Financials

[laketime]

For those of you that have been in business for 5+ years what is your statistical COGS (cost of good sold) percentage of your total sales?
Cost of material percentage of total sales? Cost of labor percentage of total sales?

 

[dduffee260]

Used to be 59% labor and 41% materials. Now it is more close to 55% labor and 45% materials.

 

[laketime]

So you are making a 0% gross profit?

 

[ishium 80439]

I just took a quick look at my quickbooks from last year and I look like I'm at 35% COGS compared to total sales. That is hard goods and does not include any other overhead like insurance, advertising etc.

 

[cadpoint]

Here is my Apple to Orange answer:

MH Web page, Newsletter, Newsletters Articles 2.1.10 project management - labor units

Now I realize this is not exactly your question, but I'm sure you've read enough here to realize that other things gets presented all the time!

 

[magictolight.com]

Our 2009 ran 21% materials and labor ran us 53%. These numbers are based on gross revenues. Good question. I am interested in knowing if we are roughly average with the other guys on Mike's site or skewed one way or the other.

When you are looking at cost of goods sold, as a contractor would that be a complete installation? Labor plus material? Or just the material and material markup?

 

[laketime]

Cost of good sold should be your cost of material, labor, equipment you rented and tools. Basically anything you had to buy or pay for to complete a project. After you deduct that from total sales you end up with your gross profit. Off of your gross profit you deduct all your overhead (rent, insurance, truck costs.....) then you end up with your net profit.

 

[magictolight.com]

You can tag 1.18% on to our cost for permits and less than .25% for tool rental. We include in our labor rate workers comp. which can make a substantial difference if a contractor figures that as a fixed expense not included in his labor rate, but as his overhead.

How do we compare our operations when every body is calculating things different?

We didn't show a net profit because the owners took what was left over as a draw! HA! HA!

 

[laketime]

Yeah can be tough when items are shown on different lines. Good point about workmen's comp. If you include it in your labor rate that will skew your numbers compared to someone who has it as a fixed expense. Those damn owners taking all the money! Well that makes the IRS happy at least

 

[dduffee260]

So you are making a 0% gross profit?

No, the bid price is that. We operate on a 15% mininum profit margin. Some are better, some are worse. Our overhead is quite a bit more than it used to be.

 

[dduffee260]

Cost of good sold should be your cost of material, labor, equipment you rented and tools. Basically anything you had to buy or pay for to complete a project. After you deduct that from total sales you end up with your gross profit. Off of your gross profit you deduct all your overhead (rent, insurance, truck costs.....) then you end up with your net profit.

What about taxes? Say you did a $100,000 project and made a net profit of $20,000. Would you consider net the profit before the tax taken out or after the tax taken out? In other words, it was $20,000. Then the taxes were $4,000 for the income. So would you true net profit be $16,000?

I pretty much run things like you, I would say $20,000 was my net because later on the year the other losses may take that away and you will have a net loss for the year.

I am just about to redo some of our estimating things. I feel like they can be polished some more to be more in tune with our company.

 

[laketime]

I would agree with you on that. The net profit is what you would be taxed on. So if you had a net profit of 20k you would pay taxes on that amount.

 

[jes25]

I believe COGS is generally only used for retailers in merchandising accounting. It's not typically a line item with service based companies. Go to the 10K (annual report) on SEC.gov and look at some income statements and you will see what I mean.

Or check out this link

http://www.simplesubjects.com/accounting/excerpts/2-blog/6-how-to-calculate-cost-of-goods-sold-cogs

 

[laketime]

In our industry your COGS would be what it cost you to complete the job. Labor and Material + any rentals. If you keep track of those as a percentage of your total sales you will be able to see when your costs are rising before you realize you are losing money. If your material percentage goes up in relation to your total sales you will know you first need to question your supplier about why their prices are rising. Then second you can raise your prices accordingly to compensate for your cost rising. If you have that data and percentages when an existing customer asks why your prices are rising you will have a logical reason why besides "I don't know :-