Profit Margin

 
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Old 11-23-2003, 08:17 PM   #1
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Profit Margin


For a small general contractor, does anyone have any idea what an acceptable range of profit margin (based on overall sales) would be? My partner seems to think we should have more cash in the bank than we do. We are a small co. of 3 partners, one full time employee, one part time employee and we sub out approx 90% of ea. project. Last year we grossed 1.2 million and after all was told and done we had $50,000 left over. Let me add more information. Each partner is taking home $1,400.00 a week (after taxes), has full medical benefits, gets $6,000.00 a year invested in an IRA, and received a $5,000.00 Christmas bonus. I feel we are doing well where my partner feels having $50,000.00 in the bank for a company that does the business we do is pitiful. Any feedback appreciated.

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Old 11-23-2003, 08:27 PM   #2
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Re: Profit Margin


So an overall profit margin of 4% approximately? Our typical margin is around 3.5% for the year. Of course our annual volume is getting close to 2 billion. In regards to that I would say your 4% could be a little light. On a smaller job we will charge a higher margin and a 100 million dollar job will be down around 3%. So it evens out to about 3-3.5%

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Old 11-24-2003, 09:14 AM   #3
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Re: Profit Margin


Quote:
Originally Posted by ASG & C INC.
For a small general contractor, does anyone have any idea what an acceptable range of profit margin (based on overall sales) would be? My partner seems to think we should have more cash in the bank than we do. We are a small co. of 3 partners, one full time employee, one part time employee and we sub out approx 90% of ea. project. Last year we grossed 1.2 million and after all was told and done we had $50,000 left over. Let me add more information. Each partner is taking home $1,400.00 a week (after taxes), has full medical benefits, gets $6,000.00 a year invested in an IRA, and received a $5,000.00 Christmas bonus. I feel we are doing well where my partner feels having $50,000.00 in the bank for a company that does the business we do is pitiful. Any feedback appreciated.

Joe
It really depends on what you're in business for. If it's to make a decent living, then I think you're already there. However, if you have ambitions beyond your current operation, then you need to build up cash reserves to spend on new equipment, new marketing, and a higher level of staffing. If you anticipate borrowing money, then banks want to see a good business plan and proven earning capability. One banker told me that banks won't even consider a loan if the pre-tax net profit is less than 6% of revenues, and they like to see 15% or more to feel comfortable. We aim for about 16%. Of course, the margin usually translates into higher prices, so you have to be able to convince your prospects that you're worth the higher price. If your market is highly competitive and you are not able to distinguish yourself from the competition, then you'll probably not be able to make the prices stick.
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Old 11-24-2003, 11:46 AM   #4
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Re: Profit Margin


Our goals are basically to grow to be a small-mid sized GC. By this I mean I would like to see our gross revenue reach 2 million within the next 2 years. I will be looking into lowering our overhead to help increase profit. I forgot to mention that each partner has their own vehicle which is completely paid for by the company. In addition each partner has a gas account for all their personal vehicles that is picked up by the company. I guess you would call these perks ,however, they lower our bottom line (profit) by about $18,000.00 a year. If I add that no. to our profit we are netting about 5.6% after tax. The type of work we do is generally residential renovations for homes owned by handicap agencies. We will be trying to expand our client base to include public work when our bonding line has been solidified. Thanks for any opinions and or feedback.

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Old 11-24-2003, 12:35 PM   #5
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Re: Profit Margin


I work with some general contractors that take my price and add 15%-20%. I think 10% would be minimum!

I also know some general contractors that build houses for flat fees. You supply the prints he supplies the subs. He adds $10,000 for himself no matter what size house.

I plan to re-red this topic when I have more time to actually study it.
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Old 11-24-2003, 04:14 PM   #6
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Re: Profit Margin


Quote:
Originally Posted by ASG & C INC.
... I will be looking into lowering our overhead to help increase profit. ...
Joe
Cutting costs won't make you rich, but increasing revenues will. The real trick is to grow your revenues while reducing your costs as a percentage of gross revenues. In other words, your revenue growth should be faster than your cost growth.
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Old 11-24-2003, 07:20 PM   #7
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Re: Profit Margin


To Grumpy - one thing to remember some of that 15-20% is taken up for coordination and administration costs. Depending on subs we will add more or less than that. If we have one sub that does really good work but is just a PITA we'll add more than someone who is pretty much self-sufficient. So of that 15% we will actually only see around half or less as true profit.
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Old 11-24-2003, 10:38 PM   #8
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Re: Profit Margin


Ok I totally needed to read further before replying. I was talking if a sub bids on a job what you should add. Like I said in my lat post, I need to read further.

