Flimmer

Hello, these are hypathetical numbers just to see if I am thinking about this right.

If I have 300,000 a year overhead and I am projected to build 100 garages at a average of 15,000=1,500,000 and 2 houses(turn key) at 250,000 each=500,000. This is 2,000,000 Gross Sales. Shouldn't the overhead be alocated as such. The houses make up 25% of your Gross Sales. Seeing this, my overhead on each house should be 12.5% of my total overhead which would be 300,000x12.5%=37,500 and the garages would be 75% of the overhead which would be 300,000x75%=225,000, divide this by 100 and it would be 2,250 for each garage(0.75% of 300,000)

This is just hypathetical, Flimmer

Mike Finley

Don't really know what the point of all of that is. What if you build one less house or one more house or 3 more garages? What's the purpose of assigning overhead to a category of project.

Also $2,000,000 isn't gross profit. It is gross sales. The term "gross" profits is hard to nail down because it depends on how far you want to take it. Is it gross sales minus only expenses directly billed to the projects such as lumber and labor or do you take into account your phone bills, rent... you can see it can be any where you want to take it and is just a snap shot. But one thing for sure your gross sales are never going to be defined as gross profit. Profit is always defined after taking away some sort of related expense.

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bathroom remodeling - Denver, Lakewood, Littleton, Arvada, Westminster, Centennial, Highlands Ranch, Lone Tree, Englewood Colorado.

Flimmer

Mike,
Thanks for correcting me on that. I meant Gross Sales.

Flimmer

Flimmer

Sorry Mike, It is not the catagory I am assigning it to, but the Gross sale of the individual houses is more, there for I am projecting that I will cover 12.5% of my overhead on the individual house, because that is 12.5% of the gross sales. If I am figuring this wrong someone let me know. It sure seems like alot for one house. I truly believe that every contractor should have a plan on how many sales they want to make and an average of sale to determine what their estimates for each job is going to be(at least an idea of where you should be) to cover overhead for the year. This would need to be adjusted as the year goes on as well. I may be wrong. Let me know.

Flimmer

Flimmer

I may be totally off base on how I am figuring this. I also may be getting to in depth on how to cover overhead too. I would love here how any of you make sure that you are covering this and making a profit. I would hope you aren't just putting on a profit margin and hoping for the best..

Flimmer

Bob Kovacs

Are you building the sheds with inhouse labor? How about the houses?

The problem with allocating overhead to projected volume (especially if you have no historical data to base those projections on), is of you fall short of that volume, you don't recover all of your overhead costs. Say you do build the two houses, but you only build 80 sheds- how are you going to recover the balance of your overhead? What if you build 120 sheds, but only build one house?

If you have in-house labor, the better situation is to apply your overhead to your labor hours. Say you have a crew of 10 workers, and they're each going to put in an average of 1,500 productive hours a year. You have 15,000 hours to allocate the overhead to, so you add $20/hour to the hourly billing rate of your employees. This way, whether they build 2 houses and 100 sheds, one house and 200 sheds, or no houses and 400 sheds, it doesn't matter- as long as you charge out 1,500 hours to each employee, your overhead is covered.

Bob

Flimmer

Bob, almost all Sub contractors, what do I do then. I would think I would have to alocate it in projected sales right?

Mike Finley

Like I said I don't get the point, but if you want to go into it, it seems a flawed theory.

Overhead is based on actual costs, such as rent each month $1500.00.

Sales are based on how much business you are doing over time.

You are doing steady garages 100 a year, that might mean you will average 2 a week. You are doing 2 houses, these are only 2 projects, are you going to do one in 6 months and the other in 6 months? If you do one in 9 months and the other simultaneously in 7 months what is the over head? If you have $10,000 a month in overhead, the one you did in 9 months has $90,000 in overhead, 9x$10,000. The other one has $70,000 in overhead 7x$10,000. What about the 3 months you didn't have a house project going?

I don't see the point of what you are trying to figure.

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bathroom remodeling - Denver, Lakewood, Littleton, Arvada, Westminster, Centennial, Highlands Ranch, Lone Tree, Englewood Colorado.

PipeGuy

As overhead is not a direct job cost. it's MHO that there's almost no reason to concern yourself with allocating it amongst the various jobs. I've never seen overhead tracked as anything other than an indirect cost.

Grumpy

Without even getting into the numbers I do not base my overhead on hours or gross sales. I base it on days worked. I then split it up between average number of crews working per day. I then come up with an overhead factor that I can apply to a job based on the number of days the job will take to complete.

It is a flawed method, I admit, because it is based on the laws of averages. Average working days per year. Average crews working per day. Average time for completing one job. All in all, although it is flawed it is truly accurante enough, especially when using subs.

Why do I not allocate by the hour? I find this to be even more flawed than assigning by the day. Although I argue quite often with other business owners about this. Reason being some jobs might take 6 hours and some might take 10. This is still one day. If I had an hourly factor and marked it up to 6 hours assuming every day would be 8 hours, I would fall 2 hours short. At the same time if I had a 10 hour job with an hourly variable and I based on an 8 hour day I could price myself out by two hours.

A day is a day is a day. My overhead is incurred daily not hourly. I need to squeeze 365 days of overhead into 200 working days per year.

Please note labor burdens which are based on hours worked such as unemployment insurance, workmans compensation and general liability I do definetly base upon hourly not daily.

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-Grumpy
Chicago Gutters Chicago Roofing

PipeGuy

Burdens are a job cost and as such I don't account for them as overhead.

Flimmer

Hey sorry If this thread frustrates some here,
grumpy it at least sounds like you make an attempt to figure in your overhead.
I wish it was easy to just put a fixed amount for overhead, unfortunately it isn't. But at least by me projecting the number of jobs I am going to do, I can get an idea about how much overhead has to get figured into the cost of the project along with materials, and subs. Is it going to be 100% accurate, absolutely not. But at least I will have some Idea of where I'm at. If my monthly projections are not coming in where I planned, I need to adjust my prices one way or another.
Hey pipeguy,
I would have to think that grumpy does more subs, and his office staff would be considered true over head, I am guessing based on listening to what grumpy has posted here!

Flimmer