How much of a % profit margin is typical for an estimate/bid?

JohnDS

Senior Member
Hey guys,

I am green when it comes to bidding projects and would like to know what would be a good % profit margin for a bid in Long Island? We are a two man show, myself and my partner with occasionally hiring some guys here and there. I am figuring to bid for a two employee minimum given these circumstances. What percentage is fair and reasonable? Thanks.
 

gadfly56

Senior Member
Location
New Jersey
Hey guys,

I am green when it comes to bidding projects and would like to know what would be a good % profit margin for a bid in Long Island? We are a two man show, myself and my partner with occasionally hiring some guys here and there. I am figuring to bid for a two employee minimum given these circumstances. What percentage is fair and reasonable? Thanks.
John;

Far more important than getting your profit margin right is getting your costs right. Small jobs are the worst. Suppose you build a profit margin of 30% based on Cost of Goods Sold (COGS). You bid it as a two day job. It takes three. You thought you'd have two men for the first day and go solo the second. Turns out you need two men all three days. This is the quick road to Chapter 7. You could bid it as T&M, but most folks won't buy that unless you've got a maintenance contract with a reasonably large company.

Traffic is a bear on Long Island. Your productivity will likely not be high, as you'll probably have to pay your helper from when he punches into the shop unless you have a different arrangement. Travel time will be a beast. I used to fight with the salesmen all the time; Them: "I quoted the job for 8 hours, why are you there a second day?" Me: "Because the job was an hour from the shop, genius, so they only got 6 hours of work done the first day". And so it goes.
 

JohnDS

Senior Member
If myself and partner do not decide to do the job personally, we would have two employees do it and they would meet on job site. I am just looking for a round about percent profit margin, had all other things taken into consideration to bid the job are done correctly. Is 30% the average?
 
Hey guys,

I am green when it comes to bidding projects and would like to know what would be a good % profit margin for a bid in Long Island? We are a two man show, myself and my partner with occasionally hiring some guys here and there. I am figuring to bid for a two employee minimum given these circumstances. What percentage is fair and reasonable? Thanks.
I think thats a tough question and there is no set amount. It depends on how much you want this job, how much you think you can get, how busy you are, how much risk you want to take, etc. I know for me all these things change from job to job. Often I am happy to just make a target hourly and not have any "profit". So it depends on what you define "profit" as. For example, someone might pay themselves $25/hr for their base rate, and make a bunch of "profit" on top of that, while another guy might pay himself $65 and not have any "profit" on top of that.
 

petersonra

Senior Member
Location
Northern illinois
Occupation
engineer
I don't think there is any way to tell you what you want to know.

Figure out what the marginal cost will be to do the job. That is the parts and labor cost.

That sets a floor for you.

Keep in mind that you need to consider all of the labor costs associated with the job, not just direct wages.

from there it is a matter of trying to decide what the job is worth to you personally. If you really want the job maybe you add 20%. If you want it but not all that much maybe you add 100%.

My guess is that you will find that to make a decent living you will be adding something like 50-100%. the time you spend on the things you cannot bill to a project can suck the life out of you. I used to know some smaller contractors that spent the better part of 40 hours a week doing sales and admin work.
 

JohnDS

Senior Member
I know it's a hard question and appreciate the input guys, thank you. Again, all things considered for actual costs for material, labor and time to create a proposal, I consider profit anything in addition to that. Charging time and material is always nice, but as stated, not everyone goes for that.
I wish this field was a clean cut and dry pay rate when bidding jobs, all the time. It is kind of discouraging. This year I started being a lot more organized in actually figuring out how much money is really being generated. I have been calculating how much money goes into material and labor for jobs VS how much time is spent doing them while also adding in time spent for estimating and bookkeeping, and sometimes it does not seem worth it. I'm at $42/hr lol. That's after all costs. Its ok, but that is before taxes. I may as well work for someone and not deal with the headache.
 
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gadfly56

Senior Member
Location
New Jersey
I know it's a hard question and appreciate the input guys, thank you. Again, all things considered for actual costs for material, labor and time to create a proposal, I consider profit anything in addition to that. Charging time and material is always nice, but as stated, not everyone goes for that.
I wish this field was a clean cut and dry pay rate when running a company, all the time. It is kind of discouraging. This year I started being a lot more organized in actually figuring out how much money is really being generated. I have been calculating how much money goes into material and labor when doing jobs VS how much time is spent doing them while also adding in time spent for estimating bookkeeping, and sometimes it does not seem worth it. I'm at $42/hr lol. That's after all costs. Its ok, but that is before taxes. I may as well work for someone and not deal with the headache.
Someone here who is a one-man operation has a sig that goes something like "My boss is a tyrant and my employee is an idiot."
 

petersonra

Senior Member
Location
Northern illinois
Occupation
engineer
I may as well work for someone and not deal with the headache.
You might not be surprised to find out that most small business owners would probably make more money working for someone else, especially on an hourly basis.

