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#155683 - 01/29/05 07:44 AM Calculating Overhead and Estimating
mustangelectric Offline
Member

Registered: 02/08/04
Posts: 496
Loc: Bentonville, AR
Hi,
I am looking into setting up a franchise. I am confused on a few issues.

Everything I read or hear tells you to add the cost of overhead to a bid. How do you determine what that is?

If you get 50 jobs a year are you trying to spread it out evenly?

Esitmating is a tricky business with pitfalls around every corner.

Do you always figure up the exact amount of materials, travel, overhead, labor etc. or is it common to just make a hypothesis?

Set prices...is it feasible to preset the cost of a 200A service or replacing a panel etc?

A lot of times I already know what is involved in doing most jobs. I know what it takes in material and I usually know what kind of labor it will take. I always add a multiplier of at least 1.0 for degree of difficulty.

I have found that simply calculating the material and labor etc and adding 10% is not near enough profit. I hear that some EC are working within that margin.

I am now charging $1800 for a 200A service where I used to get $1200. Some of my jobs the profit is 200% or more.

I just think that there is a good formula out there and I dont want to create a new one but I do not want to leave money on the table.

I am talking mostly about residential work.

Thanks for any comments.

-regards

Greg
_________________________
Electricity has no respect for ignorance!

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Business, Office, Estimating, Legal:
#155684 - 01/29/05 08:36 AM Re: Calculating Overhead and Estimating
Dave33 Offline
Member

Registered: 01/02/05
Posts: 16
Loc: beinica ca
Check out this article http://ceenews.com/mag/electric_overhead_profit_part/

Our company overhead for the last 6-8 months was 19%
It’s pretty easy to lower your overhead if you know how its figured
2 ways, increase sales or cut expenses

excellent topic

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#155685 - 01/29/05 08:40 AM Re: Calculating Overhead and Estimating
A-Line Offline
Member

Registered: 07/23/04
Posts: 264
Loc: Utah, USA
Greg,

You might want to check out a book called "Markup & Profit" by Michael C. Stone
Here are some other articles that might help. http://www.pmmag.com/CDA/ArticleInformation/features/BNP__Features__Item/0,2379,37 43,00.html http://www.pmmag.com/CDA/ArticleInformation/features/BNP__Features__Item/0,2379,7 3093,00.html
Also there are free calculators and information at www.mrhvac.com
Scroll down to Free Management Advice and Materials.

[This message has been edited by A-Line (edited 01-29-2005).]

[This message has been edited by A-Line (edited 01-29-2005).]

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#155686 - 01/29/05 09:17 AM Re: Calculating Overhead and Estimating
A-Line Offline
Member

Registered: 07/23/04
Posts: 264
Loc: Utah, USA
Greg,

Mike Holt's website has some books on estimating and applying overhead to jobs.
He states that there are two methods of applying overhead to an estimate.
The percent method and the rate-per-hour method.
Example for the first method:
Your prime cost is $7,000 and your overhead is 25% of sales.
Prime cost $7,000 75%
Overhead ($7,000X33%) +$2,310 +25%
Estimated cost =$9,310 100%

The second method is the prefered method.
The rate per man-hour is calculated by dividing the overhead dollars for at least the past six months by the field man-hours for the past six months.
The Rate-Per-Hour Method is the one I use.
Mike Holt's estimating book has some practice estimates in it that you can work through.
http://mikeholt.com/productcategorylist....ating&year=2002

[This message has been edited by A-Line (edited 01-29-2005).]

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#155687 - 01/29/05 10:02 AM Re: Calculating Overhead and Estimating
mustangelectric Offline
Member

Registered: 02/08/04
Posts: 496
Loc: Bentonville, AR
Hi,
I can imagine that for a large company with about ten employees the estimating job gets a little tougher. Myself I am a sole proprietor so it is relatively simple to calculate what my expenses are. First I have a home office and I have only one rig.

I have advertising, telephone, fuel, office supplies, tools, etc to consider.

My expenses are relatively low. The amount of work I can do varies depending on the type of work it is. Some work depends on the logistics of the job.

I usually charge $45 per hour for labor on everything residential, ($55 for Comm)

A lot of times I will just propose a lump sum for the job. This usually works out better for me.

Sometimes I will determine how many hours and how much material and how many trips, permits etc and figure it up that way.

I used to give an itemized list of each part used and cost but I stopped doing that, I will only show the parts and no individual cost but a total material cost. This helps because the client will ultimately wonder why he paid $20 for a GFI that he could pickup himself for $13. I will show the labor hrs and rate, show the show up fee.

Sometimes I just use a standard agreement that spells out the scope and amount and payment terms. This works really well.

The labor rate is where the overhead comes in. I can get 15% on parts and sometimes a little more. Labor rates are hard to determine. I like to pay myself at least $35 per hour. That leaves only $10 per hr. to cover everything else.

If I try to up my rates I will price myself out of work.

I want my company to make a profit not just pay my wages.

A lot of outfits have several hands on a single job when I will not.

I realize there is only so much a sole proprietor can expect to earn but I want to maximize that amount.

