Profit or pot luck?

Profit margins are being squeezed due to many factors but I ask the question does anyone actually factor in “profit” when quoting for jobs?

There have been a number of posts on the forum where I suspect that a daily labour rate has been quoted plus materials.

I guess that we all have different running costs and overheads and we all know what roughly we need to bring in each day.

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Permalink Reply by Stuart Marler on February 19, 2009 at 9:37am: Please advise what that word "profit" means?

I put in a decent days labour price and generally 20% on materials. Even so, this still brings me out several hundreds of pounds on top of others. I agree I might be doing the job correctly with the best materials, not cutting corners, am insured and pay tax!

I have just had a business review meeting, like a business MOT, the chap told me to start adding in profit. My answer was that I find it difficult to win jobs without adding profit on top as it is!; ▶ Reply to This

Permalink Reply by colin on February 19, 2009 at 1:40pm: my last boss was making his profit from customers who was reccommended from age concern, he was charging them £30 an hour (£24 normally). it didnt take long for me to inform him i would be leaving as it wasnt the reputation i was after and he soon lost the reccomendations aswell.
profit comes from getting free work with no overheads for aquisition (no advertising)
you can spend £500 a year on joining a club (apl or whoever) £25 a week on newspapers maybe a 1000 glossy leaflets another £150 then you have to cover time delivering leaflets., im just getting the van sign written £150 +vat
yet you can do a job and have the friends and neighbours see what you have done then they get your number from the customer
or see your work as you are carrying it out as they are just driving by and take your number from your vehicle
being visible with minimal cost is a key factor for any company; ▶ Reply to This

Permalink Reply by dgeorgea on February 19, 2009 at 1:49pm: This left me a little puzzled at first, but actually I think you make a good point.

I have seen a great post by Phil that looks at how to cost a job, including how much you want for yourself. But even if you are happy being a one man band you do need to factor in that you will need to repair and replace equipment, and if you do want to expand, either in terms of services or people you will need to factor this in as well. After all there is little point in building up a great business if it suddenly runs to stop because you cannot afford to replace a van and so cannot get about.

I look forward to seeing how people factor this in.; ▶ Reply to This

Permalink Reply by colin on February 19, 2009 at 2:03pm: said former employer of mine used to take basic wages and costs to end of financial year then anything left he would purchase stocks and shares!!!! he also lost a lot of time and money as he was having to wait for release of funds when something needed replacing. i spent many an hour waiting for machines to be fixed or parts to arrive for me to do the repairs.
i think it may have backfired now as an idea though with the markets lol i know while i worked for him he went on holiday for 2 weeks came home and found that he needed to buy a new roller mower (the old empress had finally died) and his shares had fell in value by 3k

dgeorgea said:
This left me a little puzzled at first, but actually I think you make a good point.

I have seen a great post by Phil that looks at how to cost a job, including how much you want for yourself. But even if you are happy being a one man band you do need to factor in that you will need to repair and replace equipment, and if you do want to expand, either in terms of services or people you will need to factor this in as well. After all there is little point in building up a great business if it suddenly runs to stop because you cannot afford to replace a van and so cannot get about.

I look forward to seeing how people factor this in.; ▶ Reply to This

Permalink Reply by Graeme @ BGS on February 19, 2009 at 6:48pm: I was referring to the amount of “profit” for example money remaining in the bank at the end of the company year (after tax etc) that is retained in the business and used as a reserve or as a means of financing expansion or investment.

I changed my business model a couple of years ago and now factor in a “profit margin”. Each “job” is quoted from a position of quality and sustainability with an appropriate and fair balance between cost, quality, and timeliness.

The key is sustainability, we need to make a reasonable profit in order to remain in business.

I appreciate that we all have different business costs and hence different profit margins but are we shooting yourselves in the foot if we don’t factor in profit?; ▶ Reply to This

Permalink Reply by Graeme @ BGS on February 20, 2009 at 3:06pm: My point exactly.; ▶ Reply to This

Permalink Reply by Anthony George on March 4, 2009 at 11:27am: I agree with clive on this,

You have to factor in a profit margin if you want to run a business.
There will always be unexpected costs, Vans breaking down new tools etc. If you don't have a profit you can't re-invest in the business.; ▶ Reply to This

Permalink Reply by niall gibb on March 4, 2009 at 12:10pm: i mark up 15% on materials and labour and still dont think thats enough, reason doing a complete review at moment

when you mention labour rates i take it you mean per man? i aim for £25per hour per man; ▶ Reply to This

Permalink Reply by Nicky Patterson on March 4, 2009 at 1:52pm: I often found that we were priced out by a little bit on price competition jobs and I think that this is because there are still a ton of firms out there who work for bills and beer money. If you pay tax and insurance and add in a margin for growth and reinvestment then the chances are you won't be the most competitive. This is why referral work and design based work is more valuable because reasonable and durable rates can be applied allowing for more effective margins and allowances. I charge a call-out fee of £20 during high-season for straight forward price jobs - not alot of money but it weeds out those clients who'd normally opt for the cheapest option and saves us some time writing out ineffective quotes.

Niall I aim for a similar rate on site and charge a similar premium for design work - if we're working 16-18 hours a day in and out of site and the office I need to cover my costs and make some profit so my labours are worthwhile - if I ain't with my wife and daughter and have my eyes glued to a design or am elbow-deep in mortar, I want paid for it!!

Nicky Patterson
GardenImprovements.com; ▶ Reply to This

Permalink Reply by niall gibb on March 4, 2009 at 2:20pm: just to highlight the term profit, i was meeting a sales rep monday night to get tape and adhesive for astroturf job, on the east kilbride bypass (nicky will know) pickup broke down as i write i am waiting for it to be towed to garage by aa. transmission problem so who knows how much it will cost?

just finished planting job today with good profit margin but that will be gone paying repair. at least i had factored in profit i suppose

anyone got a spare bicycle?; ▶ Reply to This

Permalink Reply by Graeme @ BGS on March 4, 2009 at 5:05pm: My hour rates are slightly higher and work out at around £30 to £50 per hour per man depending upon the work we undertake. I would say the average is £30 per hour and we normally send out a two man team per van.

I try not to quote hourly rates as this makes us look a lot more expensive to some of the one man band competition. So the quotes are normally for fixed price work. In fact our two man teams can work more efficiently and be just as cost effective than the one guy charging out £15 - £17 per hour.

I also stress that we are not always the cheapest but they pay a premium for the quality service.

When pricing jobs I try to factor in all costs such as allocating 4% towards the bad debt pot (by the end of the year I can normally get this down to about 1% which helps the bottom line but don't forget it cost money to carry the debt!), 2% towards equipment servicing and repairs, 10% for actual running costs whilst on the job plus a percentage of £75 per day per van to cover other fixed costs and then finally a 15% net profit margin. In fact I probably get closer to 60% gross profit but as you know there is always something that crops up and then wages / sub contract costs which can bring the net profit down to very little! This year I will be investing a little over £15K on capital investment and may need to purchase one of the vans out of the lease.

On bad days I reckon the actual true net profit to be as little as £20 per day per van but can be as high as £200 on very good days. Still this is very little when you think of the capital investment and time and effort spent.

As my bank manager keeps telling me I am in business to make money if not work at a burger bar!

My key task this year is to drive our costs down and increase profitability to about 25% of total income which is probably about a fair rate.; ▶ Reply to This

Permalink Reply by Green Room Gardens on March 5, 2009 at 10:18pm: Blimey just seen the rest of the replies I better head of and get a business degree. They didnt teach me this sort of stuff at horticultural college; ▶ Reply to This