It is especially acute in retail and restaurants, but is evident in almost all small businesses.

It is one of the reasons so many small businesses fold in the first few years. People get into it and come to realize that the big bucks they thought were going to be theirs for the asking just are not there and you have to grub for every penny.
 

JohnDS

Senior Member
That hourly rate I had posted is year to date, so who knows what will come. I wish I did that last year to see.
 

69gp

Senior Member
Location
MA
Bidding is a whole different animal when it comes to profit. There are too many variables to say what the markup should be. I have bid jobs at a loss to keep other contractors out of a project. I can remember a few years ago I was in a supply house and there were two guys talking about residential work where the GC would only allow one of the guys to charge just $20.00 per 3-way switch. I almost Sh@t when i heard that.

if your just starting out sometimes its good to take a hit on a small job as this will help you better understand what its like to loose money.
You should know who your competition is and what they are at for pricing. There are ways of getting a ball park figure from the GC if you are not the low bidder.
Like others have said cover your material and labor.

I do commercial and industrial work. 80% of my work is over 500k per project and I do not put a markup on anything. I make my money on the buyouts if I get the job.
 

ptonsparky

Senior Member
Location
NE (9.06 miles @5.9 Degrees from Winged Horses)
Occupation
Electrical Contractor
Bidding is a whole different animal when it comes to profit. There are too many variables to say what the markup should be. I have bid jobs at a loss to keep other contractors out of a project. I can remember a few years ago I was in a supply house and there were two guys talking about residential work where the GC would only allow one of the guys to charge just $20.00 per 3-way switch. I almost Sh@t when i heard that.

if your just starting out sometimes its good to take a hit on a small job as this will help you better understand what its like to loose money.
You should know who your competition is and what they are at for pricing. There are ways of getting a ball park figure from the GC if you are not the low bidder.
Like others have said cover your material and labor.

I do commercial and industrial work. 80% of my work is over 500k per project and I do not put a markup on anything. I make my money on the buyouts if I get the job.
What is a buyout?
 
I'm a new member to this site, and, to be honest, I didn't read all the responses to the OP's question before I went straight to the reply button. Calculating job cost is specific and different for every contractor. One must first identify all of his/her expenses, both soft expenses, as well as hard costs, and factor those numbers into their final proposal. In other words, every business has expenses or "overhead" that must be considered and factored into every proposal, and those expenses need to be passed along to every client. A good resource for understanding these things is the book "Mark Up and Profit, Revisited" by Michael C. Stone. I highly recommend it for any contractor, both new to the business world or seasoned veterans.

Hope this helps.
 

Strathead

Senior Member
Several years ago, like early 2000's ECM published an article that claimed the average profit for an electrical contractor the year before was 1.8%. I think that was accurate as it is. Like others have said or implied, profit is a moving target. If you drive a truck paid by the company, and your lunches are written off because you are with clients or on the road for business every day, and use other perfectly legal methods of reducing your tax liability, then that is money that is not "profit", but is a perk of owning your business. You really need to have a grasp of what your overhead is. Tools, shop, trucks, any loan interest, liability insurance, printers computers, electricity, everything. Then as a separate overhead, you need to know exactly what a manhour costs. This should be kept separate from general overhead and include, unemployment insurance, workman's comp, vacation, holidays, training and safety meeting time, personal safety equipment, union or association dues, etc. Then you have to use a labor rate that covers the second one. Now, for a hard bid, it is virtually impossible to know the exact number of manhours you will use, so that has to be accounted for unless you are working by the hour.

From that, my feeling is every job should cover its portion of overhead, this is difficult because many overhead costs are dollar amounts that change little or none in ratio to the amount of work in a year. Basically overhead is likely to be 20% of you total gross for the year. Your profit needs to be on top of this. So the 30% that was bantered around is not profit, it is overhead and profit.

