How to figure profit?

[eradicator]

I get the opportunity to look inside of a lot of different businesses as a consultant.

Most people aren't charging nearly enough, and lots of them aren't really making much at all.



The first rule is to calculate your true overhead.
My business is extremely lean, so I keep it under 20%.
Most that I see are in the upper 20's.

Then profit is the next big hill to climb.

My rule of thumb, is that you need to be making enough to make your business worth buying to someone else.

That means you need to be paying yourself a salary AND still making a profit on top of that.

No one wants to buy a business if it just means buying yourself a job.

You are not wrong but thats borderline illegal

[eradicator]

Any other tips ?

Your expenses are more than what you think. It boils down to what you think your time is worth and how good you think your work is.

[Farmdog]

Real world math or Cowboy math, depends which you use. Example: my heifers are worth X because they arent salebarn girls, after 3 calves they will be paid for! (forget to figure fertilizer and water and please dont really add up expenses or actually look at the market) Cowboy math and the Banks math are worlds apart. This post is dedicated to B. E. we drink beer together

[Atfulldraw]

You are not wrong but thats borderline illegal

I can’t wait to hear this....

how would that be illegal?

[curtintex]

I can’t wait to hear this....

how would that be illegal?

Hopefully he was joking.....or drunk.

[rut-ro]

I can’t wait to hear this....

how would that be illegal?

Me too. I thought you had good statements! But then I’m the one asking the question as I really don’t know

[eradicator]

Yall missed the smiley face I guess I should have put the illegal in quotation marks. I'm all for everyone making as much as possible!

[Atfulldraw]

Yall missed the smiley face I guess I should have put the illegal in quotation marks. I'm all for everyone making as much as possible!

A'ight, den.

[gonzaleziam]

Your biggest hurtle will be figuring out your time. That has been a struggle. I know all fixed cost, plus % of other items, then your time. That has always been tough.

There is an excellent book that I wish I had when I started my business. It is called Profit First! If you follow what that guy has advised you will or should have money in your account. Highly recommend it.


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Who’s the author for the book you recommend Profit first? Looked it up on amazon and there are several authors with that title

[dstrong]

Revenue - expenses

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In the most simplistic form this would be 100% correct..

[meltingfeather]

It's all a matter of how closely you want to know it and how much documentation and record keeping you're willing to do.
Your time is an expense, and whatever you think it will take in hours, double that to start (then see how good an estimator you are and adjust accordingly).

[Hayek'sPupil]

For those of you that do odds and ends jobs, build stuff on the side or any side hustle. How do you factor in your profit? Is it a percentage of the materials on top of the materials cost or is it an hourly rate on top of what materials cost? Is wear and tear factored in on tools on every job? Or is every job going to be different ?

Don’t have any plans yet for a side hustle but when I find one I want to try charge correctly.

You can mark-up based on the risk in the market. The riskier the market the higher the mark-up and vice versa

[ecallarman]

In my opinion, Figuring profit is actually very simple and can be as simple or granular as you want. In your case I would suggest the keeping it simple. Below is a simple example.

Sales Revenue $300,000
Direct Labor -$100,000
Direct Materials -$100,000
Cost of goods Sold -$200,000
Gross Profit $100,000/ 33%
Operating expenses -$50,000
Net Profit $50,000/17%


As far as figuring out how to estimate a project that encompasses profit, I would suggest considering the following estimate example You can adjust the billing rate and materials markup as you see fit, or your market will allow.

Labor- 24hrs X $60.00 = $1,440.00 (Billing rate would include overhead and profit)
Materials- $500 X 20% markup = $600.00 (Markup would include overhead and profit)
Consumables- $100 X 20% markup = $120.00 (Markup would include overhead and profit)
TOTAL - $2,160.00

Now, let's take a look at you hypothetical profit on that estimate.

Revenue= $2,160
COGS (Direct labor @ $35/hr & cost of matls & cons) - $1,440.00
Gross Profit=$720/ 33%
Operating expenses (expenses that are not 100% attributable to this one job and are associated with operating your business year-round) -$360

Net Income/Profit (gross profit minus operating expenses)= $360/17%

[ecallarman]

For those of you that do odds and ends jobs, build stuff on the side or any side hustle. How do you factor in your profit? Is it a percentage of the materials on top of the materials cost or is it an hourly rate on top of what materials cost? Is wear and tear factored in on tools on every job? Or is every job going to be different ?

Don’t have any plans yet for a side hustle but when I find one I want to try charge correctly.

Is it a percentage of the materials on top of the materials cost- yes. profit is usually covered by a portion of the commercial markup applied to the direct cost of materials.

or is it an hourly rate- Yes, profit is usually covered/factored in the hourly charge rate.

See my above (in previous post) examples.

[JBJTX81]

Sales Revenue $300,000
Direct Labor -$100,000
Direct Materials -$100,000
Cost of goods Sold -$200,000
Gross Profit $100,000/ 33%
Operating expenses -$50,000
Net Profit $50,000/17%

Maybe I'm making this "too" simple????
My math thinks you have 300K in Rev 400K in expenses and lost 100K.
But your saying you made 50K?