Figuring Overhead

72chevy4x4

ok-a slightly different slant. For those who aren't busy all the hours of a week, say only working 32hr/wk. Do you bid jobs (or as hourly) by readjusting the overhead per hour or job?

For instance, if overhead expenses are $500/week, that would be $100 in overhead added for each day of work. If you're only working 4 days/week, you would need to add $125/day.

Now is where it gets difficult-in slow times when you may not know how many hours/wk or days/wk you have, how does figuring of overhead expenses change?

SalesMGR1011

If you are business busy or not overhead does not fluctate, just cause you work 4 days instead of five do any of the ads you run charge you less?

SLSTech

No matter what the bills must be paid. Short term to long term you either eat the costs, burn through savings, delay payments if possible (Never do this to subs), run up credit card charges, find ways to cut back, renegotiate credit terms, &/or raise rates

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Max Nomad

Outside of business expenses related to Production and/or Sales, your overhead can be broken up into two main categories: Fixed Costs and Variable Costs.

Fixed Costs: Stay basically the same each month. Rent. Utilities. Salaries. Insurance. Phone. Etc.

Variable Costs: Prone to vary each month. Meals. Gas. Postage. Etc.

Once you have a good idea of your overhead for the month, you'll know a base level of how much you need to earn each week, thus how much needs to be coming in each day. The Overhead doesn't change -- how you approach it does. This is why most independent contractors that have been in the game a long time, regardless of industry or profession, are probably great at what they do, great at saving money for those slow periods, or a little of both.

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72chevy4x4

thanks Max-I'm going to pull back up my worksheet and id fixed versus variable to better hone in on overhead. It makes sense, just didn't work it out as such.

woodmagman

The easiest way to do it is find you total years overhead, divide it by the average days of the year you will work. And charge accordingly. It is kind of like pricing by the square foot. For small operators you could sit around trying to figure it out exactly and drive up your overhead…

BigLou

Lets look at it from the other side of the coin; when times are good and you're working 50 hours a week, do you reduce your markup? Not a chance.

Increasing your markup will make you less competitive. If you can do it and get away with it, good on you. But look at a combination of reducing overhead by 10%, increasing prices by 1 or 2%, and reducing slippage. And in the future when times improve and you're working more than 40 hours a week, bank the extra money to carry you through the lean times.

DavidC

We also look at it once a year and make adjustments for the coming year. It's not terribly scientific but seems to work. We will calculate it to work on 80% capacity to help with oversites or slow downs.

Good Luck
Dave

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Brian

I would base it on the projected man hours for the year. If you are regularly working 32 hours a week, I would use that number. Your overhead needs to be recovered when you are working. So your $125 a day figure is correct.

Brian Phillips

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buildpinnacle

Although it can easily be done with a simple excel spreadsheet, if you have an xtra $29.00 you can get Michael Stone's Overhead and Profit Calculator which will tell you exaclty what markup you should be using based on you projected sales and expenses. Most contractors just don't charge enough money. You should include your owner's salary, sales commissions, etc. in the overhead calculation and shoot for a % pure profit.

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Grumpy

Here is how we do it. Take last year's total overhead for 365 days. Take our next years projection, which should be basically the same if youa ren't making any changes. Now take a cummulative total number of work days per year for the last how ever many years you have been counting. 365 days of overhead divided by 200 working days gives you your daily overhead rate.

Now take it further if you want to. I know some guys apply it hourly, I prefer not to. I simply leave it daily, however if you want to figure it hourly: Say you have a 5 man crew, take your daily overhead and divide by 5, now you have each man's daily overhead now divide by 7 or 8 or 10 or how ever many horus they work on average. Now you have your hourly overhead.