Quote:
Originally Posted by AutumnWood Inc.
Subs and materials vary month to month.... but profit should stay the same ? And subs react to the material costs ?
Not sure ?
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AutumnWood that is pretty close to what I am getting at with publishing the chart. You're about halfway there.
Ironically this chart is for a four carpenter general all around carpentry contractor but spring summer and fall they have an excellent deck business that really picks up for them. The subcontracting they do is mostly for deck and outdoor lighting and little bit of plumbing for hot tubs and moving hose bibs.
Looking at the yellow Material Cost line I think we can say it seasonally variable. It pretty much is just a hump or one wave.
On the other hand the the magenta SubConting line is what I describe as "predictibly unpredictably variable" meaning that he can predict that his SubContracting requirements and SubContracting sales are going to be "unpredictably variable."
Finally though what I think is so important to see is that the blue Labor Cost line and the red Overhead Cost line run roughly parallel to each other.
I don't know if you were here for this other discussion I got in on here regarding
overhead and profit but in it I made the argument for using a Capacity Based Markup like David Gerstel describes in Chapter 5 Estimating and Bidding; pgs 167 through 168 of his book
Running a Successful Construction Company instead of a Volume Based Markup like Michael Stone writes about in his book
Markup & Profit.
My reasoning is that since a Volume Based Markup ties your overhead recovery and profitability to the Cost Of Goods Sold (COGS), in other it's tied to the sum of Labor, Materials, and SubContracting cost it therefore tied to something that is both variable and unpredictable whereas on the other hand a Capacity Based Markup ties your overhead recovery and profitability only to your Labor Cost and since they both trend along the same parallel line month to month that assures a contractor that his overhead and profitability are stable and consistent.
The next part of the question is looking ahead to 2009 given the economic climate we are in if this contractor can keep his project pipeline full and keeps his employees busy he might have to make projects more affordable to his prospective clients by offering less expensive material choices and those prospective clients might forego the frills like the deck lighting and hot tubs.
Under those conditions what happens to a Capacity Based Markup Contractor vs. a Volume Based Markup Contractor in 2009 if lets say Labor Sales remain the same, but Materials sales drop 40% and SubContracting drops 50%?
By the way I have a spreadsheet workbook I did up in both Numbers 09 for Macintosh
iWork 09 users and Excel for Mac & Windows users who use Excel that has the numbers in it that you can look at and play with if you PM me with your email address and ask me for it.
Linear Mode
