Home Inspector Newsletter #93 May 2016

We intentionally created installation defects on each stucco/EIFS wall. The walls represent the 12 most common stucco exterior covering materials.

 

 

First, Inspector John calculated his billable hourly rate (assuming John has no employees yet) by using the following simple formula:

(Desired Annual Salary + Overhead + Desired Annual Profit) ÷ Annual Billable Hours = Billable Hourly Rate.

 

Now, add everything together (desired annual salary + annual overhead + desired annual profit) and divide that result by Inspector John's annual billable hours, which is the total number of hours he works doing inspections each year. For John, it's about 1,250 hours. The result is the hourly rate he needs to charge to cover his salary and overhead, and make a profit.

Here's an example of Inspector John figuring out his billable hourly rate. John's goal is to make $100,000 per year in salary (that's his desired annual salary as gross income, before taxes). And he figured out that his overhead is $25,000 per year. So far, John's business needs to make a total of $125,000 to pay for his salary and overhead. Now, John sets his profit margin at 20%. The question is: How much money (gross revenue) does John's business have to make in a year to reach his goal?

The equation we have is: Gross Revenue = Salary + Overhead + Profit. Entering known values, we have Gross Revenue = 100,000 + 25,000 + 20% of Gross Revenue. Adding and changing the percentage into a decimal, we have Gross Revenue = 125,000 + 0.2 x Gross Revenue, which brings us to Gross Revenue - 0.2 x Gross Revenue = 125,000. And that brings us to 0.8 x Gross Revenue = 125,000. Dividing both sides by 0.8 gives us Gross Revenue = 125,000 / 0.8 = 156,250.

Now, John's business needs to make $156,250. John plans to work one five-hour inspection job per day. Assuming 50 work weeks per year, that's 1,250 billable hours per year. So, John takes $156,250 (salary + overhead + profit) and divides that by his annual billable hours of 1,250. The result is $125 per hour.

John should be pricing his inspections at $125 per hour.

Assuming John's typical inspection takes five hours, John's home inspection service should be priced at $625. This is John's flat rate, the average fee for one inspection for a typical house in his market. John should do a home inspection for $625, give or take a little.

John figured out that $625 per inspection will cover his $100,000 salary and $25,000 overhead, and yield a 20% profit.

John has successfully set his pricing. Can you?