20% profit?

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Ohmaha

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Hello. Just curious if anyone actually makes 20 to 25% profit on bids anymore. The method by which I am referring is to take all job costs including office and job overhead and apply the 20 to 25% to that figure. In basic terms 20 to 25% over break even cost. I never am awarded a job by going this high and when I check my job cost and compare it to the prices of the winning bids, if my cost is correct, these companies are going in with little to no profit. Anyone else dealing with this?
 
I do not know anyone making that kind of money on bids.
Around here, its seems bids are coming in at 5% overhead and 4-7% profit.

It stinks but it is true.
 
My guess is that the economic situation has made a substantial change in the way things are for a lot of businesses. It is mostly about mere survival until things get better, if they ever do. Among other things, survival involves finding ways to reduce expenses, including the owner's profit.
 
That's pretty much what I figured. I know that if I have larger overhead to cover compared to a competitor and we both put 20% profit on the bid, the competition will win every time meaning I need to work on reducing overhead to stay competitive (which I need to do), but on P.W. jobs when things should be a little more even minus the fringes it looks like about 3.5 to 4% for bids landing first place. I just wondered if this was the norm and everyone was in the same boat. Thanks for the responses.
 
Ohmaha said:
That's pretty much what I figured. I know that if I have larger overhead to cover compared to a competitor and we both put 20% profit on the bid, the competition will win every time meaning I need to work on reducing overhead to stay competitive (which I need to do), but on P.W. jobs when things should be a little more even minus the fringes it looks like about 3.5 to 4% for bids landing first place. I just wondered if this was the norm and everyone was in the same boat. Thanks for the responses.
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Not every one is the same but a lot are making less on the same work!
 
The guys you are talking about are smart they take 25 jobs at 1 % that way they make 25% work harder not smarter
 
The percentage of profit you put on cost has nothing to do with any kind of standard rate, or going rate, or what the other guys are using.
It has to do with covering your labor risk.
If I am bidding a job with a high material/labor ratio, I can put a small profit percentage on cost, still be competitive, and still protect my labor risk.
I look at my profit dollars per man/hr ratio. If that number is around $15/hr, that's too low. $22 to 25 is a good job.
I know this is a hard concept to understand, but it works
 
Labor and job risk are factors that I try to consider when pricing a profit percentage into my jobs, I must say though that no matter how ugly the job and how bad the plans are I never see profit rates at the 20% range. (I should say rarely) I look at trends from different job sizes, with large and small ticket quoted items I never see that much profit. I can't bid profit that high and job performance shows we don't earn that either. Lots of guys in the construction trades used to talk about 20% being the gold standard, but I doubt if any trade, electrical or otherwise is able to do this anymore.
 
cdslotz, that is an interesting method for figuring profit and I have never done it that way. I think I'm going to play around with that in the future and see how it comes out compared to my normal methods. Thanks for the advice.
 
cdslotz said:
The percentage of profit you put on cost has nothing to do with any kind of standard rate, or going rate, or what the other guys are using.
It has to do with covering your labor risk.
If I am bidding a job with a high material/labor ratio, I can put a small profit percentage on cost, still be competitive, and still protect my labor risk.
I look at my profit dollars per man/hr ratio. If that number is around $15/hr, that's too low. $22 to 25 is a good job.
I know this is a hard concept to understand, but it works
Click to expand...

Interesting.....can you provide an example? I almost get what you are saying, but it's just not 100% clear to me.....is that ratio the total material cost for the project divided by your total labor hours @ your shop per man rate?
 
better yet,

better yet,

If you could you make up a ballpark T&M agreement, what would it look like based on your requirements? Specifically, if you pay your jman $30/hr, what would you charge. you have to figure in the ins., and employement fees into that and x's it by 120%? what is that come out to for you, wherever you might be.

So if i need 40 lite fixtures and i can buy them for $4000, should i allow $4800 (800 being 1/5 of 4K) for it?
 
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just to answer your question, on the bids i see on blue book and esp p.w. jobs people are bidding them for wages and if they are a one man show like me, doing the work themselves, they DONT have to pay themselves p.w. so they are bidding BELOW p.w. wages and are just working to pay themselves. i see other jobs too. the biggest co around in bellingham bid a job, in MY estimate, at less than what it must have cost them. it was a 129K bid. the lights alone were 65K and another 10 for switch gear on about a 5000sq ft New College building. Brass recept boxes for all desk tops, sub panels, etc. You do the math.
 
bullheimer said:
just to answer your question, on the bids i see on blue book and esp p.w. jobs people are bidding them for wages and if they are a one man show like me, doing the work themselves, they DONT have to pay themselves p.w. so they are bidding BELOW p.w. wages and are just working to pay themselves. i see other jobs too. the biggest co around in bellingham bid a job, in MY estimate, at less than what it must have cost them. it was a 129K bid. the lights alone were 65K and another 10 for switch gear on about a 5000sq ft New College building. Brass recept boxes for all desk tops, sub panels, etc. You do the math.
Click to expand...

A lot of companies have figured out what it takes to survive in today's economic climate. the one's that haven't are gone. I do not think there is just one way to survive, but doing business the way one did 5 years ago won't cut it.

Five years ago:

I would never have even suspected that fortune100 companies would start buying used PLC equipment off eBay.

In my wildest dreams (or nightmares) I would never have guessed that large companies with thousands of PCs would get rid of all their local computer support people and rely on remote support from people in a center 1500 miles away.

I would not have thought it possible that a VFD could be purchased for a small motor for not a whole lot more than a motor starter, and take up about the same amount of space.

I would not have believed that one of our venders would turn down a nearly $100k faxed order from us because they no longer do business except through their web site.

Who would have guessed that AB would come out with a line of PLCs that included free programming software?

Things are changing very fast out there, and only the nimble will survive.
 
Sorry I didn't get back sooner. Here is an example of one I recently bid using round figures:


Misc Mat 160,000
Fixtures 120,000
Gear 50,000
Sales Tax 27,000

Total Mat 357,000

Equip 10,000

Subs (Fire/Ground/LPS) 60,000

Direct Labor (4500 hrs) 120,000
Indirect Labor 10,000

Sub Total 1 557,000

OH @12% 66,840

Now, right here my margin dollars/man hr is $14.85 (66840/4500 man/hrs)
(I miss-used the term previously by calling it "profit dollars/man hr". It's the overall "margin" dollars
which includes overhead)
With the overhead added, my raw cost incl OH is 623,840, with no profit.
In a good economy, I can get $25 margin dollars/mh, but now I'm settling for
less, like 20-22. So to achieve $22, I look at a 5% profit markup which puts my sell price at
$655,032 (margin dollars are 66,840 OH + 31,192 profit/4500 m/h).
So my margin dollars/man hr is $21.78, which is acceptable.
The reason I look at this ratio is, say the owner wants to furnish the fixtures.
That puts my cost at 397,000, then 12% OH+5% profit only gives me a $15.52
margin dollar/man hr. That is when I have to mark up my profit to 12% to get my margin dollars to $22.44.
This is how I cover my labor risk.
I hope this make sense.
 
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