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What to profit

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Posted by: from Alberta Beach
12/18/2011 at 3:59:43 PM

Without going into what to charge, that isn't a proper question. However, using the formula of materials + labour + overhead + profit = rate, I would like to hear about the profit side of the equation. We all want profit but is there a reasonable percentage to consider? A new business, in my opinion, can't expect the same return as a lonstanding firm. Would be nice to see expectations and experiences.

REPLIES (6)
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Date/Time12/18/2011 at 6:34:46 PM

Hi Mark:

Profit is not a dirty word. After all, everyone goes to work for a profit, whether they are self employed of for someone else.

Cost of materials is not a unit in the profit equation. It is only a component of the quote. When quoting a job, make sure that your time in acquiring materials for the job is factored in, but this is not a mat cost. It is attributed to the job.

I build houses normally and do the math by the sq footage charge for the type of dwelling, and then I estimate piece by piece the whole cost of the project, them estimate my time and put a value on that, then estimate tool costs, company costs (insurance, waranties, associations etc) and then what the comapny should make as a fair margin, both to the co and the customer. When doing that I generally come up less than the average going rate, mainly because I am home based and have no full time employees. All work is done by subcontract and quotes which keeps my costs in line. Not near as many surprises for myself, the contractor or the customer.

With smaller projects which 2 of us do ourselves, we get an exact material cost, estimate tme to establish what we should earn, and then put a % on top for the company.

Quite often because of circumstance or the timing, not always can the optimum profit be attained. Use a rule of thumb. Be reasonable, deliver the best work possible, be honest, and the work will come.

I am dealing with the cleanup of a project right now, and the bid was lowballed. The customer ran out of $$ before the finish, and fired the contractor. Now, I have to go in and clean it up, after he was "cleaned out" I reduced a bit to help, and hopefully this will lead to better rec's. But I get to sleep at night.

Remember, you do estimating time, have no stat holidays, no vacation pay, and no benefit package. You deserve a profit, no matter what people say. As for the erstablished, they don't always do the best work simply because they are "established" and they equate that to trust. It doers catch up with you.

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Date/Time12/18/2011 at 7:34:50 PM

Thanks, Chuck.

I too am a one man business and hire on occasion (another story). I understand what you said and appreciated the explanations. I also sub out some work but, as you mentioned, you sometimes end up on the short end of the stick.

I tend to do an all inclusive estimate with a strong suggestion that it is an estimate and not a firm quote. The end result will be adjusted as need be.

I also advise the client of any "situations" as we go along so that there are no surprises.

I asked the question because material, overhead and labour can be reasonably determined but the amount of profit appears to be whatever one decides to slot in. Is there not a respectable amount to consider for the purpose of growth?

Thanks again,

Mark

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Date/Time12/18/2011 at 9:14:17 PM

Hi Mark:

The amount of profit is determined by a number of factors. 1. fairness (priority: to both yourself and the customer). 2. number of tradespeople in competition. 3. circumstances of the customer.

Now take $48000 and divide it by the the number of hours at 35 hrs per week. Add holiday pay. add stat holiday pay. add co benefits. add tool replacement. add $$ for your training and experience. add $10,000 per year for accounting and lost estimate time. add vehicle replacement etc ( insurance, permits etc) then add 15 % for the company. that is the minimum that you should be charging and what is fair.

If in some cases you can get more, then it will average out for the times that you have to bid less. It sounds harsh, but the minimum that you should be charging is $300 per day. that works out to giving you about $25 per hour after expenses.

I hope that this helps.

Chuck

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Dave from 360renos in Navan
Date/Time12/19/2011 at 7:40:15 AM

Good Morning Mark,

Reading this book by Micheal Stone would help you to answer some of your overhead and profit questions.

http://www.markupandprofit.com/contractors-guide-markup-and-profit.html

A very good read and I picked up some tidbits of info that helped my company years ago.

Check your local library they may have it.

Cheers,

Dave

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Date/Time1/3/2012 at 1:51:09 PM

Great book. It sits right here on my desk. It is USA based, but most anything in it can be used in Canada.

Cheers,

John

John Kuehnl-Cadwell

Master Electrician

Datawise Solutions Inc

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Date/Time1/3/2012 at 6:56:24 PM

Just a reply to those who responded to my question about fair profit margins. Thanks. I believe I am in the right "ballpark". I charge $45/hr and depending on the distance, mileage. If the job appears more difficult I tell the client an approximate figure, based on estimated time, while suggesting an estimatre is an estimate and not a quote. I also consider factors such as dust, mold, height, amount of room (crawl space), and other such obstacles that may be present.

Any other suggestions are certainly welcome.

Thanks agaain,

Mark

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