If a sub is bidding on a project for me I always add 10% or more. I've no idea how to answer your question since my boss handles the financials. I do know our revenue is almost 2 mil this year but other than that I've no idea wha tour profit is.
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Old 01-20-2011, 04:20 PM   #9
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Re: Profit Margin


A profitable company should be shooting for a minimum 10% net. You said you had $50,000 left over which is about a 4% net profit. You need to figure out what the profit margin should be to achieve that 10% net profit. Your partner is right but at least you are in the green. I know for my heating and air conditioning company I work for, we need a 40% profit margin to achieve double digit net profits.
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Old 01-20-2011, 05:08 PM   #10
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Re: Profit Margin


FYI: This thread is 8 years old.

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Old 01-20-2011, 08:49 PM   #11
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Re: Profit Margin


Lol. That's the first thing I saw Mike.

I shoot for 5%. I do back flips if I get that. 3% is average.
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Old 05-04-2011, 08:12 PM   #12
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Re: Profit Margin


Quote:
Originally Posted by ASG & C INC. View Post
For a small general contractor, does anyone have any idea what an acceptable range of profit margin (based on overall sales) would be? My partner seems to think we should have more cash in the bank than we do. We are a small co. of 3 partners, one full time employee, one part time employee and we sub out approx 90% of ea. project. Last year we grossed 1.2 million and after all was told and done we had $50,000 left over. Let me add more information. Each partner is taking home $1,400.00 a week (after taxes), has full medical benefits, gets $6,000.00 a year invested in an IRA, and received a $5,000.00 Christmas bonus. I feel we are doing well where my partner feels having $50,000.00 in the bank for a company that does the business we do is pitiful. Any feedback appreciated.

Joe
Hello we do anywhere from 450K to 750K in gross revenue a year we average about 22% GP we have myself and 2 employees and the rest is sub contracted
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Old 05-04-2011, 08:20 PM   #13
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Re: Profit Margin


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Originally Posted by ASG & C INC. View Post
Our goals are basically to grow to be a small-mid sized GC. By this I mean I would like to see our gross revenue reach 2 million within the next 2 years. I will be looking into lowering our overhead to help increase profit. I forgot to mention that each partner has their own vehicle which is completely paid for by the company. In addition each partner has a gas account for all their personal vehicles that is picked up by the company. I guess you would call these perks ,however, they lower our bottom line (profit) by about $18,000.00 a year. If I add that no. to our profit we are netting about 5.6% after tax. The type of work we do is generally residential renovations for homes owned by handicap agencies. We will be trying to expand our client base to include public work when our bonding line has been solidified. Thanks for any opinions and or feedback.

Joe
Ya you guys are doing well your making 100K a year each plus 50K profit thats excellent I make a 130K a year doing 450-750K in gross revenue so ya you guys are doing well i cant believe your making it work though with 2 partners, usually thats the only ship that doesnt sail

Last edited by generalrenos; 05-04-2011 at 08:27 PM.
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Old 05-04-2011, 08:21 PM   #14
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Re: Profit Margin


I think the OP was doing pretty good if they had 50k left over in profit, after paying for all those vehicles, overhead, salaries, benefits etc and also subbing 90%. that was pure volume, not sure that would happen these days.
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Old 05-05-2011, 06:15 AM   #15
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Re: Profit Margin


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I think the OP was doing pretty good if they had 50k left over in profit, after paying for all those vehicles, overhead, salaries, benefits etc and also subbing 90%. that was pure volume, not sure that would happen these days.

Absolutely right!

'Profit' on its own is meaningless. Gross profit means something, but to discuss nett profit independantly of what has already been taken out in wages and benefits is a waste of time
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Old 05-05-2011, 08:22 AM   #16
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Re: Profit Margin


I agree with the others. Sounds like given the company structure and compensation benefits, there is enough profit. If you really want more profit, it sounds like trimming on the benefits would be the better way to go if you want it to look good on paper. With 3 partners, you guys seem to be running pretty top heavy, especially since all the labor is subbed out.
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Old 05-10-2011, 01:29 PM   #17
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Re: Profit Margin


Okay, I know this is an "old" thread.....but none of the answers really got to the meat of the question. The problem seems to be related to confusion over "margin" "markup" "gross margin" "operating margin" "net margin" etc. Also, the fact that the contracting business (let's assume someone operating as a GC for a minute) is very different than a typical business where a banker might say "10% is good and we don't look at anything less than 6%". The GENERAL contracting biz is very different.

