OVERHEAD

I'm good w/ basic math Mike but that % calculation always throws me. >>>

Thanks EGG it's good to hear from some of the old timers.>>>

I must have missed the wrestling story, but I remember the 3 'r's and have enjoyed terry's posts for a long time. I have to say it is kind of gratifying to see Mike's overhead advice land with such a satisfying impact after all these years. He is a patient man and has given various forms of this advice many times, but with one thing and another, and no telling who is or isn't searching for information or who is or isn't even scanning one of the threads it gets posted into, most of the time it seemed to me that the information simply glanced off.

We tradesmen turned contractors (the insurance industry attempts to categorize us as 'artisan contractors') who persist in wearing tools have an intimate comprehension of just how time-based everything is. The classic joke of course is that when we bid something too low, we tell everybody that we are working for free. We run calculations to see how late in the year (a normal year) it was before we started counting the money we made as our own. Let's see now...will it be August, September, or October? No wonder we aren't cheap. But if we took off our tool belts and became part of the overhead, would we even make it before Christmas? Not if we can't expect our mechanics to do MUCH more than carry their own wage.

What I liked most about Mike's method was the way all the different types of jobs and all the different types of overhead expense got blended together to yield a weighted average. That takes out the distortion from jobs that are mostly labor, jobs that are mostly material, and all the variations in between, which will drive you nuts if you try to extrapolate from any single one of them.

The notion that certain types of jobs were profitable and certain types of jobs were not EVEN WHEN the workmen were doing their best in every case, was illuminating. My answer to this problem, as a small, working, owner, is to charge more (than I have to make just to get by), work harder than I have to work (because I love to work), keep my overhead as low as humanly possible (as in no advertising), make sure my customers are nearly always MORE than merely satisfied, and produce a superior product at a medium price.

I have NO illusions that this is translatable or commutable to a situation where most of the customers do not get one-on-one communion with a working owner. The whole situation has to get modified and stabilized. Mike's method does that.>>>

Terry,

I could never forget a woman that coached wrestling. :) (BTW, it was Terrry, 3 "r"s)

Twill, I include burden in my overhead. But when I said 200%, that ABOVE AND BEYOND the labor.

So if I had 2,000 in labor, my overhead would be close to 4,000, for a total of 6,000.>>>

We are in a time -based industry--- the service industry. In fact that is how we get paid. Charging by the sq. or some other means, without doing time calculations, is guessing. You had better guess high.

It might startle you to see just what you need per hr. to break even Terry.

I think I am over 200% Mike, if I follow you correctly. For example: If labor was $20 per manhour w/ burdens, would 200% be $40 per manhour, labor,burdens and o/head?

>>>

THANK YOU....THANK YOU....THANK YOU... That's exactly what I'm going to do hummmmm why didn't I think of that. Hey Mike do you remember me I think I use to be logged on as Terrrry or Terryy? Thanks again for the great advice!@ :kiss:>>>

Terry,

For years we struggled with overhead for years, one year we made money, one year we didn't. We marked our costs up 30% for overhead and that total we marked up 20% for "profit". In effect, when the calc's were done, we marked out direct costs up 56%. It didn't always work.

In 1994 we started taking last years financial information, took every expense that was not labor, material or subcontractor, and divided that number by the total labor cost.

This gave us an overhead figure that was represented as a percentage of our labor.

For the next year's estimates, we calculate our overhead by multiplying the estimated labor by that overhead percentage. I can tell you it has run from between 150% and 200% of our labor costs every year.

Ever since adopting this method, our financial year end has mirrored what we anticipated from our job completion reports. Every contractor that I know, who has adopted a time based labor overhead calculation, be it a daily, hourly or labor percent basis, has said their financial bottom line has stabilized.>>>

Man, I'm about 3.5 seconds from chaulking this all up and start lookin for another job @ 55 I feel like I'm starting all over again at the bottom. Everything was wonderful until I purchased this building, sure there were hard times and slim pickin's throughout our first 13 years but it never seemed this hard to run the business. I've always felt fortunate that I work in a field I love and grew up in. I also have tried hard to clean up the unfortunate reputation in our industry. In the last 3 years I have spent thousands of dollars hiring so called companies that were suppose to help me turn this company around and now I'm more confused and broke then I have ever been. Deciding to purchase this building and expand in 2006 was a bad choice, before the ink dried, the economy took a shit and I've been hanging on by the tips of my fingures ever since. One of the main problems is we have alot of family working for us and like me roofing is all they know. I'm stuck between a rock and a hard place any suggestions?>>>

if you get anywhere near $200,000 per man, per year, you are doing shall we say, really, really well ;) (at least in residential)>>>

NOW, thats a problem. Our sales are just between 1 -1.5 million, Vaa how did you figure that I need to make 5.1 mill/per yr. to gross 30% profit? Are you saying that I need to sell 5.1 million to make a 30% gross profit, so that I can pay our salesman 1/3 -1/3 and 1/3? That just doesn't seem right, how can your overhead be running the same as mine without a 1/4 of the expenses I have?>>>

Yeah what Jed said. Selling more at a loss or a break-even won't change the bottom lione.

The issue you may now look at would be production or pricing. Proceed>>>

...in view of what you just wrote Terry, I think OS might have the answer.>>>

I leave the depreciation factor to my accountant. Vaa, your overhead expenses are running about the same as mine, but I have 10 crewman, 2 full time repairmen, 2 salesman (1 whom is my husband), 2 full time office girls (me being one) and 1 part-time girl to pick up slack and marketing in the office. I'm also running 5 trucks, 1 service van and one lg. box truck....Dam maybe I'm not doing that bad after all!@ Never the less, I am not making any money so I need to decide what I need to cut out to be profitable again. OR, here's a thought I need to figure out how much more we need to sale in order to break-even. Shit see what I mean, this is way to brain boggling for me.>>>

I am well over 30%. A very cheap office and a very cheap shop/warehouse. Must be because I pay myself a Handsome Salary>>>

It did, You can't absorb it anymore. I got small, real small. I like it like that!>>>