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Your costs as a Percentage of Gross Income? Please share!!

10K views 97 replies 22 participants last post by  philcav7 
#1 ·
I know most won't want to get too detailed on a public board, but I'm interested in how percentages of gross change as a company gets bigger.

I've always tried for the following, which has a low materials cost.

35% LABOR
15% MATERIALS
15% OVERHEAD
10 % SALES COMMISSIONS
5% MARKETING/ADVERTISING
10% COMPANY PROFIT
10% OWNERS PAY OR MANAGERS PAY


We all know everything has to go into one of those areas, unless you know how to get 110% for every job.

So, if you are grossing under $250,000 what are your percentages?

How about $250,000 to $500,000?

$500,000 to $1m?

$1m and up?

Dont have to give detailed numbers about your gross, just the range you are in, and then if you would, detailed % would be great.

I'll compile all the info and averages in a spreadsheet, and report my findings weekly as we add data.
 
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#4 ·
CScalf, I'm sure there is tons of information, I'm not really interested in looking for old info from 2009, I'm more interested in a conversation, or some realizing they have no idea and motivating them to learn more....Sorry if it looked like I'm a n00b, just because I have 8 posts.

Just curious, maybe a better question is, do you know all your costs as a % of your gross? Notice I didn't just say variable costs, or fixed costs, I asked all of them. I find that most guys just worry about the labor and materials, and I wonder how many out there realize that the sink or swim mark in most sized businesses is doubling their labor and materials? What do you think, are most the guys you know figuring their labor and materials, and then at a minimum, doubling that?


Brand, Kind of figured that. There has to be a sweet spot where the actual net profit figured against your time to manage balances out, right? Thats not really what I was trying to figure out, but a lot miss that and think they have to grow to stay alive, don't they?

1st great business book I read 15 years ago, The E-Myth. Who hasn't read that, right?
latest great business book I've read, last week, Rework. Check it out, its kind of the opposite of the E-Myth, but lots of great insight.
 
#18 ·
PM is a loose term too.... I dont bag up as often as Id like, but still pretty regular, some times a hole or ditch needs dug, sheet rock packed to the second floor....

I made the mistake of spending to much time in my truck last year and a half, now my two lead guys are ready to go and I can get back in the mix pretty regular. Its been great.

When you are spending most of the time in your truck bouncing from job to job or in the office, the disconnect between you and the crew gets to be bigger and bigger. I didnt like it....

When I injured my hand, it really got out of hand...

Now its at 80% [ apparently as good as it gets] , the games back on

Plus my hands were starting to get soft
 
#27 ·
Warren said:
I think you are wrong on most of those points. If I wasn't making a profit, on top of paying myself a wage, I would have become and employee a long time ago. As far as leaving the headaches to someone else???? You really have no clue about the type of service I provide.
Warren, easy big guy, I think you are taking my comments way too personally. Remember, there are thousands of other people I'm talking to, not just you.

I was trying to show that some guys are fine with having a less "independent" type of business, and would trade that independence for a simpler business style. Please don't take offense, like you just said, I don't know you, therefore, im not trying to insult you.

Let start off again on a different foot. I've been a sub before, in the painting business, I know it's not all roses. I actually changed my business to have less headaches, and just deal with homeowners. Some guys think the exact opposite, so I was trying to accommodate them and draw them into the conversation.

What about you, what is the "less headache" style you prefer?
 
#28 ·
Jaws said:
That is ridiculous. Subs dont work for wages any more than builders, at least the good ones.

Why would there be less headaches as a sub? Most builders are azz's, makes for a demanding client base.
Subs don't work for wages any more than builders? I agree with only the second part of that, the good ones. Around here though, the good subs all either become builders, or transition out of new construction into homeowner driven businesses if they are good.

I'm north of Atlanta, semi rural. I know it's different in the city, and in Hilton Head where my cousin builds, the subs commonly make more than we do here working for homeowners.

Still, saying that most, or all subs make a profit, and wages, that's ridiculous, and I'd say most can't prove a profit if they tried. Just sayin, maybe you do, but the majority out there, nope.
Maybe the majority here since they are here to learn, even. But not out in the real world.
 
#31 ·
Im a builder, not a sub.

My plumber lives in a nicer house than many attorneys here.

One of our electricians has a lot of overhead and says he struggles to make a profit. The other has two guys and does very well.

My masonry contractor is a friend, he paid his house off (nice house) before he was 35, he went to africa last year to hunt, with my septic sub. Granted the mason has 30-35 employees and the septic guy has 2 crews.

My ex electrician lives like a drug dealer, has started and sold two electrical companies.

It is very rural here as well.

Not saying all subs make a profit, just most of the ones I use.
 