So, to assume we're talking about a general, I'd like to get some input as to the different layers of margins, considering that TOTAL revenue is the TOTAL amount of money directed to the project. The vast vast vast majority of that is simply doled out to the subs. But, it's still considered revenue to the GC (and both the general and sub get to pay TAX on it...yea!). Let's assume a general contractor who builds ________ (it doesn't matter). A the end of the year, let's say they did 10 projects with a total cost of $4milllion each, for total "revenue" of $40 million.

1) Gross Margin (deduct direct project expenses): Of that $40 million how much would you guys (a range maybe) require to be kept by your firm as GROSS profit (the profit on top of the total expense dedicated to the projects themselves, such as permits, fencing, materials, subs, insurance, etc...but BEFORE administrative costs, overhead, partner salaries, etc. are taken out)?

2) Operating Margin (now deduct admin & overhead): Now that ___% - ___% has been earmarked as a reasonable GROSS profit range, let's take out all the other costs required to run the business (BUT IGNORE OWNER'S/PARTNER'S SALARIES as that is the NET/NET profit). So, if GROSS profit was $2 million on the $40million worth of projects, now we take out all other expenses such as overhead, advertising, t&e, insurance, administrative staff......etc., etc. How much do you guys typically see here?

3) NET Margin: Finally, now that all the direct project expenses and administrative/overhead expenses, taxes etc. have been taken out, there should be (maybe) some $$ left over at the end. This would be the net profit of the firm, that can be paid out to owners/partners or retained for growth (of course some of this has already been paid out to the owners/partners as their salary, all along....but pretend it hasn't).

So we have:

* Gross Revenue of $40 million

* Direct Project Related Expenses (subs, materials, permits, insurance, bonding, fencing,.....etc.) ______?

* Overhead and Administrative Expenses (general insurance, phones, power, advertising, t&e, vehicles, admin staff wages and benefits, local business taxes paid, etc.) ______?

* NET NET Profit avail. to owners/partners or retained in firm. _____?


I guess what I'm wondering is, for a GC, how much margin is built in on the actual job....and then how much some of you guys are looking at in terms of net to the pocket at the end of the year, as a % of total business. Right now, we're looking at people submitting suicide bids all over the place, with maybe only $200K worth of planned (which may not even come to pass) gross profit on $3.5 million projects. After taking the admin out of that, and assuming Murphy never shows up.....our firm would be lucky to get to keep $125-$150K (after taking all the risk) on the $3.5 million total project.

Last edited by lomez; 05-10-2011 at 01:43 PM.
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Old 03-08-2013, 03:27 PM   #18
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Re: Profit Margin


The average is 40% margin which is a 1.67 multiplier. The problem is 3 partners. The average income for a General Manger of that size company is approx. 85k plus burden so about 110k. And then a 10% net which is a healthy profit. So for three people taking about 110k each you guys are doing amazing. I would say if he wants more in the bank increase sales your current size with 3 full time owners should be able to handle twice as much volume with not adding any overhead. Just my opinion after 27 years
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Old 03-30-2013, 12:12 PM   #19
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Re: Profit Margin


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The average is 40% margin which is a 1.67 multiplier. The problem is 3 partners. The average income for a General Manger of that size company is approx. 85k plus burden so about 110k. And then a 10% net which is a healthy profit. So for three people taking about 110k each you guys are doing amazing. I would say if he wants more in the bank increase sales your current size with 3 full time owners should be able to handle twice as much volume with not adding any overhead. Just my opinion after 27 years
AGREED, depending on what the "partners" DO. We're a commercial GC and the partners do marketing, estimating, and project management. I was in a similarly structured firm before. In this structure, each partner should be able to handle over $1,000,000 in revenue. If the partners are doing more field/superintendent work then they will be able to be responsible for less revenue, and their salary and benefits may be more than what the market would otherwise pay for that position.
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Old 03-30-2013, 12:31 PM   #20
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Re: Profit Margin


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