costs + 0%
Labor
additional 2% on all of the above to cover shop consumables.

Not sure how much your profit margin is on your hours. You'll have to amortize all your expenses for the year against your hours billed.
 
not certain what "outside work" is
 
EdFred said:
P You'll have to amortize all your expenses for the year against your hours billed.
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This is not a shop rate over the year, this is for 1 engine completed between you and your customer.
 
Tom-D said:
not certain what "outside work" is
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Anything that is subcontracted out. i.e. done "outside" your shop.
You have to have a baseline for what you charge per hour for labor. How do you determine that? You can't (well, I suppose you could) just charge random hourly rates.

"Well, this is a Continental, and it's raining, so that's going to be $175/hr. Oh, but it's also Tuesday, so that's an extra $14/hr. Now if it was a Lycoming and Wednesday, it would only be $55/hr."

Labor rate should be labor rate regardless of what's being done. You must have some guideline for that.

Whether the A&P is doing an OH, an aileron rigging, stripping and painting, or something that requires fabrication and a 337, that number should always be the same per hour.
 
I believe it is better to charge a flat rate for the job.
charge a fair rate to start with, and forget the nit-picking.
Then all extra expenses are on the owners CC.
 
I gave mine about $3000, but I did all the research, the vast majority of the labor, and all the sourcing of parts. He just validated my research, gave me helpful tips, helped me past the difficult steps, and watched that I did the work correctly.

We both think it was a good deal. And that simple sentence is the only real answer to your question.

Labor might have cost me less if I’d had him do it himself, but parts would have been more, and I wouldn’t have the extremely thorough knowledge of everything in front of the firewall that I do now.
 
Tom-D said:
simple question, what do you think is fare
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Since you want a single answer, regardless how you charge anything less than 15% net profit on the job would be considered a paid hobby. 18%-20% net being ideal.
Tom-D said:
I believe it is better to charge a flat rate for the job. charge a fair rate to start with, and forget the nit-picking. Then all extra expenses are on the owners CC.
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Agree on flat rate, provided the "extra expenses" are not part of the actual job requirement. But whether the flat rate is based on hours or days will depend on the job. I was told many moons ago that if you are in control of how your time is spent charge a day rate. But if someone else is in control of your time charge an hourly rate.
 
Tom-D said:
I believe it is better to charge a flat rate for the job.
charge a fair rate to start with, and forget the nit-picking.
Then all extra expenses are on the owners CC.
Click to expand...

You can do that when the only payroll you have to meet is you.
 
Tom-D said:
Wouldn't that be the case when you hired your A&P to do the job?
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You misunderstand. If you had employees to pay rather than just yourself.

As a CFI I can quote you $$$ flat rate for training. If you are a slower student I make less per hour. If I pay another CFI I could lose money.
 
Tom-D said:
I believe it is better to charge a flat rate for the job.
charge a fair rate to start with, and forget the nit-picking.
Then all extra expenses are on the owners CC.
Click to expand...

That's what I would want. I wouldn't agree to 'time and materials' unless i was hanging around watching you.
 
How are you defining margin? After variable costs? Fixed costs? How are you allocating those fixed costs a project?
 
How many hours would it take a average A&P to accomplish all of this? Say for C-172?

That would be my baseline, am I expecting to make $5/hr or $50/hr or somewhere in between?

Brian
 
Tom-D said:
... how much money should they make? ...
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Kind of an odd question, really. There is no "should." There is only the marketplace.

The price will be one that is acceptable to the buyer and to the seller, otherwise there will not be a transaction. On the buyer side are considerations of competitive prices, degree to which the buyer wants to to do business with this seller, the amount of money the buyer can afford to spend, and many other tradeoffs. On the seller side are considerations of out-of-pocket costs, estimated hours of labor to be spent, other customers/other alternative uses of the seller's time, the likely degree of risk dealing with this particular buyer, the likelihood that the seller will be able to pay for any bad surprises, the buyer's desire for warranty, and many other tradeoffs.

Really, it is the same as buying a steak at the grocery store. Do you try to figure out how much the store, the packing house, and the farmer "should" make and make your buying decision based on that? I doubt it. Do you think things would work very will if you tried?

I am not an A&P but have managed many businesses. If a potential buyer came at me telling me how much I "should" make on a prospective deal I would mentally mark him down as likely high-maintenance, and my interest in doing business with him would be diminished or reduced to zero.
 
What is your life worth?

Nitpicking the cost of arguably the most important component of your aircraft is insane.
The better question would be the experience level of the mechanic, and hands on experience with make and model.
If they are a Guru, break out the checkbook!
I always ask what the profit margin is that the questioning customer charges, and do they hold the safety of human lives in their hands while their work is trusted.
 