#29 ·
I think the "less headache" style is all self made. I know framers who go into a job not knowing or caring about anything, which in turn leads to headaches. Same holds true for any other trade, sub or not. Your initial post only made reference to costs as a percentage of gross income. I pointed out that those ratios are gonna be all over the place depending on many factors. I still have no idea how mine or anybody elses ratios would affect or help your bottom line. I agree that each person needs to track their own ratios to determine how they can improve or maintain their profits.
 
#30 ·
Warren said:
I think the "less headache" style is all self made. I know framers who go into a job not knowing or caring about anything, which in turn leads to headaches. Same holds true for any other trade, sub or not. Your initial post only made reference to costs as a percentage of gross income. I pointed out that those ratios are gonna be all over the place depending on many factors. I still have no idea how mine or anybody elses ratios would affect or help your bottom line. I agree that each person needs to track their own ratios to determine how they can improve or maintain their profits.
Ah, I follow. You are thinking I'm asking for advice, because I asked a question.

I'm actually trying to get guys that don't track their ratios, to realize that they aren't. If you are that's great.

Every single contractor I've ever talked to that's grossing under $1m annual, doesn't know what they are doing, or what they are shooting for. Still waiting to be proved wrong, lol.

Not by you, of course, I know you just don't want to share, which I understand.

How about just the goal, not the actual, maybe I'll get more there? That's for everyone, not Warren, not gonna put him on the spot when he's willing to keep the conversation going.
 
#36 ·
1 mil is subjective, for a builder its not very high, a bathroom remodeler would make a killing.

Remodeling Magazines Big 50 boasts several firms under a mil every year.
 
#32 ·
I know a couple of those guys to which you speak. One was a GC who also built custom cabinets. He did really nice work, but I know his profits were dismal. I encouraged him to pursue the cabinet aspect more, because for him it was a better fit and more profitable. He left the trades two years ago and went back to school. Another guy, while still in business, is equally bad. He has built several homes, many additions, and also does some nice remodels. His scheduling is his downfall, but he is oblivious to it.

I am sure that neither of these guys tracked their costs very well. But in the end, other factors were also working against them. I know a few other guys who don't track very well, but are very profitable due to their strengths in other aspects. I probably fall somewhere in between. I track pretty well, can manage jobs well, but I just happen to specialize in a trade that is tough to be profitable in.
 
#45 ·
Thats true, being great somewhere can lead to success despite being average or less than elsewhere.
I know its not the "linchpin" of success to know your numbers, but I think everyone reaches a point where they are more interested in that, and seeing if its worth the "headache".

However, you could be the greatest craftsman ever, and go broke if you can bid your work right. I see quite a few guys that do good work, but struggle in the big picture, and those are the guys I like to help out, the ones that are rolling in cash don't need advice, right?
 
#34 ·
In fact, Id bet money most of my subs make more actual money than I do, salary or otherwise.

Besides, many people say they make a profit and only pay themselves 600$ a week, and some say they struggle to paying themselves 2,000$ a week.
 
#37 ·
I hit about $800,000 last year and was freakin ecstatic about it- I bought my first house and first brand new truck. I have low overhead. 3 new homes a year is plenty for me to turn a reasonable profit. I made about 80k last year so that's 10% of my gross sales.
 
#39 ·
I hit about $800,000 last year and was frea ecstatic about it- I bought my first house and first brand new truck. I have low overhead. 3 new homes a year is plenty for me to turn a reasonable profit. I made about 80k last year so that's 10% of my gross sales.
Net profit is calculated after you pay your self a salary.

But it all spends the same :thumbup:
 
#38 ·
Most under a million dont know what they are doing? I agree that many dont know the difference between a margin and mark up, or how how to make a Gant chart tracking overhead costs, or develop a critical path schedule that would pass on a major commercial project.


But I know a few nail bag GCs who can build a bad azz project, keep a schedule in a spiral notebook, manage cash flow and balance a check book. They dump a shoe box of receipts on their CPAs desk come March. There has been quite a few like that here long before you or I started up, probably be here when we hang it up.
 
#46 ·
Don't know what they are charging or if they are making a profit, yes. Again, this is my experience, yours will vary.

I know a few nail bag GC's, too, that can do that, but for every one that does, there are 10 that are going broke, and just don't know it yet. I'm not saying GC's specifically, I'm lumping contractors together, subs, builders, etc.

Every industry I've looked at has low ballers, etc, and I don't think they set out to be, they just don't know what they are doing yet. Some do good work, some don't. Some might do better work if they bid more, a lot probably wouldn't do any better.

I'm only interested in talking to people that are either:
willing to teach, or
willing to learn.

There's something to be learned from everyone, even if its how not to do something!

In my company, looking at numbers caused a few things.
1. We learned what things were profitable, and what weren't.
2. Different types of jobs may have different labor and material costs, but the only way we break the 50% rule is if are using labor only overhead recovery, and we are sure the bills are getting paid regardless, before we submit the proposal.


