The following material is from Steve Knox’s class “The Business of Marine Surveying.”
© 2008 Knox Marine Consultants Inc. Posted here with permission.
Chapter 8
Setting Rates
How much should you charge for your survey services? Beginning surveyors usually set their
prices too low, thinking that customers will flock to the lowest price. Don’t fall into that trap.
Some customers do flock to the lowest price – but they’re usually the hardest ones to work for.
When someone calls and immediately asks “How much do you charge to survey a boat?” you
should be wary. If you continue, and find that they’re looking only at price, you may not want
the job. Assuming you plan to provide a good work product and first rate service, target the
customers who are willing to pay for that product and service. They are out there.
If you set your rates low initially to buy business, you may find that you get a reputation as a cut
rate surveyor. Plan to build a reputation as the best, and set your rates accordingly.
The examples below are not intended to show you exactly how much you should charge for a
given service. Rather they are intended to make you think through the process of setting your
rates - so that you can pay yourself a salary. There are also some suggestions for established
surveyors about how to make more money.
How Much?
So how much? There are two approaches to pricing your work. Make both calculations. The first
method lets you calculate how much you must bill in a year to pay yourself a given salary. The
second method looks at the market and lets you calculate how much you can bill based on
market prices in your area. If answer A is greater than answer B, then it won’t work. You need to
bill more than the market will bear. Let’s do an example.
How Much Do You Need?
First, how much must you pay yourself? If your current job pays $35,000 per year and you need
that much to feed the family, then use that figure.
Next, calculate how much overhead the business will have. As a first approximation, assume
your overhead will be 50% to 70% of your salary. This assumes a one person operation, no
secretarial help, and an office at home. Using the $35,000 salary, overhead would be at least
$17,500 (i.e. 50% of $35,000) and maybe as much as $24,500 (70% of $35,000). Add the
overhead to your salary – that’s how much you must bill to pay yourself $35,000. In this
example, you must bill between $52,500 and $59,500 to pay the bills and have $35,000 left for
your salary.
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You can also calculate overhead costs more closely. The following figures are probably close for
the first year of a one person operation, with no secretarial help, and an office at home.
Table 8-1 How much must you bill to pay yourself $35,000?
Salary
$35,000
Overhead Expenses
Advertising (this is minimum)
Automobile mileage (assume 15,000 miles @ $.30)
Dues – professional associations
Office equipment
Office furniture
Office supplies (including film and processing)
Legal and accounting
Payroll taxes (estimate 10%)
Postage
Rent (cost of home office)
Seminars and continuing education, including travel
Subscriptions, reference books
Telephone
Total Overhead
$1000
$4500
$1000
$1000
$300
$4000
$1000
$3500
$800
$800
$1000
$500
$5000
$24,400
Salary + Overhead
(i.e. you must bill $59,400 to pay yourself $35,000)
$59,400
The actual costs for your business may vary a little, but these are good starting points for your
first year in business.
Overhead Expenses
Items from Table 8-1.
Advertising – You must get the word out, especially for a new business. This figure would
include yellow pages listings, coop ads, direct mail campaigns, signage. You should plan on at
least $1000 your first year.
Automobile – It’s not free to drive to and from jobs, even if you already own an automobile.
Your annual mileage will go up as your business increases. I peaked at about 35,000 miles per
year and am now down to about 12,000 miles (largely because I bought an airplane). I used
15,000 miles at $.30 per mile as a starting figure for your first year. In fact, it costs more like
$.40 to $.50 per mile to operate an automobile. You can charge your customers mileage, but I
recommend that you keep it simple. Include mileage inside some convenient area. My flat rate
prices include mileage and travel time to any of the five cities around Norfolk. Outside that area,
I charge travel time and mileage.
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Dues – You are going to join NAMS or SAMS and ABYC, right? We’ll discuss it in detail in
Lesson 3, Chapter 10. I think ABYC and one of the surveyor’s organizations is minimum. $1000
will cover application fees and first year dues. I spend about twice that, but I belong to a lot of
organizations.
Office equipment – The first year you will spend at least $5000 for a computer, software, printer,
fax machine. If you add a copier that’s another several thousand. As your business grows (and
these machines age), you must upgrade the original equipment. Plan to average about $1000 per
year.
Office supplies – Letterhead, envelopes, copier paper, file folders, paper clips, etc. I’ve included
film and processing. These costs add up quickly.
Legal and accounting – Your first year costs will be high. Organizing the business, incorporating
(maybe), setting up an accounting system – like office supplies, the total grows quickly.