Certainly, if you've done a half-dozen or more of the same type of job, quote a flat rate.
When quoting software jobs we won many bid because we'd say "We'll do the entire job [with a list of criteria] for $350K", which the money people really liked.
 
brcase said:
How many hours would it take a average A&P to accomplish all of this? Say for C-172? Brian
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That really depends upon how much of the job you want them to do.
Is the A&P expected to remove and re-instal the engine?
are you bringing the engine to them?
the actual disassembly only requires a day, sorting the repairable stuff from the trash, is done as you go. packing and shipping usually takes me a day.
ordering replacement parts a day also.
unpacking and inspection of the new parts and the returning repairable s 4-5 hours.
painting the parts that get painted, a day
building the crank assembly, checking all oil clearances, etc. a day
closing the case, and installing the cylinders, and accessory case plus timing, another day
 
Tom-D said:
When an A&P does your engine overhaul, how much money should they make?
I know. this is vague, but how much money would you pay any good A&P to do your overhaul.
that's to, remove, disassemble, clean and send all the repairable out to machine shops, then reassemble, reinstall, and return to service?

simple question, what do you think is fare
Click to expand...
I can only respond from what little engine work I've done in the last 60 years ... I like avionics work because I don't get nearly as greasy.

Remove - 3 hours
Disassemble - 5 hours
Clean - 2 hours
Send/ship/pack/unpack - 8 hours
Reassemble - 5 hours
Reinstall - 4 hours
RTS & Paperwork - 2 hours

Call it 30 hours plus a 20% pad for unexpecteds, call it 36 hours times your shop rate of, oh, $100 - $150 an hour. Call it $3600 to $5400 PLUS actual costs of parts and outsourced machining.

No, I don't add on anything to actual parts costs because I did absolutely nothing to add value to the part other than ordering it.

Just my SEWAG on what I remember. Which at my advanced age ain't all that much. Memory is the SECOND thing to go (can't remember what was first).

Jim
 
7% over his cost of service. But that would require him to know his costs, including allocated overhead. No markup on parts because it would be double dipping to charge a markup for the parts and charge time to handle them.

Why 7%? Because that is universally agreed to be the reasonable profit margin for a business.

Of course, if your costs are too high, I will choose someone else in the future.
 
$2,500-$3,000 for a 4-cyl.
$3,000-$3,500 for a six cyl. Seems fair.

I'm still living in the '80s, so I might be off a bit.
 
7% is too high. At the end of the year overall profit margin should be under 1% if you do things right.
 
weirdjim said:
I can only respond from what little engine work I've done in the last 60 years ... I like avionics work because I don't get nearly as greasy.

Remove - 3 hours
Disassemble - 5 hours
Clean - 2 hours
Send/ship/pack/unpack - 8 hours
Reassemble - 5 hours
Reinstall - 4 hours
RTS & Paperwork - 2 hours

Call it 30 hours plus a 20% pad for unexpecteds, call it 36 hours times your shop rate of, oh, $100 - $150 an hour. Call it $3600 to $5400 PLUS actual costs of parts and outsourced machining.

No, I don't add on anything to actual parts costs because I did absolutely nothing to add value to the part other than ordering it.

Just my SEWAG on what I remember. Which at my advanced age ain't all that much. Memory is the SECOND thing to go (can't remember what was first).

Jim
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I was thinking around 3,500 in labor plus parts and shipping/crating charges of course.
 
airdale said:
Really? On what planet?
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Earth. If you only came out with 1% each year, the owners will be looking for new management.

7% is the long term average number that investors expect in order to make their investment worthwhile. If you're making less, they're looking at firing the management. It varies by industry, I just threw out the average number.

How much do you want your business to expand? If you don't want it to expand at all, pay yourself and then make a 0% profit.
 
It all depends on how much you want to make and how much your time is worth. Some people work for free but don't realize it. Some finance their customers then go bankrupt, they don't realize it either. Some of the numbers I've heard here would not work for me, I'd just go get a job.
 
IK04 said:
$2,500-$3,000 for a 4-cyl.
$3,000-$3,500 for a six cyl. Seems fair.

I'm still living in the '80s, so I might be off a bit.
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A real answer. WoW!
 
bflynn said:
Earth. ... 7% is the long term average number that investors expect in order to make their investment worthwhile. ...
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Sorry, not on this earth. Where do you get these goofy ideas? I spent a career in management and executive management, am now retired and teaching a course on investing. I have heard many silly things in my lifetime, so I cannot say that this idea is the silliest, but it is right up there.

Giving you the benefit of the doubt, 7% is a number that many use as a planning number for Total Return in equity (stock) investments. (I use 6% personally.) But total return numbers are only very loosely related to net profits, as any Amazon investor will tell you. So maybe you are conflating investment Total Return with enterprise net profits? Of course neither is very relevant to the vast majority of small engine shops and FBO maintenance shops.
 
Tom-D said:
When an A&P does your engine overhaul, how much money should they make?
I know. this is vague, but how much money would you pay any good A&P to do your overhaul.
that's to, remove, disassemble, clean and send all the repairable out to machine shops, then reassemble, reinstall, and return to service?

simple question, what do you think is fare
Click to expand...

