So the last year has been a big learning process for me in estimating and pricing. I finally have a price sheet that I reference now and am happy about it. What I wonder is if when I total up all the devices for the house should I then add a % to that for profit margin or should I already consider the profit built in? I know it could all depend on what I'm charging per device. My pricing for example is $55/recep, $55/single pole switch $65/3way $150/fan...so when I add everything up should I add about 10-12%
Profit margin ?
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Hmm ok so lemme ask this. I often hear management at the other big company I work for talk about margin. What are they talking about. Like they'll say "there's only 9% margin" or they'll say they booked a job at very low margin.rewire said:
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It is my understanding that the margin is the same thing as net profit. Net profit is the money left over after the labor, material, equipment, and overhead are recovered.
Overhead can be a bit more involved than a lot of small ECs understand. You can recover your overhead from your materials, your labor, a combination of materials and labor (and equipment).
A company I worked for paid for us to be trained in the dual overhead recovery method. It was based on what your budgeted labor sales and material/equipment sales were going to be. The projected overhead was turned into a multiplier on the labor or material/equipment costs. Then a profit margin was added.
For those interested, the mark up on materials was lower than the mark up on labor (for overhead recovery). This was back in the 90's so I don't remember a lot of the details, but I do remember thinking if you got it wrong that you would be driven to jobs that had a different mix of labor and materials and it would be towards the jobs that you didn't recover your overhead.
When I conducted my own business, I pretty much collected all my overhead on my labor sales. Materials/equipment would be marked up with a profit only. I don't know if that is correct or not, but it worked for me.
Margin is the markup. Whether the markup reflects the job cost markup (gross margin or sometimes referred to as gross profit) or the margin after job cost and overhead which is commonly referred to as net profit or EBIT (earning before interest and taxes.
You'll need to understand how to read an Income Statement (or commonly known as a Profit & Loss Statement to really fully understand what margin, gross margin, overhead and net profit/margin represent.
Then there's the Balance Sheet, which is another discussion.
Mark-up and margin are similar, but different. It's looking at the relationship of cost to sell, from 2 different views.
If I buy something for $75 cost, and sell it for $100, that's 33.3% mark-up, or 25% margin.
Mark-up:
$75 cost plus 33.3% mark-up (or times by 1.333) = $100 sell
Margin:
If I sold something for $100 and it cost me $75, my margin is 25%.
If I buy something for $75 cost, and sell it for $100, that's 33.3% mark-up, or 25% margin.
Mark-up:
$75 cost plus 33.3% mark-up (or times by 1.333) = $100 sell
Margin:
If I sold something for $100 and it cost me $75, my margin is 25%.
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Very true. I've been dividing my cost by 1-my desired margin % for so long, I forgot about looking at it this way. But you are correct in the way you presented this.
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Bottom line is that it doesn't really matter where you put your profit on an estimate as long as it's there. If I am using a point method on an estimate, my overhead and profit are included in my points. If I am estimating by time and material, I add overhead and profit at the end.
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I do think there is an advantage to including your "profit" in the cost you charge per device. It allows for quick changes to estimates for customers when their specifications change. If the customer wants 10 more receptacles it is $55*10 = $550 more. Easy for you to calculate and easy for your customer to understand. If there are numerous changes to the original contract or estimate this work can be significant and I think your customers would appreciate the simplicity.
Jim
Jim
Markup is NOT profit, thinking that way will only confuse yourself and allow you to overlook various overhead and hidden cost's. As for how to add markup and adjust prices for profit, the best system is really the one you understand and can apply effectively to meet your needs and sell to a customer; because we all know some customers will whine about materials costing more then home depot, and/or you charging more for labor then they make. After all, just an electrician.
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Oh NO; not the balance sheet! You dare mention that here. That's TOP SECRET!!
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