Reasonable profit?

[kwired]

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...

I don't know that it is obvious this is lump sum bid, but is likely to be specified who furnished what.

I have worked for some reasonably wealthy people that still on a $150k project would step over quarters to pick up dimes. Once they get an idea they are going to do what they are going to do and you are no longer an expert in your trade.

 

[chris1971]

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.

SCORE is still around and it is a great resource for someone starting a business. Definitely read any Ellen Rohr book. Take one of her seminars if she's in your area.

 

[Fulthrotl]

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.

actually, if you are putting a 150k bid in on something, and are asking
the questions he's asking, probably the best thing you could do, imho,
is read some of ellen's stuff..... before you bid.

you can't bid unless you know what you are selling costs you. you don't
know how much that is, unless you've done the number crunching to get
that info.

it's not apples and black holes. it's your bid, and the black hole
that will eat it in a big gulp.

there's a few folks here who've said read some of the ellen stuff.
"how much should i charge?" would be an excellent place to start.

 

[Strathead]

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.

Perhaps you didn't read what I said, and while it is an issue of semantics, yours are definitely wouldn't work or you are just plain wrong, which I doubt. Direct costs is a defined term and anything over direct cost is not profit, period. Health insurance, office costs, the cost to estimate or spend time on Mike Holt are all NOT direct costs. Profit doesn't start until all direct and indirect costs are paid.

 

[chevyx92]

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

The OP says "job figured to COST about $150,000". Plain and simple in my book. Maybe I should have listed everything figured into that number to help you guys??? That $150,000 is a lump sum amount including labor, material cost, "material markup" which is my MISC, all overhead costs. There is no "Profit Margin" added in yet. I was asking some opinions on if there is a percentage to use on a job like this for Profit?

 

[Strathead]

The OP says "job figured to COST about $150,000". Plain and simple in my book. Maybe I should have listed everything figured into that number to help you guys??? That $150,000 is a lump sum amount including labor, material cost, "material markup" which is my MISC, all overhead costs. There is no "Profit Margin" added in yet. I was asking some opinions on if there is a percentage to use on a job like this for Profit?

It would be plain and simple if everyone used the same terms and looked at every item the same way, but we don't. The term material markup wasn't plain and simple either. All overhead costs is such a broad concept, and even labor, does that mean you know exactly what your labor is going to cost and you have it nailed, if so, you are not estimating the job, you are exactimating. Believe me, no one here is trying to be difficult, but answering your question in simple terms could tank you or tank your estimate. On top of that, so many other factors go in to the last part. The real answer is, "The exact amount of profit that makes your number just lower than the next guys, but still at least truly covers your costs." The exact amount is why they pay us the big bucks.

Really, I use a labor rate that is about 50% higher than the actual wages I would pay an aggregate crew because my boss wants it that way. Then I use around 15% overhead and 5% profit. But I can change the actual bid price for any job by at least 25% without changing one figure above merely by how I take off the job.

So in summary, there just isn't any simple answer to your question, other than any profit after the job is complete is good, 3% would be acceptable, and 5% would be great.

 

[kwired]

Perhaps you didn't read what I said, and while it is an issue of semantics, yours are definitely wouldn't work or you are just plain wrong, which I doubt. Direct costs is a defined term and anything over direct cost is not profit, period. Health insurance, office costs, the cost to estimate or spend time on Mike Holt are all NOT direct costs. Profit doesn't start until all direct and indirect costs are paid.

OK, I shouldn't have said "direct costs", what I really meant was if you take in more then your spend you have profit. If you bid something and end up with more cost then anticipated yet still take in more then what you spent, you still have profit, just not as much as you were wanting when you prepared the bid.

 

[Strathead]

OK, I shouldn't have said "direct costs", what I really meant was if you take in more then your spend you have profit. If you bid something and end up with more cost then anticipated yet still take in more then what you spent, you still have profit, just not as much as you were wanting when you prepared the bid.

That is kind of what I figured, and I think if the estimator only included direct cost then he would need 25% to cover overhead. Partly because labor is not likely to come out at exactly 100%.

 

[cdslotz]

I was asking some opinions on if there is a percentage to use on a job like this for Profit?

Ok...fair enough.....I think I spelled out how I approach determining this value.

 

[brantmacga]

$150k is our average job.


So after everything is accounted for, profit has typically been 15%. As of now, we've been so overloaded, I've jacked it up to 20%. This has been a competitive number for us in our market. When I apply the same margins to jobs outside of what we typically do, I tend to get my eyes beat out. Your overhead is what it is, and you can't change that without cutting overhead costs.

When I bid locally, I don't stand a chance at those margins.

Also find a good accountant. When you start dealing in seven figure numbers, it's easy to lose track of whether you're actually making any money.

My last comment is this; I was talking to a contractor buddy the other day about how little people are willing to work for and not realize they can't possibly be making money. He said it's the watermelon theory; two brothers are buying watermelons here for $0.50 and trucking them out of state to sell for $0.50. One brother tell the other, "we're not making any money." The other says, "damn you're right. We need a bigger truck."

If you want to discuss how to figure your overhead and direct/indirect costs, we can.


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