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Old 05-26-2020, 08:26 PM   #1
rut-ro
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Default How to figure profit?

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 ?

Donít have any plans yet for a side hustle but when I find one I want to try charge correctly.
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Old 05-26-2020, 08:31 PM   #2
Sparkles
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For most things I use multiples, some things require a time estimate.
If your estimating time donít forget to plan for all the crap that could go wrong.
Iíve noticed my guys are half as fast as they think they will be sometimes lol


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Old 05-26-2020, 08:31 PM   #3
mmoses
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I have a little woodworking hustle on the side.

Just starting out so I charge material plus 10%(covers glue, pads, screws, sandpaper, etc) plus $40/hr. Eventually, I would like to get up to $80/hr.
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Old 05-26-2020, 08:40 PM   #4
DRT
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It depends on what the job is and the skill set required.
Mostly it is costs plus time involved. Daily rate, hourly rate etc.
Some jobs I have set rates that only change as material/parts costs change.
For example I charge a days labor cost to replace a lift plate and motor. I've done a couple in as little as 3 hours. Most take 4 to 6. Eats up a day. Plus the time to order, show up for orders received and do estimates and invoices. Consideration for time to go get materials, fuel, maintenance to vehicles, tool depreciation/ replacement and administrative time have to be included in those hours and costs.
I have under bid a couple of jobs this year and although in the end I didn't loose money per say, I didn't profit off of them.
Remember that most people in business have to think about that day after they close the doors. It's not just having a few bucks left at the end of the month.

Gary
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Old 05-26-2020, 09:15 PM   #5
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It depends on the job but need to factor in wear and tear and create sinking funds to either pay the equipment off or have funds to replace when time. Always remember to factor in the incidentals as they add up over time and itís not just the main items you buy for the job, but all the small stuff that you buy here and there. Profit is hard for a one man show as you set what your worth and charge that. When you add people, then you need multipliers to make sure taxes/ins are covered if you have those.


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Old 05-26-2020, 09:19 PM   #6
tex4k
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At least your asking the right questions, most folks pull a number out of somewhere and think that's good enough. Every expense has to be factored in plus the amount you need per hour/week/month. I calculate in gas, how much per day it will take to replace my vehicle in 5 years, same for my equipment but on a 1 year replacement, insurance, etc.. Your expenses will vary according to whatever your doing just remember for every dollar that goes out that dollar plus 30% and your rate comes back.
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Old 05-26-2020, 11:18 PM   #7
Atfulldraw
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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.

Last edited by Atfulldraw; 05-26-2020 at 11:22 PM.
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Old 05-26-2020, 11:19 PM   #8
manwitaplan
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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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Old 05-26-2020, 11:50 PM   #9
double bogey
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As an ac guy not practicing currently but here go's. For a system replacement I figure cost. Cost of equipment, extra parts and supplies, some for misc, labor for my installer (subs). Then i figure how much i would like to make over cost. In the misc costs i have a figure that covers insurance (truck and business) and taxes.

For smaller repairs i mark up my parts and supplies and charge whatever labor i am currently charging. I dont make as much money there as the flat rate shops do, what they get $500 for i seem to do about $320. But i have no trouble sleeping at night.

Most ac (ok, lots) of outfits now are about selling systems. That is where the money is at, so i like it too. But lots (ok some) of companies push equipment sales past a point of being honest. Some technicians are sales guys, not repair guys. If they don't sell equipment, they wont keep a job. If they do sell equipment, they make lots of money.
Its all about the sale and financing.

Sorry for the rant, but i am not happy with the industry that i have spent a lifetime in.
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Old 05-26-2020, 11:56 PM   #10
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Revenue - expenses

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Old 05-27-2020, 03:44 AM   #11
Kevin
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Quote:
Originally Posted by Atfulldraw View Post
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.
Well said.
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Old 05-27-2020, 04:57 AM   #12
Copanocruisin
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Years ago when I had two kids in college I started a millwright side business setting new industrial equipment on a major plant expansion. When it was just my son, tool buddy and my self things were great, although the huge company was consistently very late paying invoices. Well when the work just kept growing and I had to hire employees having to make regular pay days, unemployment taxes and workers comp insurance, it eventually turned out unbearable for a small business. I ended up rolling over to being an employee myself for one of the general contractors. Oh well, live and learn. On the upside, two kids thru college and zero loans for them or myself. Life is good, but in small business, there sure are a lot of what ifs.......cC
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Old 05-27-2020, 07:18 AM   #13
rut-ro
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Thanks TBH. Pretty good info here.
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Old 06-01-2020, 07:17 PM   #14
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Any other tips ?
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Old 06-01-2020, 07:26 PM   #15
TA_Fab
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When I was welding on the side I would just total up expected materials to be used and my consumables. I always did lump sum with a minimum charge. Probably would have made more money charging hourly but I stayed busy enough.


