Adding Overhead And Profit.

 
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Old 01-27-2012, 05:27 PM   #41
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Re: Adding Overhead And Profit.


Steve, can you list out what types of items you put in each of your categories: fixed costs, overhead, and profit.
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Old 01-27-2012, 06:55 PM   #42
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Re: Adding Overhead And Profit.


Remodle Ga

Thanks for you great explanation of Markups/ Margins. I always felt I was doing it wrong but at least I was adding something to labor/materials.

After reading this I finally ran my reports on Quickbooks for the last 3 years. 2 years were the exact same percentage for overhead and I had done twice as much in income. I'm a small company with low over head so my OH is lower than others but now I will adj my markup to account for all costs.

I the past if the job cost $1000 labor/mat I would multiply by 10% then again by 10%. total=$1210
Now I would calculate my proper markup and multiply that by $1000
It's not a big difference but at least I'm sure im doing it right!

Last edited by RadRemod; 01-27-2012 at 07:26 PM. Reason: TMI
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Old 01-27-2012, 08:22 PM   #43
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Re: Adding Overhead And Profit.


RemodelGa,

I thought about what you wrote and think I got it now...kind of hard sometimes to communicate via message boards.

I think you said that just adding 8-10% as markup not even talking about profit is not enough to move forward and buy necessary equipment, shop, more employess etc.?

In other words if you want to grow and remain healthy, right?

So in essence you create a category you add to just fixed cost above whatever formula you use for static overhead?

I threw my hat in here to learn so feel free to school me.

Steve
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Old 01-27-2012, 08:30 PM   #44
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Re: Adding Overhead And Profit.


Quote:
Originally Posted by RemodelGA View Post
Steve, can you list out what types of items you put in each of your categories: fixed costs, overhead, and profit.
I use all my labor, materials, fuel, rentals, meals, and even factoring or financing as fixed costs x 9%.

Then I use a % I want for profit and multiply that to the overhead x 9% number for my margin and end up with the final number.

Steve
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Old 01-27-2012, 09:29 PM   #45
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Re: Adding Overhead And Profit.


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Originally Posted by RadRemod View Post
Remodle Ga

Thanks for you great explanation of Markups/ Margins. I always felt I was doing it wrong but at least I was adding something to labor/materials.

After reading this I finally ran my reports on Quickbooks for the last 3 years. 2 years were the exact same percentage for overhead and I had done twice as much in income. I'm a small company with low over head so my OH is lower than others but now I will adj my markup to account for all costs.

I the past if the job cost $1000 labor/mat I would multiply by 10% then again by 10%. total=$1210
Now I would calculate my proper markup and multiply that by $1000
It's not a big difference but at least I'm sure im doing it right!
Glad I could help. If you have any questions, feel free to ask or shoot me a PM
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Old 01-27-2012, 09:41 PM   #46
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Re: Adding Overhead And Profit.


Quote:
Originally Posted by oktex56 View Post
I use all my labor, materials, fuel, rentals, meals, and even factoring or financing as fixed costs x 9%.

Then I use a % I want for profit and multiply that to the overhead x 9% number for my margin and end up with the final number.

Steve
I really hope that you are factoring in much of your overhead into your "fixed costs". At 9%, do you realize you'd have to do $1,000,000 in sales to cover $90,000 in overhead? That's an awful lot of work for a little return.

Overhead should be broken down by those items that are not directly related to job costs. Things like your phone, internet, accountant fees, office supplies, marketing, GL insurance, WC insurance, vehicle insurance, health insurance, business licenses, bank fees, trade association costs, truck payments, fuel costs, vehicle maintenance, vehicle registration, and any overhead payroll.

Fixed costs as you call them should be items directly related to the job. Quickbooks calls them cost of goods sold, or COGS. These are material costs, permit fees, engineering fees, sub costs, and labor costs (and potentially labor burden related to these labor costs) that are all required to make this job happen.

Profit is just that, profit. It's what hopefully remains at the end of a job that a company uses to expand and grow the company.

From what you stated prior, a 9% markup on fixed costs really isn't a lot. Take a look at what your yearly sales are, and then take a look at what your total overhead costs are, and then run the percentage. Unless you're turning some major numbers, I'd guess that your markup should be much higher.
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Old 01-28-2012, 01:16 AM   #47
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Re: Adding Overhead And Profit.


Firstly i haven't been charging enough, of course i thought i was charging a price to return a decent profit but have realized i wasn't and this post has helped me to see costs i did not account for properly.

In the previous 3 months I've begun charging more appropriately, but still not enough to get where i want to be.

