Understanding Overhead, Profit, and Margin for Your Construction Business
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- čas přidán 20. 08. 2024
- In this episode, Drew and Ben are continuing in the series "Why Good Guys Fail" to discuss why so many construction and contractor professionals that are good at what they can do can fail.
Join them as they discuss the impact of your overhead, how to prepare a margin, and what making a profit looks like.
Listen to more episodes of The Contractor Commute: thecontractorc...
New to Electrical Contracting, and I am doing my best to sift through the contradictions people try to feed you. This was very helpful. Thank you.
There is a ton of information out there and a lot of opinions about how to break down your finances, markup, profit, etc. We hope you are successful, and welcome!
Good video! I am one of the few guys you mentoned at the end of the video. CZcams is a long process but more people are going to search for this topic in the future :)
Thanks for putting this out. I’m new to all this information!
Glad it was helpful! We want contractors and small business owners to succeed!
This is my first time on the channel I love it you guys make it simple to understand and inspiring to implement
Glad to have helped, Darnell! We hope it helps you make your small business work even better for you!
@@congenius I'll keep you posted on the growth 🤸🏿♂️
You guys just opened my eyes ! Thank you !!
So glad we could help, Patrick!
I love The guy on the left who’s watching a baseball game while the other guy is talking
Was he looking at podcast notes or a baseball game? Guess we'll never know
Just joking, the comments are sometime the best parts of video to read.
Serious note, I signed up for the 14 day trial last night and will be setting up a conference call today to get a better handle on how to use this for my HVAC business.
Enjoyed the podcast
I agree with you and it came through that you had at least some sense of humor ;) Hope the call with Joe goes well! @@scottnewbanks5111
Good video
So easy for contractors to fail due to these mistakes!!
Much respected content fellas👍🏻, I see how it's so easy for it is for a business to go under. So, regardless of how many jobs you get per month, do you apply the same percentage to each job to account for overhead?
You'll want to change your overhead percentage depending on how many jobs you anticipate for the month and the total amounts of each project. It is all proportional. If you have $1,000 in Overhead that needs to be covered in one month, that could be 10% of a $10,000 project or it could be 5% of a $20,000. You'll have to set the percentages accordingly to ensure you cover your overhead number. The same percentage on every project will give you large numbers in some cases, and smaller numbers in others.
You can think of your overhead each month as a whole pie. You know that whether you take one bite or twenty, the pie needs to be gone at the end of the month. No matter which way you slice it, I suppose ;)
@@congenius so, if you cover you overhead for the month in a 2 project span, do you continue to calculate overhead costs in the remaining projects?
If you didn't anticipate getting those projects, then you could theoretically drop the overhead percentage from remaining projects in that month. It would lead to those projects being cheaper on the customer, while ensuring you've still set yourself up to profit at the end of the month. This could be a win-win, but sets up those early month customers to pay more to cover your overhead. If you have a better idea of your customer's finances, you can charge more or less markup depending. That's more of a judgement call than anything.
We'd recommend doing your best to know how many projects you intend to average every month and how much those projects would bring in, on average. It is safer for your business to have markup to cover overhead on every project, whether that amount is large or small. This is where you might want to make it simpler and add that flat markup percentage you had mentioned on every project if you wanted to. If most of your projects are around the same cost, it shouldn't change too much. The downside to this is: It's easier on you, but could be skewed on the customer's end again.
It's as much of a business decision as it is a personal one! We're always down to help.
@@congenius I appreciate the feedback, I absolutely got a better perspective to operate my future developing company much more efficiently👍🏻🤜🏻🤛🏻.
Throw us a line so we can follow your company in the future!
So wtf is the formula to calculate your overhead?? Simple it down bro
Monthly expenses unrelated to projects + annual expenses to run business / 12 months = average monthly overhead
A lot more could go into it, but that should get you there.
Then divide your gross profit by your expenses…. That should get you your overhead percentage as a minimum to add to your individual projects.
I used $ of gross profit because that’s what you actually have to pay expenses. Not total revenue…. That’s not all yours yet.
Good distinctions!@@jim2mckenna220
@@jim2mckenna220 Please be a little more precise in this calculation. Divide Gross Profit $ by "expenses" meaning COGS or Overhead Expenses? Above the line expenses or below the line expenses?
@@rgnoel COGS is already out of GP.
The math on GP is total revenue-COGS = GP. GP- overhead expenses = Net profit. This post is dealing with percentages…. That’s always where things start getting screwy.