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Estimating Question

 
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Old 12-02-2009, 08:29 AM   #21
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Re: Estimating Question


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Originally Posted by thom View Post
There is no simple answer to your question. The fact that your asking it is a good indication that you are already on the road to failure.



Thom,

Did it ever occur to you that maybe d-rock asked this question so he could avoid the road to failure?
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Old 12-02-2009, 08:53 AM   #22
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Re: Estimating Question


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Thom,

Did it ever occur to you that maybe d-rock asked this question so he could avoid the road to failure?
Let's not blast the member that took the time to give a very descriptive response to the OP's question.
He may have seemed a bit judgemental in his closing statement,but we all have bad days ,and when we have to compete with those that don't understand the basics of pricing,the frustration will surface.
Unfortunately,d-rock was in the cross hairs on this one.

Stick around d-rock,belly up to the bar and get a feel for the many personalities and opinions you'll find here.
Lots to learn,mixed in with all the joking,jabbing and comradery.
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Old 12-02-2009, 09:14 AM   #23
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Re: Estimating Question


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Originally Posted by oldfrt View Post
Let's not blast the member that took the time to give a very descriptive response to the OP's question.
He may have seemed a bit judgemental in his closing statement,but we all have bad days ,and when we have to compete with those that don't understand the basics of pricing,the frustration will surface.
Unfortunately,d-rock was in the cross hairs on this one.

Stick around d-rock,belly up to the bar and get a feel for the many personalities and opinions you'll find here.
Lots to learn,mixed in with all the joking,jabbing and comradery.
Oldfrt, you are correct, and I thank you for it. And to Thom, my apologies.
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Old 12-02-2009, 10:48 AM   #24
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Re: Estimating Question


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Originally Posted by d-rock View Post
What is a good way for me to come up with an overhead percentage to add to hourly rate ?
See below.
If I add that on every job, wouldn't I be overcharging?
No.
Eg. If total OH for month is $1000, and i figure that on every job am i double dipping? See below.

In this economy, every penny counts.
Absolutely.
First you need to determine how much you need to make then how much you want to make before you add any percentage points. Need to make equals enough to pay yourself to cover your basic living expenses (your salary this is not the same as O & P) and pre determined employee base wages (if applicable). Want to make is self-explanatory.

Then you need to estimate how many billable hours you will have in a year. You can do this by reviewing your previous history then estimating whether the hours will increase, decrease, or stay the same. If you do not have a previous history then you can use 1500 or less as a starting point but you need to monitor the number closely or you risk either losing money or over charging. Over charging can result in lost work.

Once you have determined the above you need to calculate your annual fixed general overhead costs and covert them to a percentage of your billable hours. It is important to know the percentages assigned to each overhead item in order to accurately track and adjust them. Do not fall victim to simply assigning one lump percentage rate, as this is impossible to track accurately. The fixed general costs include things such as insurance, maintenance and repairs of vehicles, gas and oil, annual allotment for replacement, cellular telephone costs, office expenses (fax, phone, computer, stationary, pens, pencils, ink, and so on), tool expenses, magazine dues for trade magazine, trade association dues, accountant and lawyer fees. Do not forget to include non-billable hours in these calculations for things such time spent giving free estimates (if you offer free estimates), office employees, labor force mobilization (I prefer to place this in variable overhead), time spent on vehicle maintenance, and so on. There are many possible variables to be considered in the non- billable category so just make sure you address all that pertain to your business.

Variable overhead expenses are expenses related directly to the job that would not be incurred otherwise. You must calculate these separately on a job-by-job basis.

Now take all the percentages and add them together for the purpose of determining your billing rate. Take this number and add 100 to it. Then multiply it by the base wage you set for yourself and you will have a billing rate reflecting general overhead only. Example:

Total general overhead percentage 75% + 100 = 175% x base hourly wage $35.00= $61.25 per hour.

Remember that this is not including profit or taxes but pertains only to general overhead. I would advise you to speak with your accountant to determine the appropriate percentage rates for taxes along with how to adjust these numbers as they are calculated on a sliding scale system. To add profit to the above number you would take 61.25 and multiply it by your profit margin percentage plus 100.
Example:
61.25 x 10% + 100 (110%)= $67.375 round up to $67.38.

