Contractor Talk - Professional Construction and Remodeling Forum banner
1 - 20 of 31 Posts

·
Registered
Joined
·
1 Posts
Discussion Starter · #1 ·
So I have been doing remodeling for about 15 years and finally started my own small business. I do flooring installation of vinyl and hard surfaces(wood, tile , laminates and vinyl planking). Me and a friend started a partnership everything is 50 50 there but now we are left wondering what to save for all expences. We basically just split all earnings 3 ways. Me, him and the company. We are just wondering is that to much or to little?? And what should we be paying ourselves? And what to save to keep the company successful?
 

·
Owner/Installer
Joined
·
66 Posts
I own a flooring business in south jersey. I don't take a salary and spend whatever I have to on supplies. It sounds to me like you are ahead of the game splitting it like that. I think youre in good shape! Congrats on the start!
 

·
Registered
Joined
·
121 Posts
Pay yourself as much as you can but not to much where you pricing your work to high. It can be pretty darn hard to figure out if your to high in the general contracting business but if you stick to a certain trade like you do it should be fairly easy.

I think you should have a little better system than splitting the profits in thirds though...

Here is what I have learned to do. I'm still a new company....

First I figured what I wanted to get paid after taxes. I made it a bit more than I used to make when I worked for my previous employer in the same trade. I pay myself only for the labor I do on the jobs since I am a hands on contractor.

Then I estimated how much work my company would do for one year which is the Projected Job Costs - the total cost to complete jobs (what I get paid and other all job costs) Lets just say 100k for ease

Next I figure my overhead, which is what it costs for my company to run throughout the year. (insurances, licenses, truck tag, tires, vehicle maintenance, marketing, uniforms, tools, phone bill, new trailer purchase etc.) Lets say 15k

Then I figured how much profit I wanted my company to make for the year and it seems that if you can make 10% then you doing good. So 10% of 100k is 10k.

Now I can figure my markup... From 100k of business I need to also generate an additional 25k of $$$ to cover the overhead (15k) and the profit (10k). This 100k+15k+25k= Total Volume

In order to make that extra 25k off of the 100k I need to markup every job by 25%. 100k x 25% = 125k So you would be marking up your labor and any other job costs (materials, fuel, subcontractors etc.)


From my understanding, companies where the owner may not be on the job doing the work you would increase the markup and that would generate the money to pay your salary.

But to get to that point you need high volume so that the salary markup can be spread among more jobs or your prices would probably be to high. So I hope to get to a higher volume that way I can pay myself for the labor I do on jobs and also a salary.

I hope this makes sense.... I learned all this from a book I'd suggest getting "Markup and Profit, A contractors guide".
 

·
Registered
Joined
·
2,643 Posts
Pay yourself as much as you can but not to much where you pricing your work to high. It can be pretty darn hard to figure out if your to high in the general contracting business but if you stick to a certain trade like you do it should be fairly easy.

I think you should have a little better system than splitting the profits in thirds though...

Here is what I have learned to do. I'm still a new company....

First I figured what I wanted to get paid after taxes. I made it a bit more than I used to make when I worked for my previous employer in the same trade. I pay myself only for the labor I do on the jobs since I am a hands on contractor.

Then I estimated how much work my company would do for one year which is the Projected Job Costs - the total cost to complete jobs (what I get paid and other all job costs) Lets just say 100k for ease

Next I figure my overhead, which is what it costs for my company to run throughout the year. (insurances, licenses, truck tag, tires, vehicle maintenance, marketing, uniforms, tools, phone bill, new trailer purchase etc.) Lets say 15k

Then I figured how much profit I wanted my company to make for the year and it seems that if you can make 10% then you doing good. So 10% of 100k is 10k.

Now I can figure my markup... From 100k of business I need to also generate an additional 25k of $$$ to cover the overhead (15k) and the profit (10k). This 100k+15k+25k= Total Volume

In order to make that extra 25k off of the 100k I need to markup every job by 25%. 100k x 25% = 125k So you would be marking up your labor and any other job costs (materials, fuel, subcontractors etc.)


From my understanding, companies where the owner may not be on the job doing the work you would increase the markup and that would generate the money to pay your salary.

But to get to that point you need high volume so that the salary markup can be spread among more jobs or your prices would probably be to high. So I hope to get to a higher volume that way I can pay myself for the labor I do on jobs and also a salary.

I hope this makes sense.... I learned all this from a book I'd suggest getting "Markup and Profit, A contractors guide".
I'm about a third through the book and this post pretty well summarizes what I've read so far. Wish I had saved myself some time. :laughing:
 

·
Registered
Joined
·
810 Posts
The first thing to do is banish the term "markup" from your vocabulary. A real business runs on margin, not markup.
 

·
Registered
Joined
·
2,213 Posts
The first thing to do is banish the term "markup" from your vocabulary. A real business runs on margin, not markup.
I don't think so Coffer.... although at the company level of discussion, I think "margin" is probably referenced more.

From an accounting nomenclature, it's just usefull to understand the distinction in normal accounting/financial usage.

Ignoring/simplyfying the issue as to "net" and "gross" references, both terms are normally expressed as a %..... but a % of a different figure/reference. They both can be referenced as an absolute figure also.

Simplyfing:

Your costs are 100
Your revenue is 150

Your profit is consequently 50.

