Reasonable profit?

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chevyx92

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VA BCH, VA
If you have a job figured to cost about $150,000(Labor & Material with mark up) how much profit would be typical? 10% of total job cost? I know that it comes down to what you're willing to do a job for but I'm just wondering if there's an industry standard percentage that people go with?
 
chevyx92 said:
If you have a job figured to cost about $150,000(Labor & Material with mark up) how much profit would be typical? 10% of total job cost? I know that it comes down to what you're willing to do a job for but I'm just wondering if there's an industry standard percentage that people go with?
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Such a loaded question. What do you mean "with mark up?" How big is the organization? Will this one $150,000 job be the only income for the next 6 months, 3 months year, or is is a small portion of the entire work load? How accurate is the figure cost of $150,000? Is the job straight forward with few potential pitfalls or complicated requiring constant attention?
 
there is no std to go by for profit.

there is also no std for what is profit.

some guys think margin over labor and materials is profit but forget all the overhead.

i personally suggest you not worry about either margin or profit percentages when you cost a job. if you do it will make you crazy. figure out what it is going to cost you to do the work on a marginal basis and add in enough overhead/profit/margin or combination thereof to cover the cost of yourself and your overhead/profit.

make sure you have enough in it for you to make it worth doing.
 
chevyx92 said:
It's the cost of material plus a small "Mark up" percentage.
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I think 10% percent is awfully low. I am sure some more experienced guys will chime in but that number seems pretty tight. You need to think about how you pay the bills when the phones not ringing. I would suggest a book like "how much should I charge " by Ellen Rohr. The book makes you look at pricing a bit differently than Materials+markup+Labor=Estimate. Good Luck
 
board for business discussions

board for business discussions

This board is a great resource for understanding the NEC. On the other hand there is much to learn about operating a profitable business. Are there any boards that are geared towards the BUSINESS end of contracting? After all, plumbers, electricians etc. all have to deal with the same business issues.
 
Greg1707 said:
This board is a great resource for understanding the NEC. On the other hand there is much to learn about operating a profitable business. Are there any boards that are geared towards the BUSINESS end of contracting? After all, plumbers, electricians etc. all have to deal with the same business issues.
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Read Ellen Rohr's book or do the weekend course. Years ago the Small Business Adminstration had a program SCORE ie; Service Core Retired Executives. A group of business executives of whom you could ask questions, Go To for Guidance.
 
The OP is working on a $150,000 bid. Suggesting reading the Rohr book is akin to telling a veterinarian who is about to spay a cat to read "The Cat in the Hat."

It's not apples and oranges, it's apples and black holes.
 
chevyx92 said:
It's the cost of material plus a small "Mark up" percentage.
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Any mark up might be considered "profit", sort of depends on how you calculate things.

How do you present the cost to the customer? I like to either just give them a lump sum price or if it does get broken down further keep it limited to mostly to a material figure and a labor figure and possibly some other major factor that specifically may apply to that particular job. If you itemize too many things they start to question them, and IMO it is none of their business what your overhead is or how much profit you will make, they should be concerned about their cost. Next guy presents same bid total -- but his overhead may be different, customer only sees what it is costing them though and has no idea who makes more profit.
 
chevyx92 said:
It's the cost of material plus a small "Mark up" percentage.
Click to expand...
Still not making sense....cost of material + labor + direct/indirect job expense + overhead = equal COST....then you add profit margin.

If you don't know what your COST are...you should maybe pass on a $150K job until you understand
 
I would suggest this.

Figure what the marginal cost of the project is first.

Parts
Direct labor including benefits, taxes, WC, etc.
rental of equipment you don't own but will need like lifts or scaffolding
Some contingency money because you will miss stuff or someone will drop a box of fluorescent tubes and they will need to be replaced
Warranty - it is almost certain you will have to come back to fix something

This is what the job costs you above and beyond anything else you are doing.

Now the tough part.

You need to cover overhead for your business. The cost of leasing or buying your company trucks and equipment and tools, the building you work out of, the clerical and sales staff, the cost of whatever inventory you hold, etc., etc. The reason people use percentages for these things is because it is simple.

profit is above and beyond these costs.

with small companies a lot of these overhead expenses can get blurred becasue the owner is doing a lot of them himself so it seems like it is free. sometimes people figure the cost of whatever you already own does not need to be accounted for but really eventually that truck will wear out and you will need a new one and somehow you have to pay for it.
 
chevyx92 said:
It's the cost of material plus a small "Mark up" percentage.
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OK, I think I understand what you mean, but if so, I would change the terminology. It is not mark up it is an allowance for miscellaneous material that is not directly covered. That is still material cost. Mark up is profit and overhead. Even then, so much depends on what you directly include in your estimate. If we are talking at the end of a job, you have figured out every dollar you spent, and all of your workers have recorded every hour they spent directly, then you have to figure things like, do you have a warehouse person or does the foreman order material and have it delivered directly to the job. the answer will change the amount of markup. Do you have a truck allowance in the estimate. Do you "rent" your wire pulling equipment, or a lift if you have one, or is it just part of the job. Let's say you have a warehouse person, you charge Project manager time when he processes a change order, but don't include his time directly in your estimate or charge him to the job, same thing with the warehouse person. Then IMO if you didn't make 25% over your direct costs then you certainly lost money.
 