Profit? In aviation?

Ha.

Auto shops make far more profit than aircraft shops. Recreational vehicle shops make lots, too. Department stores make gobs of it. In aviation, stuff is terribly expensive, and the work to do anything well enough to make it safe takes plenty of time, the owners get all annoyed at the costs and so the shops cut their profits to the bone. Then they go bust when they can't get mechanics because they can't pay them nearly as much as an auto or truck mechanic gets. After a while there's nobody to fix airplanes anymore.
 
Dan Thomas said:
Profit? In aviation?

Ha.

Auto shops make far more profit than aircraft shops. Recreational vehicle shops make lots, too. Department stores make gobs of it. In aviation, stuff is terribly expensive, and the work to do anything well enough to make it safe takes plenty of time, the owners get all annoyed at the costs and so the shops cut their profits to the bone. Then they go bust when they can't get mechanics because they can't pay them nearly as much as an auto or truck mechanic gets. After a while there's nobody to fix airplanes anymore.
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Don't care what they make.
What do you charge for just the labor to rebuild an engine off one of your customers aircraft?
Every thing else will be on your customer's CC
 
Grum.Man said:
I was thinking around 3,500 in labor plus parts and shipping/crating charges of course.
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Many places have free pickup and delivery if within a reasonable distance, like a 100 miles.

Mine was twice that.
Additional stuff I requested:
New alternator
New engine mounts
New control cables
Pulled the prop and governor and sent out to be overhauled
Repair/replaced the baffling




Tom
 
airdale said:
Sorry, not on this earth. Where do you get these goofy ideas? I spent a career in management and executive management, am now retired and teaching a course on investing. I have heard many silly things in my lifetime, so I cannot say that this idea is the silliest, but it is right up there.
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Honestly - from a financial management professor from Harvard.

It came from a market study that examined the average rate of return over the past X years. This was 10 years ago, but the rate stuck with me because we calculated over weighting market sectors with it, which sectors are beating the average and if/how much they should be over weighted.

It's probably not applicable to single man mechanic shops who should pay themselves what they consider a fair wage and then shoot for a 0% profit after reinvestment for the business and raise prices annually to match inflation. However, if there's an investor or owner, a 1% profit should be considered a pathetic loss on his investment.
 
Tom-D said:
Don't care what they make.
What do you charge for just the labor to rebuild an engine off one of your customers aircraft?
Every thing else will be on your customer's CC
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That is NOT what you asked in the first post. You never said just the labor.
 
bflynn said:
Honestly - from a financial management professor from Harvard.

It came from a market study that examined the average rate of return over the past X years. This was 10 years ago, but the rate stuck with me because we calculated over weighting market sectors with it, which sectors are beating the average and if/how much they should be over weighted.

It's probably not applicable to single man mechanic shops who should pay themselves what they consider a fair wage and then shoot for a 0% profit after reinvestment for the business and raise prices annually to match inflation. However, if there's an investor or owner, a 1% profit should be considered a pathetic loss on his investment.
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I give up. You have some buzz words but your understanding of the concepts is hopelessly confused and shows a complete lack of experience in the real business world. Have a nice day.
 
EdFred said:
That is NOT what you asked in the first post. You never said just the labor.
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Working with an independent A&P, what else would you pay them for?
I thought that was abundantly clear.

"When an A&P does your engine overhaul, how much money should they make?"

Pretty dam clear to me
 
airdale said:
I give up. You have some buzz words but your understanding of the concepts is hopelessly confused and shows a complete lack of experience in the real business world. Have a nice day.
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Thank you very much. I'm trying to have a good day.

And please forgive my rudeness, but I'm going to stick with the harvard professor over what SAOTI has to say.
 
bflynn said:
Why 7%? Because that is universally agreed to be the reasonable profit margin for a business.
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Net profit is very subjective to the industry. But when you talk "investors" then that is an entirely different level than your average small business. 7% would be on the extreme low end for a service based small business. Depending on industry the average SBs run at 13%-18% net profit with food businesses lower around 3%-4%. Most retailers don't track net profit as much as gross profit. For my small aviation maintenance business I shot for a 18% net profit across the board which put me slightly above the average small service business per the SBA. I wouldn't take on a job that provided less than 15% net. As I mentioned above, many years ago I was told by several successful airplane clients that anything less than 15% net profit would be considered a paid hobby vs a business venture. But to each their own.
 
Tom-D said:
Working with an independent A&P, what else would you pay them for?
I thought that was abundantly clear.

"When an A&P does your engine overhaul, how much money should they make?"

Pretty dam clear to me
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Only to you Tom. Only to you.

When *I* dropped my plane off at the A&P, he charges me for parts and labor and everything, just like I would at the car mechanic. It's rare that I ever buy anything and then say put this on my plane.

You ask a wildly general question which you did not specific only labor. Then you chastise people for not saying specifically labor.
 
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