Payroll taxes – These are a percentage of your payroll. FICA and Medicare are the big ones –
7.65%. There’s also unemployment taxes, both state and federal. Plan on sending about 10% of
your payroll to various government entities.
Postage – There’s bills and reports to mail. This figure includes some allowance for overnight
shipping.
Rent – We’re assuming you’ll be in an office at home so you won’t be paying rent. Still, there
are incremental costs to a home office – more heat and air conditioning, more wear and tear on
the carpet, etc. Look back to Lesson 1, Chapter 5 on home offices.
Seminars and continuing education – Money you must spend. Invest in your continuing
education. There are certainly things you need to learn. Seminars are an excellent networking
opportunity as well. $1000 is pretty slim for a beginner, especially since it includes travel costs.
Subscriptions and reference books – You must read to stay up in any industry, and ours is no
exception. You’ll also want to start building a reference library about boats.
Telephone – Your lifeline. You’ll probably want a separate fax line. Add a cell phone and/or a
pager and the expenses mount up. Still, it’s money well spent. No one will hire you if they can't
find you.
Can You Bill that Much Work?
Now let’s look at the same problem from the other angle. How much work must you do in order
to bill $59,000 (we’ll round it down to keep the numbers simpler)? And finally, will the market
provide that much work?
Most beginning surveyors build their practice on prepurchase and insurance surveys. These are
usually flat rate jobs, priced at so much per foot of boat length. Call the competition in your area
and find out what the going rates are. If your competition is charging $12 to $16 per foot for a
prepurchase survey, you probably can’t charge $20. Pick a price wherever you feel comfortable
in the range. For our example, let’s say you pick the middle of the range, $14 per foot.
How big are the boats you’ll be surveying, and how many can you do in a year? The average
boat size is bigger in Miami than it is in Green Bay. Make a guess based on your knowledge of
the local market. We’ll assume 30’ for our example. At $14 per foot, that’s an average of $420
per job.
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How many? Not many your first year. If your locale has a boating season, assume 3 surveys a
week during the season and 1 or 2 during the off season. If you area has year round boating, use
3 per week. We will assume a six month season for our example. That’s about 100 per year
(again, rounding off to make it simpler). If you do 100 jobs your first year, you are way ahead of
the pack. Don’t be too optimistic at this stage.
So, in year one, you guess you’ll do about 100 jobs at an average cost of $420. Your gross will
be $42,000.
That’s not good news is it? You need to bill $59,000 to pay yourself. Can you cut expenses
some? How much work can you count on? More than 100 jobs maybe? Could you charge $16
per foot and still attract 100 jobs? If so your gross would be 100 jobs x 30’ x $16 / ft = $48,000.
Closer, but still not enough.
You get the point. Resist the temptation to be overly optimistic about your assumptions. Better to
face the bad news on paper than at the end of your first year.
Business Growth
Maybe you’re willing to sacrifice for a year or two as the business grows. How much will your
business grow over the years?
Knox Marine may not be typical. When I started, I had a mentor with experience in marketing
and advertising. I’m a detail person and did a good job of finding out what worked and what
didn’t. I was also willing to work hard!
My growth went this way.
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Table 8-2 Knox Marine’s Growth
(dollar values not adjusted for inflation)
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Gross Sales
$35,168
$54,294
$82,104
$117,530
$167,006
$110,720
$137,426
$197,657
$192,270
$180,490
$155,573
$143,824
$180,944
$178,145
$171,206
$168,749
$168,312
$172,026
Comments
First year, opened in February. Using a typing service.
Hired part time office help.
Hired full time office help.
Hired another surveyor. He lasted six months.
Just me and a full time office manager again.
Hired another surveyor
Two of us doing field work.
Other surveyor left in September
Office manager leaves in May. Just me again.
Lots of growth, especially since I didn’t have office help.
Almost no change!
You can see that I’ve leveled off at sales of about $170,000. I’ve quit aggressively marketing my
business. I’m not retired, but I’m not trying to grow 20% a year anymore either.
Hourly Work
Many surveyors blend damage survey work with prepurchase survey work, or just do damage
surveys. Damage surveys are traditionally billed by the hour. The calculations change a little if
we talk about hourly work.
Marine surveying is not a 40 hour per week job. Most of us work 50-60 hours. That means we
work 2500 plus hours in a year. Some of those are eaten up by overhead stuff – paying the bills,
looking for new clients, answering the telephone. Again we will assume a one person operation,
with no secretarial help, and an office at home. After the first couple of years, how many of those
2500 hours are spent on billable work, and how many on overhead? In 2004 I logged 2486 hours,
of which 1473 were billable. That’s 59%, which I think is about average. When I was hustling
and working more hours I hit 70% one year (without office help). Very few surveyors reach that
level of efficiency. 50-60% (where I was in 2004) is more normal.