So for hard bid pricing profit and overhead are a moving target. For a time and material cost, a decent rule of thumb is employee actual pay rate, time 45% for overhead (above) and then doubled at a minimum or more if the area allows because you will likely only bill 5-6 hours a day for an 8 hour employee. Then 30% on material, unless there is a big ticket item.
 

Strathead

Senior Member
Don't you also receive all the material in big lots at once?
Yes, I was being a little sarcastic. It would be a very thin margin of profit is if you only relied on savings during buyout. It often is produced by buying large orders that can be drop shipped, like 20,000 feet of conduit. The problem with that is when they decide, I need to increase then 500 foot run of 6 parallel 3" conduits to 4" conduits. You can probably force the job to absorb that cost, but first it doesn't go down well and your reputation suffers, and second you still have to do all that additional work of handling the stuff you don't need.

Don;t get me wrong, buyouts are a great tool, but they take very good estimating, management and accounting skills to pull off repeatedly.
 

gadfly56

Senior Member
Location
New Jersey
Yes, I was being a little sarcastic. It would be a very thin margin of profit is if you only relied on savings during buyout. It often is produced by buying large orders that can be drop shipped, like 20,000 feet of conduit. The problem with that is when they decide, I need to increase then 500 foot run of 6 parallel 3" conduits to 4" conduits. You can probably force the job to absorb that cost, but first it doesn't go down well and your reputation suffers, and second you still have to do all that additional work of handling the stuff you don't need.

Don;t get me wrong, buyouts are a great tool, but they take very good estimating, management and accounting skills to pull off repeatedly.
It sounds like an exhausting exercise to keep hammering your suppliers after they quote you. Pretty soon they know who you are and will (as I have) add 10% or so to their quote to cover your tomfoolery. Unless you are just basing your material costs on, say, the unit price as if you bought one stick of 3" and then simply take advantage of the normal discount structure for large lots. I've done that, too.
 

petersonra

Senior Member
Location
Northern illinois
Occupation
engineer
You might be surprised what suppliers will do for you when you come to the table with an actual P.O. and not just a promise of potential future business, and it is not always all that much that you have to buy to get a deal.

I have had some really good deals on stuff like strut that was only a few thousand dollars, and often just for asking what the supply house can do.

When they quote the stuff the supply house often does not know what their exact cost will be when they get an actual order, if they ever do, so there is a certain amount of padding going on, and they are not giving you their best pricing. When you show up with a P.O. in hand, they can give you the best deal they can, if they want to.
 

gadfly56

Senior Member
Location
New Jersey
You might be surprised what suppliers will do for you when you come to the table with an actual P.O. and not just a promise of potential future business, and it is not always all that much that you have to buy to get a deal.

I have had some really good deals on stuff like strut that was only a few thousand dollars, and often just for asking what the supply house can do.

When they quote the stuff the supply house often does not know what their exact cost will be when they get an actual order, if they ever do, so there is a certain amount of padding going on, and they are not giving you their best pricing. When you show up with a P.O. in hand, they can give you the best deal they can, if they want to.
OK, I can see that. If you don't ask, you don't get. Strong-arming suppliers is different (a la Sears) and it's not my cup of tea.
 

Fulthrotl

~~Please excuse the mess. Sig under construction~~
I know it's a hard question and appreciate the input guys, thank you. Again, all things considered for actual costs for material, labor and time to create a proposal, I consider profit anything in addition to that. Charging time and material is always nice, but as stated, not everyone goes for that.
I wish this field was a clean cut and dry pay rate when bidding jobs, all the time. It is kind of discouraging. This year I started being a lot more organized in actually figuring out how much money is really being generated. I have been calculating how much money goes into material and labor for jobs VS how much time is spent doing them while also adding in time spent for estimating and bookkeeping, and sometimes it does not seem worth it. I'm at $42/hr lol. That's after all costs. Its ok, but that is before taxes. I may as well work for someone and not deal with the headache.
$42 an hour? in long island? wtf, over? dude, you are gonna starve....

back up two steps. have you done a business plan? no?
then, go here, do this... it'll cost you a weekend, and $20,
and maybe save you your business:

http://www.ellenrohr.com/the-bare-bones-biz-plan/

after you get that done, and realize you need to sell
your hours closer to $200 per hour, to survive, there
is a fellow on here who offers an estimating service
that is pretty well regarded. a number of people here
use it.... they can chime in about it.....

you are saying right now "BS, i can't bill for that kind of
money!" yes, you can. and get it. your competition is,
the ones who are doing well.
 
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