Remember when assigning your profit margin to consider all factors and not be reliant on an across the board rate. There is not necessarily a one number fits all jobs percentage for profit. This number will fluctuate dependant directly on the job. Many variables can affect this rate including but not limited to: risk, value, market (what will it sustain?), and so on.

I also recommend you read up on estimating construction costs, basic business practices, construction management, job cost tracking, as well as business courses if you have the time. Overhead numbers are directly tied to many factors of which many are controllable, such as waste. The information I provided above is a rather simple explanation of how to calculate overhead. There are both more and less complicated ways to figure these numbers. Whatever system you decide to use make sure you constantly refine the system and that the system allows you to track your expenses accurately. Being able to accurately track your expenses is key to keeping you operating costs down and maximizing your profits while maintaining a steady influx of work. Good luck.

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Old 12-02-2009, 12:11 PM   #25
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Re: Estimating Question


Thanks for the info gentlemen.
This is what I've been doing:
1.estimating material
2.estimating labor cost along with taxes and workers comp
3. adding 15-20% for profit/overhead

I didn't consider my salary, because I paid myself as foreman on site. I figured vehicle and all that other stuff gets covered under the 15-20%.
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Old 12-02-2009, 12:41 PM   #26
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Re: Estimating Question


15% to 20% sounds low, even for a new guy with low over-head. 10% is the ball park for an owner's pay, 10% of gross that is. This is on top of what you pay your self to do the actual work. Think of it this way, one day you will want to have someone do the work you do now and be the boss. You still want to make money as the boss, and pay your guys doing the work. If you are doing the work now, and being the boss, shouldn't you get paid to do both?!?! It's like having a part-time job...you wouldn't work for free for someone else, why under pay yourself?
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Old 12-02-2009, 04:28 PM   #27
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Re: Estimating Question


d-rock,
I use to bid the job out total hard cost that are everyday expenses, labor to get it complete plus 10% more for extras that "I thought that was included phrase" Total it up and add 30% to the total cost. Well those were the days, now everyone is working out of station wagons, no ins. not properly licensed...and here we are. No one trust a contractor. I may live in an area where it seems now ok to do this, however it is making it real hard to survive. If your in NYC then you can do this, me I can not because there has never been a union to get the price up where it really should be today. Good luck with you company.
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Old 12-02-2009, 05:11 PM   #28
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Re: Estimating Question


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Originally Posted by Meetre View Post
15% to 20% sounds low, even for a new guy with low over-head. 10% is the ball park for an owner's pay, 10% of gross that is. This is on top of what you pay your self to do the actual work. Think of it this way, one day you will want to have someone do the work you do now and be the boss. You still want to make money as the boss, and pay your guys doing the work. If you are doing the work now, and being the boss, shouldn't you get paid to do both?!?! It's like having a part-time job...you wouldn't work for free for someone else, why under pay yourself?
I think you're confusing reward with hourly pay. Being the owner or boss does not necessarily entitle you to any more or less pay on the job site. You are an employee of your company. You should not go uncompensated for work that you perform which is why you should issue yourself a paycheck for all hours worked billable or not. You recoup the cost for this by adjusting your overhead rates to compensate. The reward for your risk (owning the company or in your words being the boss) is a percentage of the profit on the job. Even when performing management (non-field work) tasks down the road you will draw a salary that you set for yourself. This salary becomes wrapped up in overhead as it is not usually directly billable to the client.