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If you work 2500 hours per year and bill 50% of those, that’s 1250 hours billed per year. If you
must bill $59,000 to pay yourself, then average rate must be $47.20 ($59,000 / 1250 hours). Will
your market support $47 per hour? If not, then you have a problem. (In most markets, the
average billing rate is more than $47.)
What Will the Market Support?
Let’s go at the same numbers from the other direction. Let’s say that you think your market will
support $55 per hour. Bill 1250 hours per year, and your gross is $68,750. More than enough to
pay your salary and the overhead!
How to Make More Money
Finally, how can you make more money? For the beginning surveyor, the answer is simple.
Grow your business and do more work. If you do 100 surveys and each brings in an average of
$420, that’s $42,000 gross. If you grow the business and do 150 of the same $420 jobs, that’s a
gross of $63,000.
Eventually though you reach the point where you can’t do any more work. You’re booked every
day and struggling to keep up the report writing. If you spend 12 hours to travel to, inspect, and
report on a 30’ boat, then 100 such jobs will take 1200 hours. That’s about all you’ll have time
for. Your plate is full.
So then how do you make more money? There are four ways.




Reduce expenses
Hire help
Charge more per job
Be more efficient
Cut Expenses
It’s difficult to reduce expenses by a significant amount. A small one person operation is
inherently efficient. There’s usually not much to cut. To make more money, we have to look
elsewhere.
Do not cut back on advertising as way to make more money. It’s false economy. Maybe you
spend it differently, but keep spending it. If you are regularly turning away work, and if you are
doing the types of jobs you want to do, then maybe you can cut back on advertising, but not
before.
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Hire Help
You could hire help. Office help will make you more efficient. Fewer hours in the office equals
more hours in the field. The more hours you spend in the field, the more you will bill. But will
the increase in efficiency justify the salary?
If you have more work than you can do, you could also hire another surveyor. However, this
changes the nature of the business entirely. Now you’re a manager. You must keep the other
surveyor busy, teach him, check his reports – in other words your overhead load goes up. Will
the two of you together bill enough to pay his salary and yours? And will you have more money
at the end of the year than you did in the old days, when it was just you?
Most of us either stay as a one person operation or grow then contract back to a one person
operation (as I have).
Help (either office or field) doesn’t necessarily have to come in full time employee increments.
Part time secretarial help is easy to find, and part time surveyor help can probably be found in
your market.
Charge More
You can charge more for the work you’re doing. One of my mentors told me early on that when
you have more work than you can do, raise your prices. I’ve found it’s good advice.
If you can only look at a hundred 30’ boats in a year (to use our previous example), and you
charge $14 per foot, then you gross $42,000. But raise your price to $16 per foot and you gross
$48,000. Without doing any more work. Nice deal, IF you can continue to fill your calendar
when you raise prices.
There’s another indirect way to charge more. Let’s say that it takes 10 hours to survey a 25’ boat,
12 hours to survey a 30’ boat, and 14 hours to survey a 40’ boat (all including travel and report
writing). You charge $14 per foot for each job. The 25’ boat brings in $350 and takes 10 hours –
i.e. you bill $35 per hour. The 30’ boat brings in $420 and takes 12 hours – you bill $35 per hour.
But the 40 boat – it takes 15 hours and you take in $560 - $40 per hour!
If you cull out the least profitable of your work, the net effect is to increase your average hourly
billing rate.
Be More Efficient
Lastly, you can make more money by being more efficient. Let’s say you take 12 hours to survey
a 30’ boat and charge $420. You gross $35 per hour. But if can do the same survey in 10 hours,
you increase your average billing rate to $42 per hour. There are several ways to cut the time
required without cutting the quality of your product.
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The most obvious candidate for improving efficiency is your written report. If you spend as
much time in front of your computer as you do on boats, then you need to stay around for our
next class on writing reports. There are better ways!
You will also become more efficient at the survey process itself as you gain experience. As you
learn the trade, develop a routine for performing a survey. When I inspected a boat for a buyer, I
always spent the first ten or so minutes walking around the boat. I got a look at the major
equipment, saw how the boat was laid out, and got a feel for the overall appearance, condition
and maintenance. Then I started at the bow, looking in detail, and worked my way aft. I always
tried to save the engine compartment for last, so that I wouldn’t get oil on my shoes and track it
around the rest of the boat.
The specific methodology doesn’t matter at all, so long as you develop a routine that makes you
more efficient (and thorough). Do it the same way every time and you will do it faster.
