tryinghard
Senior Member
- Location
- California
I recommend:
You need to know your costs even though you are projecting them with your estimate, then you can track your costs to correct your estimates. Overhead is usually originally created from your projected sales (gross income), in other words you may say, "the market I'm going into I'm planning on $100,000 total income sales - annually - and to do this my operating expenses (overhead) will be $30,000 (utilities, P.C., printer, ink, advertisement, truck, tools...)." In this example $30K/$100K = 30% so you're business plan would include 30% overhead.
This overhead is not "mark-up" yet, because mark-up is a multiplier of your total costs not sales. To get this you need to finish your business plan - based on your market - project your material, labor & direct job costs:
$20K material (20%), $25K labor (25%), $15K direct job costs (15%) totaling $60K costs (60%). So the cost total of $60K x .50 = $30K (projected overhead) meaning your mark-up on all costs will be at least 50% or 1.50 multiplier. This example only equals $90K leaving $10K (10%) for profit or, $40K ($30K + $10K) & 67% or 1.67 multiplier for gross profit (overhead + profit).
Hope this helps! Business can be a lot of fun and a good plan is worth the effort.
- Material Cost
- Labor Cost (man hours x hourly wage)
- Direct Job Costs (gasoline, small tools, rentals, travel...)
- Total Cost
- Gross Profit (overhead + profit)
- Sale Price
You need to know your costs even though you are projecting them with your estimate, then you can track your costs to correct your estimates. Overhead is usually originally created from your projected sales (gross income), in other words you may say, "the market I'm going into I'm planning on $100,000 total income sales - annually - and to do this my operating expenses (overhead) will be $30,000 (utilities, P.C., printer, ink, advertisement, truck, tools...)." In this example $30K/$100K = 30% so you're business plan would include 30% overhead.
This overhead is not "mark-up" yet, because mark-up is a multiplier of your total costs not sales. To get this you need to finish your business plan - based on your market - project your material, labor & direct job costs:
$20K material (20%), $25K labor (25%), $15K direct job costs (15%) totaling $60K costs (60%). So the cost total of $60K x .50 = $30K (projected overhead) meaning your mark-up on all costs will be at least 50% or 1.50 multiplier. This example only equals $90K leaving $10K (10%) for profit or, $40K ($30K + $10K) & 67% or 1.67 multiplier for gross profit (overhead + profit).
Hope this helps! Business can be a lot of fun and a good plan is worth the effort.