If this is too obvious, you probably don't need the info. If it sounds amazing, I"m here to help! :thumbup:

Most under a million don't know what they are doing? I agree that many dont know the difference between a margin and mark up, or how how to make a Gant chart tracking overhead costs, or develop a critical path schedule that would pass on a major commercial project.


But I know a few nail bag GCs who can build a bad azz project, keep a schedule in a spiral notebook, manage cash flow and balance a check book. They dump a shoe box of receipts on their CPAs desk come March. There has been quite a few like that here long before you or I started up, probably be here when we hang it up.
 
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#42 ·
I really laughed out loud at that one.You can still benchmark your profit if you look back over a few years and average out a salary for yourself. Anything over that would be profit, anything under would be loss.

It's a good habit to be in because then you can identify negative trends. I use it because, in starting a new business in a bad economy, I expected to make less than I would if I had the same job for another company but I wanted to be able to tell when I actually DID become profitable rather than just being content with whatever I could get.

Being content is great but not when it's because of intentional ignorance.
 
#49 ·
Jaws said:
So what kind of tracking / system do you use, Littlefield?

Must be a pretty good one to be able to sell your business.
Good post above, too, jaws, I didn't realize I was coming off as derogatory. Sometimes hard to tell people's tone in writing.

Anyway, to your question.

We used QB, and my wife was very strict about itemizing all materials and labor costs. Doing a split on every paycheck, with every line assigned to a task, and a job, allowed very detailed reports later.

Same thing with materials, although usually materials were bought for one job at a time, but not always.

In the past 18 months that the new owner has taken over, though, he's gone thru 3 office managers, and all the lapses in coding are really mucking up the reporting. I was hoping to get some good feedback showing how others do their books, so I could print it out and show to the new owner what the standard is, and why others do it. For background, I took a job managing the sales and marketing for him, after he bought me out. The only reason I really care is that I get complaints about profits, and there's no way for me to show him he needs improvement on production, if he's convinced it's all about the price the jobs are sold at.

There's no way for me to check my numbers against his labor rates, if I don't get reports. Materials aren't too bad, I can check those on my own, but labor, not a chance.

I'm hoping this year will be a big improvement, hes seen some of the hassles it creates without reporting, and seems committed to whipping the guys into shape to turn in receipts, etc, and I worked with the new girl to show her how to track and not just make notes in the Memo lines of check.....sheesh. Lol!
 
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#50 · (Edited)
GOOD DATA TRACKING. I'M A GOON ABOUT IT BECAUSE OUR HISTORY CAN DICTATE THE FUTURE. I NOTICED THAT KNOW ONE HAS MENTIONED THE “DIMINISHING RETURN FACTOR”


WHEN YOU OUT GROW YOUR 2-3 MAN TEAM MAYBE TOP OFF AT 800-MILL A YEAR. YOUR BUSTING AT THE SEEMS TO STAY ON TRACK SO YOU HIRE MORE PEOPLE WORKERS MANAGER ETC NOW MAKING THINKING YOU'LL DBL YOR MONEY BECAUE YOU CAN THE JOBS DONE FASTER BUT NOTICE THE 20-30% PROFIT JUST TANKED TO ABOUT 5%
THE NUMBERS ARE NOT RELEVANT.

WHAT DO YOU DO THEN?

A) HOLD YOUR GROUND WITH CREW AND OVERHEAD STAYING AS IS MEANING YOU RIDE THE WAVE AND KEEP A BACK LOG ALONG WITH EXCELLENT SERVICE AND HAPPY HAPPY CUSTOMERS?
B) STAND YOUR GROUND AND RAISE YOUR PRICES? AGAIN EXCELLENT SERVICE AND KEEPING HAPPY HAPPY CUSTOMERS.
C) DBLE DOWN AND ADD 3-4 MORE PEOPLE TO YOUR BUSINESS. BUCKLE UP UNTIL YOUR OVER THE HURDLE AND LAND IN THE 3-5MILL/YR LAND?


:whistling
 
#54 ·
What I meant by that was this: Even though you paid yourself $80k, that is still taxible income which equals profit, as your taxible inclome is the same as a profit and loss statement in my opinion. To say that that you made no money after you paid yourself would be inaccurate. You made $80k and your balance sheet equals 0. Technically your company made no money after you were paid, but you are the company, therefore you made money.
 
#57 ·
At the end of the year, it does not matter if I pay myself weekly or none at all. Revenue minus expenses = taxable income. Whether you are a sole proprietor,LLC, or Incorporated may have something to do as to what tax rate you fall under at what time. But I know at the end of the year I pay the same rate on the money that is my salary as well as what is left over at the end of the year and I am an LLC in TN with no state income tax.
 
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