I took the past hour or so to run some numbers to attain my fixed expenses, some numbers may be a little high, some a little low but all in all good enough for me to see what's what. In total nearly 60K per year in fixed expenses, this is for two of us, two vehicles, two sets of tools, two people for insurance.... and so on. Then i took gross income of 75K per man per year and added all these numbers and we need to be collecting over 800 per day/ 5 days/wk all year.

Issue i'm having is when our work orders vary so much, from 100 dollars up 50K and it's not possible to predict which comes next or how many will come..... what's a good way to assign a number for fixed costs in this situation?
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Old 01-28-2012, 01:29 AM   #48
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Re: Adding Overhead And Profit.


I'm sure this has been stated on this site before, probably many times however this can't be mentioned enough.

We all, no matter the size of our business must go about our work not only as professional trades people treating our clients well and doing quality work; but ALSO as business people, look at the numbers, know your numbers, and charge a price that includes everything.
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Old 01-28-2012, 08:13 AM   #49
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Re: Adding Overhead And Profit.


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Originally Posted by Bergmeister View Post
Issue i'm having is when our work orders vary so much, from 100 dollars up 50K and it's not possible to predict which comes next or how many will come..... what's a good way to assign a number for fixed costs in this situation?
What do you mean by this? "Work orders" makes me think you're working for a GC or property preservation company. If it's PP, I can't help you, but there is an entire section of the forum dedicated to the industry.

At the end of the day, your bills need to be paid. So if the $100 jobs aren't making you money, quit doing them, and look at what jobs you are the most profitable on and target them.
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Old 01-28-2012, 10:20 AM   #50
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Re: Adding Overhead And Profit.


Quote:
Originally Posted by Bergmeister
Firstly i haven't been charging enough, of course i thought i was charging a price to return a decent profit but have realized i wasn't and this post has helped me to see costs i did not account for properly.

In the previous 3 months I've begun charging more appropriately, but still not enough to get where i want to be.

I took the past hour or so to run some numbers to attain my fixed expenses, some numbers may be a little high, some a little low but all in all good enough for me to see what's what. In total nearly 60K per year in fixed expenses, this is for two of us, two vehicles, two sets of tools, two people for insurance.... and so on. Then i took gross income of 75K per man per year and added all these numbers and we need to be collecting over 800 per day/ 5 days/wk all year.

Issue i'm having is when our work orders vary so much, from 100 dollars up 50K and it's not possible to predict which comes next or how many will come..... what's a good way to assign a number for fixed costs in this situation?
One reason to closely keep track of all your numbers is so that you can break them down to see what jobs are profitable to be successful you need to know this and not take every job that comes your way some jobs just won't pay the bills so the whole money is money mentality has no place in business
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Old 01-28-2012, 11:16 AM   #51
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Re: Adding Overhead And Profit.


@RemodelGa. i just used the term "work order" genericly, I'm self employed and get all my own projects, I'm not hired as a sub by anyone.

the $100ish type jobs are from existing clients, for example they get a new paddle fan and need it installed. My mentality is.... right or wrong, is once i get a client i want them calling me for anything, sometimes i do decline the work if too small.
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Old 01-28-2012, 11:28 AM   #52
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Re: Adding Overhead And Profit.


Something else to consider If you are a small company like mine. Just beacause you own the business and do the work, it doesn't make the work less exspensive. In other words, if you are doing the work you should get paid hourly for doing that work. Just like if you had hired a helper. Then you should also get paid for being the owner of the company. Then your company should get paid. It was a hard lesson for me to learn. When I first started I felt like I was charging too much. In reality I was working for free.
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Old 01-28-2012, 11:49 AM   #53
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Re: Adding Overhead And Profit.


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Originally Posted by summithomeinc
Something else to consider If you are a small company like mine. Just beacause you own the business and do the work, it doesn't make the work less exspensive. In other words, if you are doing the work you should get paid hourly for doing that work. Just like if you had hired a helper. Then you should also get paid for being the owner of the company. Then your company should get paid. It was a hard lesson for me to learn. When I first started I felt like I was charging too much. In reality I was working for free.
Finally!
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Old 01-28-2012, 12:01 PM   #54
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Re: Adding Overhead And Profit.


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Finally!
Just like I said pay yourself when working on the job and when your wearing your 5 other hats, selling, estimating, scheduling, ordering or picking up materials, office work its all relevant and we should get paid!
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Old 01-29-2012, 11:14 AM   #55
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Re: Adding Overhead And Profit.


I am still learning here.

It's very apparent that I need to re-think my formula for estimating.

I know in earlier posts there was a percentage suggested.

What may be helpful and may seem repepitive, is for someone to list a breakdown of categories used in fixed costs, % used for overhead, then profit margin.

Fixed cost breakdown apparently is where I am not clear yet.