Always allow time, though, to just sit and look. Especially in a crowded engine compartment,
you can often sit and seemingly just stare for minutes before you see what should have been
obvious from the beginning.
Another possibility to improve efficiency is to work closer to home. How much travel is included
in your flat rate for prepurchase surveys? If you travel 30 minutes to look at a boat, you
obviously make more money than if you travel an hour and a half to look at the same boat (at the
same price). Charge a travel fee if you travel more than a certain distance.
The last way to work more efficiently is to eliminate types of business that pay less. Let’s look at
our average 30’ boat again. If you charge $6 per foot for an insurance survey and spend 8 hours
doing it, then you gross $22.50 per hour. If you charge $14 per foot for a prepurchase survey on
the same boat and it takes 12 hours, you gross $35 per hour. If you have more work than you can
handle, don’t do any more insurance surveys. Or at least not in the busy months.
Fixed Rate Work
Having said all the above, how do you price your work? Prepurchase and insurance surveys are
traditionally priced by the foot. Most surveyors charge a minimum, say $150. If you charge $8
per foot for insurance surveys, and a client needs an insurance survey to maintain coverage on
his 15’ runabout, then it’s 15 x $8 equals $120. It’s probably not worth it to open a file, drive to
the boat, and write a report for $120. Establish a minimum fee.
There is a difference between prepurchase surveys and insurance surveys. Surveyors debate that
difference endlessly over beers at various meeting and seminars. You get my take in Lesson 4,
Chapter 13, Types of Survey Business.
As far as rates go, don’t get too cheap on the insurance survey. You will find that it takes almost
as much time as a prepurchase survey. If you can’t make money on insurance surveys, don’t do
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them. See discussion above about eliminating less profitable work. Keep good records as to how
long it takes you to do each job, and the less profitable ones will become obvious.
Also, be careful not to let a client purchase an insurance survey when he is buying a boat. The
client will say “My bank just wants an insurance survey and they say it doesn’t have to be done
out of the water.” But what happens when he hauls the boat three months later and finds blisters?
He calls you, irate, wanting to know why you didn’t point out the blisters. And he expects you to
pay for having them repaired! (Priced a good blister job lately? Ouch!) Or he calls wanting to
know why you didn’t notice that the water heater doesn’t work.
Avoid that by insisting on performing a prepurchase survey (with haulout) for a potential buyer.
Explain that anything less would not be in the buyer’s best interest. If you can’t sell the client on
the value of a prepurchase survey, pass on the job. Better to lose one job than expose yourself to
needless liability.
Hourly Rate Work
Some survey work is traditionally priced by the hour –
Damage surveys
Owner’s representative
Accident investigation
We’ll talk more about each type of work in Lesson 4, Chapter 13, Types of Survey Business.
To price this work, determine what rate you must charge to pay yourself (as discussed above).
Then look at the market and see how that rate falls. If you’re on the low end of the market, great!
Charge a little more and pay yourself more. If you’re out of the high end of the market,
something must give. Maybe you can charge more than anyone else is charging, but that’s
unusual for a beginner. More likely you need to rethink the value of your services.
Different Rates for Different Jobs
Don’t think that you always have to charge the same amount for a given job. If your regular rate
for prepurchase surveys is $14 per foot, and you’re crazy busy in the heat of the boat buying
season, quote a few jobs at $16. If things are slow in the winter maybe you would be willing to
negotiate that $14. Or not charge as much for travel to a distant job.
If you have a special expertise, you might charge more for that type of work. If you’re the best
(or only!) wooden boat surveyor within 200 miles, then charge proportionately more for wooden
boats.
Even for hourly work, not all hours are equal. Maybe you charge damage surveys at $55 per hour
and get a call from an attorney about a lawsuit. He wants your testimony concerning damage to a
boat. Feel free to quote a higher rate for this challenging work. My rate for accident investigation
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and expert assistance is twice my “normal” rate, with a minimum charge of ten hours. I charge
more to deal with lawyers, and I charge more if I put on a tie.
What You Need vs. What You’re Worth
A final thought about rates. Your expertise and experience make you valuable to your clients.
They hire you (and hopefully pay you) because you solve their problems. Most clients are more
than willing to pay what you are worth.
However, don’t confuse that with what you need to feed the family. Your needs do not determine
your value in the marketplace.
The same thing was true, of course, when you worked for someone else. The fact that you’d just
had another baby did not make you a more valued employee or entitle you to a raise. The market
will probably be even more heartless than your previous employer! Think in terms of value to
your clients, not your personal needs.
Steve seldom teaches this class anymore, but the text is available for purchase. Contact Steve at
sknox@knoxmarine.com.
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