Strathead said:
OK, I think I understand what you mean, but if so, I would change the terminology. It is not mark up it is an allowance for miscellaneous material that is not directly covered. That is still material cost. Mark up is profit and overhead. Even then, so much depends on what you directly include in your estimate. If we are talking at the end of a job, you have figured out every dollar you spent, and all of your workers have recorded every hour they spent directly, then you have to figure things like, do you have a warehouse person or does the foreman order material and have it delivered directly to the job. the answer will change the amount of markup. Do you have a truck allowance in the estimate. Do you "rent" your wire pulling equipment, or a lift if you have one, or is it just part of the job. Let's say you have a warehouse person, you charge Project manager time when he processes a change order, but don't include his time directly in your estimate or charge him to the job, same thing with the warehouse person. Then IMO if you didn't make 25% over your direct costs then you certainly lost money.
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I see it as you just made less money, not necessarily that you lost money. If you made only 1% over your direct costs that is still a profit, just might not be the amount of profit you were shooting for.
 
My overhead used to run around 15% (retired)...which was recalculated every year based on many factors.
So, my overall "markup" (or margin) included this 15% + the profit I added at the very end.....could be 10%...6%....20%.
That number was based on labor risk. I always looked at the "margin dollars per man/hr" ratio.
In other words...if a job had a lot of owner furnished fixtures, gear, etc....then the job becomes a high risk labor job.
If my margin$/man hr ratio was around $12 to $15 using say a 10% profit....then I'm too cheap.
So if the job has a lot of big ticket material that I furnish (fixtures, gear, generators, UPS, Fire Alarm, etc) then a 10% profit gets me in the $22 or $25, which is a safe risk.
If you are doing commercial and want to stay in business....you have to look at these ratios.
...hope this makes sense....
 
cdslotz said:
My overhead used to run around 15% (retired)...which was recalculated every year based on many factors.
So, my overall "markup" (or margin) included this 15% + the profit I added at the very end.....could be 10%...6%....20%.
That number was based on labor risk. I always looked at the "margin dollars per man/hr" ratio.
In other words...if a job had a lot of owner furnished fixtures, gear, etc....then the job becomes a high risk labor job.
If my margin$/man hr ratio was around $12 to $15 using say a 10% profit....then I'm too cheap.
So if the job has a lot of big ticket material that I furnish (fixtures, gear, generators, UPS, Fire Alarm, etc) then a 10% profit gets me in the $22 or $25, which is a safe risk.
If you are doing commercial and want to stay in business....you have to look at these ratios.
...hope this makes sense....
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That is one thing I hate about working for some people that like to pinch the pennies. Once you give them any kind of figure that has materials itemized in any way, they want to save by providing those items themselves, but you were depending on the markup of those items as part of your net profit. If you only give them a lump sum estimate and they want to try to save money purchasing materials then at least you can give a new estimate with higher labor costs then you had in the first estimate without raising too many red flags with the client. I won't even get into the problems you will get with them purchasing the wrong materials, substituting some items not realizing what problems that may cause, or simply buying cheap stuff that is hard to work with because of its poor design/quality.
 
chevyx92 said:
If you have a job figured to cost about $150,000(Labor & Material with mark up) how much profit would be typical? 10% of total job cost? I know that it comes down to what you're willing to do a job for but I'm just wondering if there's an industry standard percentage that people go with?
Click to expand...


Your profit is based on how high your overhead may be. If you charged $150,000 and that included labor mark up and material markup then it would depend on what percentage of that is overhead. Consider this- after overhead is made I would expect about a 20% profit maybe as low as 15%
 
kwired said:
That is one thing I hate about working for some people that like to pinch the pennies. Once you give them any kind of figure that has materials itemized in any way, they want to save by providing those items themselves, but you were depending on the markup of those items as part of your net profit. If you only give them a lump sum estimate and they want to try to save money purchasing materials then at least you can give a new estimate with higher labor costs then you had in the first estimate without raising too many red flags with the client. I won't even get into the problems you will get with them purchasing the wrong materials, substituting some items not realizing what problems that may cause, or simply buying cheap stuff that is hard to work with because of its poor design/quality.
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Apples and oranges.....the OP obviously is bidding a 150K job that is a lump sum bid.
That is not a house or service call. A job that size would specify who furnishes what.
If I was asked to bid any job, I would know these things prior to committing resources to do an estimate.
It would be a waist of my time to bid a job where my competition doesn't know how to evaluate their profit margin like I do.
They just throw 10% on it and call it a day...
 
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