I know it is addressed early on in this thread but it would help me to clarify how others break down their costs and calucalations.

BTW, I have a good handle on past performance and gross vs net, etc.

I want to grow and use better means to keep track, etc.

Thanks in advance.

Steve
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Old 01-29-2012, 01:08 PM   #56
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Re: Adding Overhead And Profit.


here's the list i made up
Vehicle, repairs, maintenance, insurance, tags, fuel
Business insurance
Attorney / Accountant
Medical insurance, life insurance, disability and dental insurance
Phone, internet, trade magazines, trade shows, education
Bad debt
Food, Clothing/uniforms
cash fund for business
misc. expenses
Advertising/marketing
office/storage and utilities.... even if you work from your home
tools
License and permits

this is just a list i came up with, likely there are more items to include.
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Old 01-29-2012, 01:37 PM   #57
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Re: Adding Overhead And Profit.


Quote:
Originally Posted by Bergmeister View Post
@RemodelGa. i just used the term "work order" genericly, I'm self employed and get all my own projects, I'm not hired as a sub by anyone.

the $100ish type jobs are from existing clients, for example they get a new paddle fan and need it installed. My mentality is.... right or wrong, is once i get a client i want them calling me for anything, sometimes i do decline the work if too small.
Thanks for the clarification. Look at electricians, plumbers, HVAC guys, they all have minimum charges. If these small jobs are actually costing you money even though they help you retain a client, maybe you should ask them to get 3-4 small projects and then you can knock them out at once, make money, and save the client money versus them paying a trip charge every time.

For setting up budgets, it's all averages. Look at your past few years and see on average what you can expect for gross sales. Then when you have your overhead numbers, you can figure out a markup percent.
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Old 01-29-2012, 01:46 PM   #58
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Re: Adding Overhead And Profit.


Quote:
Originally Posted by Bergmeister View Post
here's the list i made up
Vehicle, repairs, maintenance, insurance, tags, fuel
Business insurance
Attorney / Accountant
Medical insurance, life insurance, disability and dental insurance
Phone, internet, trade magazines, trade shows, education
Bad debt
Food, Clothing/uniforms
cash fund for business
misc. expenses
Advertising/marketing
office/storage and utilities.... even if you work from your home
tools
License and permits

this is just a list i came up with, likely there are more items to include.
Wow,

Nice list!

Gives me plenty to do to revise my way of doing business.

Thanks for reply Bud.
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Old 01-29-2012, 02:01 PM   #59
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Re: Adding Overhead And Profit.


Quote:
Originally Posted by oktex56 View Post
I am still learning here.

It's very apparent that I need to re-think my formula for estimating.

I know in earlier posts there was a percentage suggested.

What may be helpful and may seem repepitive, is for someone to list a breakdown of categories used in fixed costs, % used for overhead, then profit margin.

Fixed cost breakdown apparently is where I am not clear yet.

I know it is addressed early on in this thread but it would help me to clarify how others break down their costs and calucalations.

BTW, I have a good handle on past performance and gross vs net, etc.

I want to grow and use better means to keep track, etc.

Thanks in advance.

Steve
When I bid a job I take all of the specific job costs, add my overhead markup (percentage) and then add a profit percentage.

For specific job costs, quickbooks classifies these as COGS - cost of goods sold. These will include labor, materials, subcontractors, permitting, engineering, delivery charges, hotels and food for out of town work, travel expenses if it's a job out of your normal driving area, etc. Don't forget to add in for contingency costs on the job.

Now you have your job costs. Now time for the markup. This can either be done as markup or margin. It doesn't matter as long as the formula is right for you and you keep with it every time. I talked about this in an earlier post. Overhead items are what berg posted - office, utilities, phone, truck payment, truck insurance, GL and WC insurance, marketing, equipment purchases, taxes, professional fees (accountant, attorney), bank service charges, computers, software, office supplies, vehicle maintenance, vehicle registration, business license, state license, membership to NARI and other organizations, and a bunch of other stuff.

I figure our overhead as a markup on the project costs. Here's an example. If you're expecting to do $300k in sales this year, and your total overhead including your salary are $100k, what do you have to mark up your job costs to make sure your overhead is covered? From the numbers given, $300k total sales - $100k overhead = $200k job costs. Divide $300k / $200k = 1.5. This means you need a 50% markup on all of your job costs to cover your overhead. Once you figure the job costs for a job, just multiply by 1.5 and then add whatever profit you'd like. Just substitute your own numbers into the formula and you'll know what your actual markup percent is.
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Old 01-29-2012, 04:30 PM   #60
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Re: Adding Overhead And Profit.


Very good read not just for painters

http://www.paintpro.net/Articles/PP5...Estimating.cfm

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