You can add fees for project management by percentage or estimate the time you think you will dedicate to these activities and add that amount to the total cost. You should not attempt to "double dip" by charging both a rate for project management and skilled trade for all hours you are on the job as you are not performing both functions constantly at the same time. Doing so can result in pricing yourself right out of the job. The owners pay is not directly attached to any generic percentage point but is what the owner sets it at based on consideration of other factors. I have never heard something so ludicrous as the owners pay is 10% of the gross.
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Old 12-02-2009, 05:21 PM   #29
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Re: Estimating Question


there is very little movement in O.H. costs. insurance and vehicle payments are what they are. so in order to tighten a bid I will have to cut profit. However, from reading here I have gleaned that I will no longer fuse my profit and overhead numbers together. I will keep them totally seperate. might also be better for keeping track of money in and out.
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Old 12-02-2009, 11:23 PM   #30
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Re: Estimating Question


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I think you're confusing reward with hourly pay. Being the owner or boss does not necessarily entitle you to any more or less pay on the job site. You are an employee of your company. You should not go uncompensated for work that you perform which is why you should issue yourself a paycheck for all hours worked billable or not. You recoup the cost for this by adjusting your overhead rates to compensate. The reward for your risk (owning the company or in your words being the boss) is a percentage of the profit on the job. Even when performing management (non-field work) tasks down the road you will draw a salary that you set for yourself. This salary becomes wrapped up in overhead as it is not usually directly billable to the client.

You can add fees for project management by percentage or estimate the time you think you will dedicate to these activities and add that amount to the total cost. You should not attempt to "double dip" by charging both a rate for project management and skilled trade for all hours you are on the job as you are not performing both functions constantly at the same time. Doing so can result in pricing yourself right out of the job. The owners pay is not directly attached to any generic percentage point but is what the owner sets it at based on consideration of other factors. I have never heard something so ludicrous as the owners pay is 10% of the gross.

I think you may have miss understood my post. We seem to be saying the same thing IMO. 10% is the "profit" the owner "gets" for owning the business (or what ever your # is). But that is the reward, for owning the business. You still get paid for the responsibilities of the jobs you do for the company, not "double dipping". Just getting paid for owning the business too.
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Old 12-02-2009, 11:34 PM   #31
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Re: Estimating Question


hey d-rock, check out a book called Mark Up & Profit a Contractor's Guide by Michael Stone. It's a pretty good read if you want learn how to figure O/H and all that good stuff
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Old 12-03-2009, 06:59 PM   #32
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Re: Estimating Question


hey d-rock, My ex worked for Ellis-Don Ltd. a very large GC. Typically they doubled the UNION hourly rate.

I thing 3X is excessive, I myself multiply employee hourly rate times 1.75

Only my experience, but normal (accepted in business) P&O is 10% and 10%

Having said all that, some feel the job is worth what you can get for it. Just different strokes for different folks. In todays' competitive market, I would stick with the 10 plus 10
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Old 12-03-2009, 08:16 PM   #33
 
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Re: Estimating Question


Two must read books,

Markup & Profit by Micheal Stone

Guaranteed Profit in the Painting Business by Len Fife
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Old 12-03-2009, 09:16 PM   #34
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Re: Estimating Question


Wow!

Charge labor at 3x - 5x ??!!??

When your starting out!

Let me guess, if he fails to get the job ... maybe he should try putting his bids in a "presentation folder".... am I getting this straight?

Awesome advice... right up there with kissing the business end of a shotgun IMO. Come on guys, WTF kind of advice is that.

Nice back handed slap at the end of the post too. Nice way to treat someone in the trades. Whats the matter guys, afraid the new guy is gonna steal your job, by underbidding you?

Take some of my advice...

If you need to charge 3-5x your labor rates, your overhead is probably too much for the current economy. Your going to lose business to guys like d-rock. I get the feeling some of you guys are nothing but lumps of overhead sitting behind a desk.

While your at it, get rid of the secretary, bookkeeper, your useless son, and yes even your wife the "designer". Cut your business to the bone, roll up your sleeves, and get dirty, you whiny S.O.B.s

Who the heck do you people think you are, telling a new guy, he's on the "road to failure" for not marking up 300-500%.

I'm done reading this crap, Forum was great at first, I've seen a lot of great advice here, especially in the older posts. Maybe its the economy but most, of the posts I've been reading are currently garbage.
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Old 12-04-2009, 12:02 AM   #35
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Re: Estimating Question


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Originally Posted by NormW View Post
Wow!

Charge labor at 3x - 5x ??!!??

When your starting out!

Let me guess, if he fails to get the job ... maybe he should try putting his bids in a "presentation folder".... am I getting this straight?

Awesome advice... right up there with kissing the business end of a shotgun IMO. Come on guys, WTF kind of advice is that.