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Old 06-01-2020, 07:53 PM   #16
eradicator
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Quote:
Originally Posted by Atfulldraw View Post
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
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Old 06-01-2020, 08:00 PM   #17
eradicator
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Quote:
Originally Posted by rut-ro View Post
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.
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Old 06-01-2020, 08:10 PM   #18
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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
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Old 06-01-2020, 08:18 PM   #19
Atfulldraw
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Quote:
Originally Posted by eradicator View Post
You are not wrong but thats borderline illegal
I canít wait to hear this....

how would that be illegal?
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Old 06-01-2020, 08:41 PM   #20
curtintex
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Quote:
Originally Posted by Atfulldraw View Post
I canít wait to hear this....

how would that be illegal?
Hopefully he was joking.....or drunk.
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Old 06-01-2020, 08:48 PM   #21
rut-ro
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Quote:
Originally Posted by Atfulldraw View Post
I canít wait to hear this....

how would that be illegal?
Me too. I thought you had good statements! But then Iím the one asking the question as I really donít know
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Old 06-01-2020, 11:26 PM   #22
eradicator
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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!
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Old 06-02-2020, 07:57 AM   #23
Atfulldraw
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Quote:
Originally Posted by eradicator View Post
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.

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Old 06-02-2020, 08:22 AM   #24
gonzaleziam
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Quote:
Originally Posted by manwitaplan View Post
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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Whoís the author for the book you recommend Profit first? Looked it up on amazon and there are several authors with that title
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Old 06-02-2020, 08:28 AM   #25
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Quote:
Originally Posted by SmTx View Post
Revenue - expenses

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In the most simplistic form this would be 100% correct..
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Old 06-02-2020, 09:31 AM   #26
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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).
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Old 06-02-2020, 09:39 AM   #27
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Quote:
Originally Posted by rut-ro View Post
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 ?

Donít 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
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Old 06-02-2020, 10:01 AM   #28
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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%

Last edited by ecallarman; 06-02-2020 at 10:15 AM.
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Old 06-02-2020, 10:25 AM   #29
ecallarman
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Quote:
Originally Posted by rut-ro View Post
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.

Last edited by ecallarman; 06-02-2020 at 11:24 AM.
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Old 06-02-2020, 10:09 PM   #30
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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?
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Old 06-02-2020, 10:23 PM   #31
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Cogs is the sum of direct labor + materials
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Old 06-02-2020, 10:28 PM   #32
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Quote:
Originally Posted by mmoses View Post
I have a little woodworking hustle on the side.

Just starting out so I charge material plus 10%(covers glue, pads, screws, sandpaper, etc) plus $40/hr. Eventually, I would like to get up to $80/hr.
I needed to hear this!!! Good advice.
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Old 06-02-2020, 10:28 PM   #33
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I think Cost of goods sold = direct labor + direct material
not in addition to.

never mind........already answered
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Old 06-02-2020, 10:50 PM   #34
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Gotcha - cost of goods sold is a subtotal of various expense line items.
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Old 06-03-2020, 11:14 AM   #35
ecallarman
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Quote:
Originally Posted by Hunter58 View Post
Cogs is the sum of direct labor + materials
You are correct. that's what I have in my example. My example might be a bit misleading because I used a "-" in front of the amount, but it wasn't to indicate a deduction but rather just a space in between the dollar amount and the description. The red font indicated a deduction for the direct labor and direct matls, and the red & bold font indicates a subtotal of the two line items above (DL & DM).

Last edited by ecallarman; 06-03-2020 at 11:17 AM.
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Old 06-03-2020, 11:19 AM   #36
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Take a look At "Profit First". This system has been great for our small business.
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Old 06-03-2020, 01:15 PM   #37
rut-ro
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Quote:
Originally Posted by ecallarman View Post
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%
This has some good info. Thanks for taking the time to put it all down
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