Profit!!!!?????

In Motion

Brian (painter from Houston) had a wonderful post about estimates. And its all very simple math.

Estimates= Labor+Overhead (trucks, insurance)+Materials+Profit.

Ok so I sat down with my overhead and took everything I had Tools, Truck, Trailer Etc. and figured everything out from cost per day, week, month and year. Labor is how much I pay my guys, and Materials (obvious) than I got to the last one. Profit.

As small business owners what is a likely profit aspect? Sure we want 1 million dollars a job in profit, but you will never win a bid. If you go for $10 profit you will never grow.

So the big question is What is a resonable profit goal my first year in business? And is it a fixed amount or a percentage?

Thanks for any advice.

Mark

Mike Finley

Net profit should be somewhere between 10%-30%. Most likely if you're hitting on the high end you aren't accounting for an owner's salary at all or an owner's salary that is lower than it should be.

Grumpy

Don't forget most owners wear alot of hats and thus should be compensated for each. A standard formula is that the salesman should get 10% (depending on the size of the job I know companies that do 5% salesman and 5% production manager). You also run the business, so you are the General Manager, pay yoruself for that... what Mike called an owner's salary. Regardless, pay yoruself for what you do. THEN the rest is profit.

I find Mike's target of 10-30% to be reasonable depending on what you pay yourself as a salary etc... I think it was Marc who said 10% for the salesman, 10% for the company and 10% for the company owner. Something like that.

Ed the Roofer

Also, since it is your first year in business, you are probably working on the jobs with your other helpers.

Make sure you pay yourself for those hours, otherwise it will seem like the company profit percentage is hitting on the high side, which would be a false indicator.

Also, remember that when you replace yourself on the job sites with another worker, their productivity will not typically be anywheres near what yours as an owner would typically be.

Ed

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pcplumber

Every contractor, who tries to derive his profit, by calculating cost plus, makes a lousy profit. I don't believe in goals. They set limitations. May goals are to make as much as I can, even if it is $1 million per job. The way you are calculating, sets limitations on the amount you charge.

Work the numbers the other way. Try to figure how much you can get for your jobs, first. Then see what is left. If there is not enough money left, then raise your price.

10% is ridiculous. If the workers, sales people, and owner each get the same amount, then the owner has no incentive to run the business. He should work for someone else. The business should be 25% overhead, 25% to 30% for labor, 25% profit for the owner, and 15% for advertising. Otherwise, we business owners have to send our brats to city colleges. I want the customer to send my brats to Harvard, for 8 years.

Every business looks at the maximum amount they can charge for their products and services, first.

Beside, 10% is crazy for a painter. Painters have the highest profit in the construction industry. They buy a $10 bucket of paint and gets $300 to $400 to paint one room. Every other trade requires much more expensive materials. Painters in Los Angeles are getting $7,000 to $10,000 to paint the outside of 1800 sq ft ranch style one story house. The paint can't cost more than $400.

I owned a paining company back in 1972. The very last job, I did, 36 years ago, was an outside wall for a K-Mart. It was 1250 feet long, 16 feet high, and I charged $8,000. The paint cost me $500 and I sprayed the wall in 8 hours, with one helper.

Mike Finley

That's a good primer for guys planning on making the transition eventually from doing the work to selling the work. It's easy to forget you have to pay somebody to make up for the work you were doing.

In Motion

Thanks guys! This is a big help. I just put a bid in on my first big job. I feel really good about the quote. we'll see.

Snow Man

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Multiply the time , material and overhead by .65%

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rbsremodeling

1.65 no percent needed.

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Jason Whipple

and you believe that this works for all business models?

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Jason E Whipple, General Manager
Historic House Restoration, Cincinnati, Ohio
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Snow Man

Just an Idea for the lad.

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DECOSnowRemoval&IceControl
Serving Delaware County & Philadelphia Pa
610 457-9721

rbsremodeling

Snow mans markup is 60% higher than what he was thinking

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woodmagman

The fact that there in no real hard number or percentage, is why no one person can give you an answer that everyone will agree on. You need to pay yourself, your bills, your staff, and the government not always in that order. I know the government wants their cut first….
Now once that is done and you are sitting a 0, you need to add a number so your business can grow. The percent can be three it can be sixty three, it just needs to be greater then 0.

Jason Whipple

I'm sure he knows what he's talking about when it comes to removing snow, but a 65% markup in Construction would be a sure way to sit home most of the 52 weeks per year!

Not impossible on occasion though!

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Jason E Whipple, General Manager
Historic House Restoration, Cincinnati, Ohio
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rbsremodeling

Would you like me to pm you my markup??

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Jason Whipple

So true!

If you aspire to be that business owner that makes $250k a year the time to think about markup is before you get there! Add in those taxes and Comp costs now and not later. If you don't, how will you afford it when it's time to grow?

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Jason E Whipple, General Manager
Historic House Restoration, Cincinnati, Ohio
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Jason Whipple

No thanks.............

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Jason E Whipple, General Manager
Historic House Restoration, Cincinnati, Ohio
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rbsremodeling

Any contractor using less than a 50% minimum markup is doomed in my book

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Jason Whipple

I can go along with that. 100 + 50% = 150.

50 in profit is 33% of 150.

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Jason E Whipple, General Manager
Historic House Restoration, Cincinnati, Ohio
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woodmagman

HOLLLLy Crap i am confused.... lol. After reading this I am not sure what the question was.