If I cant clear $50K for wages and retirement, then have profit left in the business then a body is almost better to forget it and just show up somewhere else to get the $50K and do a lot of side work.

I know that the majority of Electrical contractors are 10 hands or less so I am not alone.

I waste a lot of time trying to pin down every locknut and how much time it takes to install it so I have almost gotten away from any specialized methods of making proposals.

When you make a proposal and never even hear back from a potential client that makes on stop and think about why the job did not come in.

On some jobs I always walk away wondering if I have left money on the table.

Calling contractors and asking what they charge is a waste of time in my book.

The big EC's will make a few million on a single project.

I appreciate all the great references I will certainly look into all of them.

Thanks for any suggestions!

-regards

Greg



[This message has been edited by mustangelectric (edited 01-29-2005).]
_________________________
Electricity has no respect for ignorance!

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#155688 - 01/29/05 11:08 AM Re: Calculating Overhead and Estimating
A-Line Offline
Member

Registered: 07/23/04
Posts: 264
Loc: Utah, USA
Greg,

For the last 5 years as a maintenance electrician I grossed between 70k to 80k annually. I also had great benefits on top of that. I worked approx 60 hours a week.
I feel that a personal income of 100k or more would make it worthwhile for me to be in business and this is what I'm shooting for. I would also like the company's net profit to be 10% or more.
I'm a one man shop and was charging $40 per hour for residential service work. By the time I figured in unbilled hours and overhead I was making a lot less per hour than I could make working for someone else.
I also got plenty of complaints about charging $40 per hour. People thought I was making a killing.
I switched from T&M to flat rate pricing and increased my hourly rate to $100 per hour and I'm going to try to raise it to around $130 per hour.
I believe it can be done but I need to become better at marketing and selling.
In some areas contractors are getting over $200 per hour and have plenty of work.
They're prices are 2 to 3 times higher than some of the other contractors in their area.
They must be very good at selling.
Some people would call these contractors overchargers or crooks. I call them good businessmen who know their costs and charge what they need to charge to make their desired profit. They don't care what everyone else is charging. This is the way it should be.
I quit estimating new houses for GC's. I couldn't get jobs because I was too high.
When I lowered my price to get the job I didn't make any money.
I'm concentrating on service & repair work dealing directly with the customer.
The overhead costs are high for this type of work but the profits are better and I collect my money daily instead 3 months later.
You have to account for unbilled hours into your labor rate. If you're working 3,000 hours annually and you're billing the customers for 1,500 hours at $40 per hour that puts you down to $20 per hour.
Take the overhead out of that and whats left?
You might as well flip burgers for a living.
I've heard that in the service business most contractors operate at 50% to 60% efficiency. I've heard that acheiving 60% is hard to do.
60% of 3,000 hours is 1,800 billable hours.

[This message has been edited by A-Line (edited 01-29-2005).]

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#155689 - 01/29/05 11:24 AM Re: Calculating Overhead and Estimating
A-Line Offline
Member

Registered: 07/23/04
Posts: 264
Loc: Utah, USA
Greg,

I also wanted to add that when I don't get a job I don't believe it was because my price was too high.
I believe it was because I needed to do a better job of selling it at this price.
I really need to work on becoming better at selling.

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#155690 - 02/01/05 08:45 AM Re: Calculating Overhead and Estimating
mustangelectric Offline
Member

Registered: 02/08/04
Posts: 496
Loc: Bentonville, AR
Hi,
I am pretty satisfied that COST-PLUS and FLAT RATE billing is the only way to go.

I doubt that I will ever give another bid based on hours and material.

Cost plus is rare so flat rate is the ony way a small EC can stay alive!

I would price myself right out of work at $85-$120 an hour.

There are contractors out there who can charge $120 hr per man? I do not think I could even get the job at that rate.

Brown & Root, Fluor, Bechtel and any of the other top 500 firms do not even charge $120 per hand!

You may get that in San Francisco or New York but I do not think that anyone would be able to be competetive at that rate.

I get a lot of calls wanting to know how I charge or what my hourly rate is or what I get per square foot.

$1.75 a sq foot for residential is hard to sell!

FLAT RATE BILLING is the way to go!

-regards

Greg
_________________________
Electricity has no respect for ignorance!

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#155691 - 02/01/05 05:08 PM Re: Calculating Overhead and Estimating
A-Line Offline
Member

Registered: 07/23/04
Posts: 264
Loc: Utah, USA
There's a guy in Atlanta Georgia getting over $200 per hour. He's the most expensive in the area and does 6 million in sales per year. He runs ESI. http://www.youresi.com/team_01.aspx

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#155692 - 02/01/05 05:27 PM Re: Calculating Overhead and Estimating
renosteinke Offline
Cat Servant
Member

Registered: 01/22/05
Posts: 5305
Loc: Blue Collar Country
A_Line, I appreciate your enthusiasm, but ECN is NOT a place to pitch a particular business.
For all I know, ESI ("Every Sucker Invited) is a fine operation, but let them pay for their advertising like everyone else!

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