Are your projects producing the profit your forecasted?

This article will give you some tips and tools you can use to sharpen your bidding process.

There are a lot of things that can affect the amount of profit you make on a project, but it all starts with your bid and understanding your numbers. Bidding the right amount of labor and materials is important, but there are other numbers you must include.

Your overhead absorption and labor burden are an important part of your bid. Your overhead includes incidental operating expenses that cannot be specifically identified and charged to a given project. Examples would be Telephone, Office Salaries, Rent, Office supplies, etc. The term overhead is used interchangeably with indirect costs. Expenses that can be identified with a particular project are direct costs, such as material and labor.

It is important in the estimating process that the overhead be absorbed in the estimating process so that every overhead item is charged to the corresponding job accurately. It is also important that the labor burden be figured into the estimating process. Labor burden is made up of all of the labor costs associated with your labor such as Payroll Taxes (PT) Workers Comp (WP) Medical (M) and Wages (W).

The formula for figuring your labor burden is as follows:

PT + WC + M = (%) This will be a percentage. (Say for example this percent is 10%)        W

For every dollar of labor you must include 10 cents to cover the burden rate.

The formula for figuring your overhead absorption rate is as follows:

Overhead Dollars = (%) This will be a percentage (Say for example this % is 24%) Direct Costs

So for example, for every dollar of direct cost you must include 24 cents to cover your overhead.

Your bid then would include:

Material Labor + Labor burden any additional costs such as sub-contractors, equipment rental, etc. Overhead Absorption Rate Sales Tax, if required

This gives you your breakeven number. From that you add in the profit you expect.

Once the project is completed you then need to job cost to see how you did. Did you make your profit goal?

I cover this and much more in a book I wrote that I’m offering to Association Members for FREE. I’ve been a Business Coach for the construction industry for more than 25 years and wrote the book giving ideas and tips that I have helped contractors of all types and sizes improve their business. The name of the book is “5 Pillars For The Ideal Lifestyle Of The Construction Company Owner.” You can get your copy for FREE at this website: http://constructionownerlifestyle.com

 

 

About John Bergman John has been a business coach, consultant for more than 25 years. John Bergman

John Bergman has written 81 post in this blog.

For more than two decades I have had the opportunity to work with hundreds of small business owners to help them improve their business performance overall. It's not how much sales volume you have, but rather how much profit you make that really counts.

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