Job Cost

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jayrad1122

Member
Location
Northeast, PA
As I understand when you bid on a project you have...

Material Cost + ~20% markup

+ Man Hours x (Hourly Rate + Overhead)

+ Profit

..which determines the price of the job. I was wondering if this is correct or if there are other details that are added in. Also what determines the profit you want to make on a job? Ex. For a 200 amp service change I want $200 profit just for doing it. Or is this not what happens? I'm just trying to better understand electrical on the business side.
 

Rewire

Senior Member
jayrad1122 said:
As I understand when you bid on a project you have...

Material Cost + ~20% markup

+ Man Hours x (Hourly Rate + Overhead)

+ Profit

..which determines the price of the job. I was wondering if this is correct or if there are other details that are added in. Also what determines the profit you want to make on a job? Ex. For a 200 amp service change I want $200 profit just for doing it. Or is this not what happens? I'm just trying to better understand electrical on the business side.
You can figure profit as a % of material and labor/overhead if a job is $50.00 material and $50.00 labor/overhead for a total of $100.00 and you want 15% profit you charge $115.00
 

emahler

Senior Member
Rewire said:
You can figure profit as a % of material and labor/overhead if a job is $50.00 material and $50.00 labor/overhead for a total of $100.00 and you want 15% profit you charge $115.00

not quite...if you want a 15% profit you would charge $117.65...if you charge $115, you will only make 13.05% profit
 

brantmacga

Señor Member
Location
Georgia
Occupation
Electrical Monke
emahler said:
not quite...if you want a 15% profit you would charge $117.65...if you charge $115, you will only make 13.05% profit

what am i missing?

$100.00 * 1.15 = $115.00 ------ how do you calculate this?
 

480sparky

Senior Member
Location
Iowegia
brantmacga said:
what am i missing?

$100.00 * 1.15 = $115.00 ------ how do you calculate this?

If you bill $115, and your costs are $100, you are making 15 dollars, not 15%. $115 * 0.1305 = $15. So your profit is 13.05%.
 

emahler

Senior Member
brantmacga said:
what am i missing?

$100.00 * 1.15 = $115.00 ------ how do you calculate this?

if you want 15% profit after costs, you need to make 15% on your 'sale price' not your 'cost'....

rewire showed you 15% markup....but what is 15% of $115?

$17.25,....

$115 x 15% = $17.25

$115 - $17.25 = $97.75...which is less than your cost...

to determine profit as a percentage of your sale price, you need to use advanced math...

say you want a 15% profit...that would be converted into 0.15...

to find your selling price to earn 15% profit you use this formula....

$100 / (1.00-0.15)= selling price

in this case, it's

$100/0.85 = $117.65....

$117.65 x 15% = $17.65

$117.65 - $17.65 = $100

you now earned 15% profit...the other way you earned 13% profit..you will never hit your target, it you don't know how to aim at it...

does that make sense?
 

Buck Parrish

Senior Member
Location
NC & IN
jayrad1122 said:
As I understand when you bid on a project you have...

Material Cost + ~20% markup

+ Man Hours x (Hourly Rate + Overhead)

+ Profit

..which determines the price of the job. I was wondering if this is correct or if there are other details that are added in. Also what determines the profit you want to make on a job? Ex. For a 200 amp service change I want $200 profit just for doing it. Or is this not what happens? I'm just trying to better understand electrical on the business side.




You should be making a whole lot more then $200 profit on a service change.
It's the responsibility, if not done right it could cause a major problem.
 

brantmacga

Señor Member
Location
Georgia
Occupation
Electrical Monke
emahler said:
if you want 15% profit after costs, you need to make 15% on your 'sale price' not your 'cost'....

rewire showed you 15% markup....but what is 15% of $115?

Okay I see how you did that; why is it calculated that way? why aren't sales taxes calculated that way then?
 

480sparky

Senior Member
Location
Iowegia
brantmacga said:
Okay I see how you did that; why is it calculated that way? why aren't sales taxes calculated that way then?

Because sales tax is a simple percentage of the sales price.

Sales tax rate, let's say, is 6%. $1.00 * 0.06 = 6?. Total sale: $1.06. Beyond that, anything else is meaningless. 6? is not 6% of $1.06.

You're overthinking it.
 

brantmacga

Señor Member
Location
Georgia
Occupation
Electrical Monke
oh i understand how sales tax is figured. here its 7% so i just take the price and * 1.07--- i see how eric got the number, i'm just not sure why its figured that way. i see 15% of 100 as 15. i'm still waiting for the light bulb to come on.
 

emahler

Senior Member
480sparky said:
Because sales tax is a simple percentage of the sales price.

Sales tax rate, let's say, is 6%. $1.00 * 0.06 = 6?. Total sale: $1.06. Beyond that, anything else is meaningless. 6? is not 6% of $1.06.

You're overthinking it.

correct...sales tax is a percentage that is added to whatever your sales price is...

when you figure out what to charge, you need to determine what that sales price will be...
 

480sparky

Senior Member
Location
Iowegia
brantmacga said:
oh i understand how sales tax is figured. here its 7% so i just take the price and * 1.07--- i see how eric got the number, i'm just not sure why its figured that way. i see 15% of 100 as 15. i'm still waiting for the light bulb to come on.

15% of 100 is 15.

But 15% of 115, if that is what you are invoicing at, is not 15.
 

brantmacga

Señor Member
Location
Georgia
Occupation
Electrical Monke
emahler said:
correct...sales tax is a percentage that is added to whatever your sales price is...

when you figure out what to charge, you need to determine what that sales price will be...

did i completely miss that in the book?
 

emahler

Senior Member
brantmacga said:
oh i understand how sales tax is figured. here its 7% so i just take the price and * 1.07--- i see how eric got the number, i'm just not sure why its figured that way. i see 15% of 100 as 15. i'm still waiting for the light bulb to come on.

15% of $100 is $15...problem is that 15% of $115 is not $15...it's $17.25

the problem is this...you plan your budget for the year...you figure you will have $300,000 in material, $300,000 in labor and $300,000 in overhead...your total expenses will be $900,000

you want to make 20% profit after you pay all your expenses...

if you simply mark up you costs 20%, you will think that you need to earn
$900,000 x 1.20 = $1,080,000...ok, you're plan works like a charm...
you earn, $1,080,000 for the year...you pay $300,000 for material...you pay $300,000 for labor, and $300,000 for overhead....leaving you with $180,000 profit...so what's your profit margin?

$180,000 / $1,080,000 = 16.6%

how did that happen? you planned for 20%...you hit all your targets...how did you only earn 16.6%?

because the way we calculated was with 'markup' not margin...we need to use margin (hence the phrase 'profit margin' - you ever hear the term 'profit markup'?....me neither)

so, if we have the same situation, but we figure it correctly for a 20% profit margin, we do this...

$900,000 / 0.80 = $1,125,000

now at the end of the year, we hit our target...after we pay our expenses we are left with ($1,125,000 - $900,000=) $225,000

and $225,000 / $1,125,000 = 20%

so now we hit our target....

does that make sense?
 

brantmacga

Señor Member
Location
Georgia
Occupation
Electrical Monke
emahler said:
15% of $100 is $15...problem is that 15% of $115 is not $15...it's $17.25

so now we hit our target....

does that make sense?

yes; and thanks. I've got several tabs open from google right now reviewing the subject. i did not know that i did not know this.
 
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