Overhead

[cdslotz]

Overhead is your true and real expense

Yep. But at some point you have to limit what that is based on what the market will bear. Around here 10-15% is max. (I'm talking commercial construction estimating). No way would you get work around here using 30%.
Like I said previously, this will set the benchmark for your annual sales.

 

[kiddrock]

We have a four man shop and we have to make a 1000.00$ a day to break even. Some times we do, some times we don't, thats all part of the process. With our 89.50$ labor rate per hr for 2-men 1 truck that we figure in, it seems to work for the most part. We mark up all materials 35%. So on a rare but good day we can easily make 100% profit, but like I said that is a rare occasion. Some of our larger jobs that will take maybe a month to complete we'll figure just 1000.00$ per day b/c we know that the 2nd truck will have to run service.

 

[satcom]

Yep. But at some point you have to limit what that is based on what the market will bear. Around here 10-15% is max. (I'm talking commercial construction estimating). No way would you get work around here using 30%.
Like I said previously, this will set the benchmark for your annual sales.

We have been doing commercial fit up projects for many years thru up and down cycles, and I have yet to figure how to limit our real overhead, bank rates are increasing every year, every insurance we carry is never more then we need, and they increase every year, fuel and operating trucks are up every year, all state taxes are up every year and we have a few new ones pop up, wages increase, along with operating costs, the contractors in the commercial construction market have lowered the expectations every year, with a race to be the lowest bidder, and in the process create a situation where their cost of overhead and operating exceeds the cost they need to meet these real and true expenses, result we have many more contractors closing shop, and there will be more until they realize they can't control the min overhead costs to some imaginary percent limit, and continue in business.
Construction is not a commodity!

 

[Sparky555]

I am using a new software program and it is asking for overhead as a percentage of a project. I an newer in business and don't have statistical data for that yet. What would be a good "ball park" number to put in there.

IMO your new software program is flawed. Consider the following examples of overhead as a percentage of a project:

Project 1 (1 day)
Overhead $1k/day
Direct Labor $1k
No Materials
Overhead is 50% of Project 1

Project 2 (1 day)
Overhead is $1k/day
Direct Labor is $5k (more guys)
Materials are $10k (more materials)
Overhead is 6.25% of Project 2

 

[satcom]

IMO your new software program is flawed. Consider the following examples of overhead as a percentage of a project:

Project 1 (1 day)
Overhead $1k/day
Direct Labor $1k
No Materials
Overhead is 50% of Project 1

Project 2 (1 day)
Overhead is $1k/day
Direct Labor is $5k (more guys)
Materials are $10k (more materials)
Overhead is 6.25% of Project 2

Yup, there is a direct relationship, and depending how costs are assigned the percent will vary.

 

[Strife]

Overhead is everything you don't put in the estimate.
Some costs are difficult and some are impossible to put in an estimate.
Rent for your office, electrical bill, your salary, your secretary.
These are in general fixed costs that you spend in a year wether you do any work or not.
How do you figure your overhead?
Take all the costs you don't put in an estimate (rent, secretary, van, tools, electric bill, repairs, licenses, etc). So let's say (for ease of example calculations) you come up with 20K
Then look at your total sales for last 12 months. (Again, for ease of calculation), let's say you come up with 100K.
So the first 20K out of that 100K has to go to overhead. Therefore you need the direct cost of the sales to be 80K just to break even.
So when you estimate an 80K project, you need to add 20K overhead which comes to 25%.
Therefore your overhead in percentage is:
"Overhead" DIVIDED by "Sales MINUS Overhead " MULTIPLIED by 100
In the example above would be 20K/(100K-20K)*100=25%
If the example above would be 10K overhead and 100K sales then the overhead percentage would be:
10K/(100K-10K)*100=11.11%
Why 11.11%? Because in order to get 10K out of the 90K job you need 11.11%.
A lot of companies look 10K-100K sales and say "overhead is 10%". But then the price for the job is only 99K so when they try to take 10% overhead back from sales it leaves the job with only 89K when the estimate was 90K

I am using a new software program and it is asking for overhead as a percentage of a project. I an newer in business and don't have statistical data for that yet. What would be a good "ball park" number to put in there.

 

[rodneee]

I am using a new software program and it is asking for overhead as a percentage of a project. I an newer in business and don't have statistical data for that yet. What would be a good "ball park" number to put in there.

i don't know if my theory meets the generally accepted principles but i always treated my overhead as every bill i paid in a month except payroll and materials divided by the number of days we worked...i think although probably oversimplified it is a good start