Nice back handed slap at the end of the post too. Nice way to treat someone in the trades. Whats the matter guys, afraid the new guy is gonna steal your job, by underbidding you?

Take some of my advice...

If you need to charge 3-5x your labor rates, your overhead is probably too much for the current economy. Your going to lose business to guys like d-rock. I get the feeling some of you guys are nothing but lumps of overhead sitting behind a desk.

While your at it, get rid of the secretary, bookkeeper, your useless son, and yes even your wife the "designer". Cut your business to the bone, roll up your sleeves, and get dirty, you whiny S.O.B.s

Who the heck do you people think you are, telling a new guy, he's on the "road to failure" for not marking up 300-500%.

I'm done reading this crap, Forum was great at first, I've seen a lot of great advice here, especially in the older posts. Maybe its the economy but most, of the posts I've been reading are currently garbage.
everybody's posts are cool. YOURS is THE BEST. My gut tells me you're right. I sat down and crunched the numbers 100 times, and that's why i started this thread. I think my overhead should increase gradually. I think to build a business you have to start at the **** end and work like an animal to hit the pocket. I am everyone in this company; salesman, foreman, project manager, estimator, janitor. I'm sure you all started like this .
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Old 12-04-2009, 01:10 AM   #36
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Re: Estimating Question


Quote:
Originally Posted by NormW View Post
Wow!

Charge labor at 3x - 5x ??!!??

When your starting out!

Let me guess, if he fails to get the job ... maybe he should try putting his bids in a "presentation folder".... am I getting this straight?

Awesome advice... right up there with kissing the business end of a shotgun IMO. Come on guys, WTF kind of advice is that.

Nice back handed slap at the end of the post too. Nice way to treat someone in the trades. Whats the matter guys, afraid the new guy is gonna steal your job, by underbidding you?

Take some of my advice...

If you need to charge 3-5x your labor rates, your overhead is probably too much for the current economy. Your going to lose business to guys like d-rock. I get the feeling some of you guys are nothing but lumps of overhead sitting behind a desk.

While your at it, get rid of the secretary, bookkeeper, your useless son, and yes even your wife the "designer". Cut your business to the bone, roll up your sleeves, and get dirty, you whiny S.O.B.s

Who the heck do you people think you are, telling a new guy, he's on the "road to failure" for not marking up 300-500%.

I'm done reading this crap, Forum was great at first, I've seen a lot of great advice here, especially in the older posts. Maybe its the economy but most, of the posts I've been reading are currently garbage.
This post wins! I quoted the whole thing so everyone could read it again. 2009 has seen quite a few "big" organizations go under in all fields, 2010 probably won't be much different. Stubbornly clinging to high margins isn't the answer, sorry.

When you're a solo (or small) outfit, making enough to pay yourself and your crew a fair salary to personally do the work and cover your minimal overhead is more than fair when the phone's not ringing. Worry about how to manage a larger operation when you're faced with that high-class problem
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Old 12-04-2009, 08:25 AM   #37
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Re: Estimating Question


Quote:
Originally Posted by NormW View Post
Wow!

Charge labor at 3x - 5x ??!!??

When your starting out!

Let me guess, if he fails to get the job ... maybe he should try putting his bids in a "presentation folder".... am I getting this straight?

Awesome advice... right up there with kissing the business end of a shotgun IMO. Come on guys, WTF kind of advice is that.

Nice back handed slap at the end of the post too. Nice way to treat someone in the trades. Whats the matter guys, afraid the new guy is gonna steal your job, by underbidding you?

Take some of my advice...

If you need to charge 3-5x your labor rates, your overhead is probably too much for the current economy. Your going to lose business to guys like d-rock. I get the feeling some of you guys are nothing but lumps of overhead sitting behind a desk.

While your at it, get rid of the secretary, bookkeeper, your useless son, and yes even your wife the "designer". Cut your business to the bone, roll up your sleeves, and get dirty, you whiny S.O.B.s

Who the heck do you people think you are, telling a new guy, he's on the "road to failure" for not marking up 300-500%.

