Company OH

[Alwayslearningelec]

Anyone know rule of thumb or calculation for what overhead should be based company revenue?

I work for a company that does about $15-$20M a year.

If I had to guess and i'm sure I'm close. The office staff yearly cost( PM's, estimators, owners) is probably about $1.6M. However we do charge PM cost to each job so not sure how that skews things.

 

[letgomywago]

Overhead also includes more. I'd say that only some of the PMs hours are charged and some are not charged. So overhead would include those that arent already charged, vehicles, large tool acquisition and maintaince, office space, advertising, non commission only sales employees, ect.

 

[Seven-Delta-FortyOne]

Not really.

And it certainly wouldn't be a "calculation".

The only way to get an accurate idea of overhead, which EVERY business owner should be doing, and reviewing yearly at most, and quarterly if a larger company, is to sit down and calculate it.

This is probably the single biggest reason so many small businesses go under, is not realizing how much overhead they have, getting an accurate figure for it, and then recovering it, in what they charge.

Most small business owners count the money at the end of the day, see that its more than what was on their paycheck at their previous job, conclude that they "made a good profit", and never realize how much trouble they are in until the wolves are at the door.

 

[Alwayslearningelec]

Not really.

And it certainly wouldn't be a "calculation".

The only way to get an accurate idea of overhead, which EVERY business owner should be doing, and reviewing yearly at most, and quarterly if a larger company, is to sit down and calculate it.

This is probably the single biggest reason so many small businesses go under, is not realizing how much overhead they have, getting an accurate figure for it, and then recovering it, in what they charge.

Most small business owners count the money at the end of the day, see that its more than what was on their paycheck at their previous job, conclude that they "made a good profit", and never realize how much trouble they are in until the wolves are at the door.

Thanks and good feedback. But the problem I see is you can charge the proper % of overhead in a bid but if your not closing enough work to cover the yearly overhead then what? Either close enough work or reduce your overhead .

 

[Seven-Delta-FortyOne]

Correct.

And for some types of companies, percentage based overhead works. But if you do it based on total project cost, i.e. labor and materials and then add a percentage for OH, what do you do about different job types?

It takes me 2-3 days to install a home standby generator, and the generator, battery, pad, ATS, and wiring and other materials, might be almost $10k

Then what if your doing a rewire on an old house, where you're adding a bunch of receptacles, moving lighting boxes, and adding 3 and 4 way switches.

You could spend the same 2-3 days, and have maybe $500 in materials. So this is why percentage based formulas can get you in a lot of trouble.

This is why I prefer time-based figures for overhead, and I personally do not use materials markup for recovering OH. I have a projected working days in a year, and a yearly OH figure that I'm constantly monitoring and adjusting, and then I divide that figure by projected working days.

Then I add that amount for however many days the project is supposed to take.

If work slows down, a business owner is going to have to make tough calls about how to stay in business, whatever his method of charging for OH is.