Mark-up is profit/cost and margin is profit/revenue.

So in this case.... Mark-up is 50/100 or 50%
So in this case.... Margin is 50/150 or 33%

Same thing.... different reference.

But we use both as customary, just understand the difference.

If I supply product and "mark-it-up" (not margin it up) 50%, I will be making a 33% margin on it.

Normally, when reviewing, or pro-forma financials.... we reference things relative to revenues,(not cost) and use the margin term. If I had 150K in revenue, and I made 50k, I would normally reference that as I had a 33% margin.....

Just understand the difference. We use both references in business.
 

·
Hair Splitter
Joined
·
18,331 Posts
Mark-up is profit/cost and margin is profit/revenue.
I could be wrong but I thought that Markup was cost/selling price and margin was profit/selling price.

$100 cost
25% markup
$125 selling price

$125 selling price
20% margin
$25/$125

If you wanted a 25% margin you have to markup 33.3%

Anyone?
 

·
Registered
Joined
·
2,213 Posts
I could be wrong but I thought that Markup was cost/selling price and margin was profit/selling price.

$100 cost
25% markup
$125 selling price

$125 selling price
20% margin
$25/$125

If you wanted a 25% margin you have to markup 33.3%

Anyone?
Well.... Your right and wrong and we are saying the same thing... confusing... try the math

cost/selling price= 100/125 does not equal your markup figure of 25%....think it's closer to 80%.

And yes... your figures below your definition are correct and yes if you want a 25% margin (profit/revenue or selling price) you need a 33% mark-up profit/cost.

cost is 75
selling price is 100

markup is $25 or 25/75 as a 33%
margin is 25/100 or 25%

I don't see where you are confused except maybe a typo up top.

Best
 

·
Hair Splitter
Joined
·
18,331 Posts
Well.... Your right and wrong and we are saying the same thing... confusing... try the math

cost/selling price= 100/125 does not equal your markup figure of 25%....think it's closer to 80%.

It works. $100 cost that is selling at $125, mark up is $25 or 25% of the cost. 100+25=125. I don't see 80% markup. The 80% is the cost percentage or $100. A markup of 80% would make the final selling price $180. 80% of 100 = 80 or $180.

And yes... your figures below your definition are correct and yes if you want a 25% margin (profit/revenue or selling price) you need a 33% mark-up profit/cost.

cost is 75
selling price is 100

markup is $25 or 25/75 as a 33%
margin is 25/100 or 25%

I don't see where you are confused except maybe a typo up top.

Best
My head is spinning, gotta go shovel the drive again.
 

·
Registered
Joined
·
2,213 Posts
My head is spinning, gotta go shovel the drive again.
TNT.... MY point AND YOUR point........

Go read your first post.......... you said (I highlighted) that mark-up was COST/SELLING PRICE but had all your calculations and reasoning and other figures correct...... I merely pointed out that your definition resulted in 80% as a mark-up,(yet you had calculated it correctly at 25%) and you had calculated everything right....

that's why I called it a typo.

You are correct and understand it.... you just type/space-out worse than me you DS.

Go shovel some more snow and let's find something we disagree on...:laughing::thumbup::clap:

Best

Peter
 

·
Registered
Joined
·
2,104 Posts
Could someone kindly explain the calculator steps to get these numbers?

The simplified version of Sailing and Such is how I've always done it- but it just seems the margin calculation is the correct way- even though this guy cannot make it work. Please and thank you.
 

·
Registered
Joined
·
2,213 Posts
Could someone kindly explain the calculator steps to get these numbers?

The simplified version of Sailing and Such is how I've always done it- but it just seems the margin calculation is the correct way- even though this guy cannot make it work. Please and thank you.
Roof.... sorry honestly do not understand your question....:rolleyes:
 

·
Registered
Joined
·
2,104 Posts
Maybe thats my problem, I can't explain it so I cannot calculate it.

One does'nt necessarily know the selling price, you know the costs and your margin is 25%, i.e. you want to make a 25% margin not 25% mark up.

A. 75 x .25 = 18.87 + 75 = 93.75 (.25 represents 25% mark up)
B. 75 + 25% = 100.00


I guess this is one reason why tradesmen struggle with the complicated numbers. Doesn't seem that complicated now.

Aside form making additional $6.25 per $100...

How do you actually get the margin number of 25% or whatever it may be? Speculation guesstimate?
 

·
Registered
Joined
·
308 Posts
Better and shorter way to think of it is this..

You pay $100 for something. You want to have a 25% margin/markup.
Divide the $100 x .75 = $133.33
This is the correct math for margin.

If you think that $125 is the correct answer you are shorting yourself by roughly 7% which I learned is the hidden cost of every job for material handling to the curb.

Therefore you have a contractor who does excellent work and does not charge enough markup/margin and is losing 7% on everything he provides and does not know that 7% of job costs are selecting, ordering, take offs and humping the material to the job.
The same great quality work guy is now slowly running 15% behind a competitor who does less quality work but knows the math and in a matter of 6 months is substantially ahead of the harder working & better workmanship contractor.

Please guys...cost vs. margin..... understand it.

Cost = multiply by the discount (20%, 10% , etc)
Margin/Markup = divide by the percentage you want to make from 100 ( 20%=.80, 25%=.75, etc)
 
1 - 20 of 31 Posts
Top