I'm done reading this crap, Forum was great at first, I've seen a lot of great advice here, especially in the older posts. Maybe its the economy but most, of the posts I've been reading are currently garbage.
You criticized other posters but you failed to answer the OP's original question. The original questions are:

Quote:
What is a good way for me to come up with an overhead percentage to add to hourly rate ?

If I add that on every job, wouldn't I be overcharging?

Eg. If total OH for month is $1000, and i figure that on every job am i double dipping?
If you can not answer the questions then you are not entitled to an opinion on the matter.
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Old 12-04-2009, 11:48 AM   #38
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Re: Estimating Question


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You criticized other posters but you failed to answer the OP's original question. The original questions are:



If you can not answer the questions then you are not entitled to an opinion on the matter.
Thats easy. If you add 20% and you are getting every job, but still have no money you add accordingly until you stop getting everything you bid on have a little money in the pocket

Been in business for 4 years now and now am no longer getting every job. Don't work all day everyday, but when I do work I am making money. I can sit home and go broke. I'll be go to hell if I'll go to work and go broke.
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Old 12-04-2009, 05:00 PM   #39
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Re: Estimating Question


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everybody's posts are cool. YOURS is THE BEST. My gut tells me you're right. I sat down and crunched the numbers 100 times, and that's why i started this thread. I think my overhead should increase gradually. I think to build a business you have to start at the **** end and work like an animal to hit the pocket. I am everyone in this company; salesman, foreman, project manager, estimator, janitor. I'm sure you all started like this .
I missed this earlier. Your overhead is your overhead. You can not increase the percentage gradually to cover it. You must know exactly what your overhead costs are and incorporate them into your costs. If you want to reduce your overhead then you look at the areas that can be eliminated without hurting your business. This is generally done by eliminating waste such as unproductive procedures, excess inventory, unnecessary or unproductive personnel, material waste, work that can not be performed efficiently in house, and so on. Not all examples will apply to all outfits.

You can also cut overhead by shopping for better prices on insurance (be careful and make sure you are getting the coverage you need), phone service, watch or "fleet" cards for fuel, more efficient estimating systems (sometimes you have to spend money to save or make money), and so on.

If you fail to account for your overhead costs efficiently and appropriately you will go out of business. It is not a matter of if but when. When you get caught up in that whole I'll drop my price to get my foot in the door thing you will find it very difficult to ever get your prices up where they need to be for you to succeed and grow. There are countless examples of these scenarios. It does not matter what size business you are, there are tried and true methods for determining your rates. Ignore blanket statements about percentage numbers for overhead that are not backed with real numbers that apply to your business. If you are really unsure how to figure this properly seek guidance from your accountant.
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Old 12-04-2009, 06:20 PM   #40
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Re: Estimating Question


Quote:
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I missed this earlier. Your overhead is your overhead. You can not increase the percentage gradually to cover it. You must know exactly what your overhead costs are and incorporate them into your costs. If you want to reduce your overhead then you look at the areas that can be eliminated without hurting your business. This is generally done by eliminating waste such as unproductive procedures, excess inventory, unnecessary or unproductive personnel, material waste, work that can not be performed efficiently in house, and so on. Not all examples will apply to all outfits.

You can also cut overhead by shopping for better prices on insurance (be careful and make sure you are getting the coverage you need), phone service, watch or "fleet" cards for fuel, more efficient estimating systems (sometimes you have to spend money to save or make money), and so on.

If you fail to account for your overhead costs efficiently and appropriately you will go out of business. It is not a matter of if but when. When you get caught up in that whole I'll drop my price to get my foot in the door thing you will find it very difficult to ever get your prices up where they need to be for you to succeed and grow. There are countless examples of these scenarios. It does not matter what size business you are, there are tried and true methods for determining your rates. Ignore blanket statements about percentage numbers for overhead that are not backed with real numbers that apply to your business. If you are really unsure how to figure this properly seek guidance from your accountant.
Certainly. What I meant was , because i'm starting out my overhead IS low. I'm sure some of you have huge shops, trucks, etc etc etc..I have a home office and van LOL..comp, ins etc. all misc stuff. As my business grows, by default so will my overhead.

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