Calculating and adding your profit margin
This is the last video in the three-part series on how to calculate cost plus work. In the previous two blogs and videos, the different parts of this calculation have been covered and this final one brings them altogether.
To keep it simple, we’re going to use the same example of a business with the following profit and loss…
| Sales | $100 |
| Cost of Sales | |
| Labour & Materials | $50 |
| Expenses/Overheads | |
| Rent & phone etc | $20 |
| Profit | $30 |
As a contractor, you’re often doing what’s called bottom-up calculations. This means you add up all the costs (labour, materials, overheads etc.) and need to work out how to make a specific profit margin. In this example, the required profit margin is: (Profit/Sales = $30/$100)
This is a simple four-step process…
1) Labour (Real wage cost takes $36/hr employee to $50.47/hr from previous blog/video)
2) Materials
Labour + Materials = $50 3) Overheads (40% of Labour + Materials)
Overheads = $20
Therefore Labour + Materials + Overheads = $70
4) To add Profit of 30%, we learned to multiply $70 by 1.43.
$70 x 1.43 = $100
There it is, an easy series of calculations that will enable you to work out how to accurately maintain a 30% profit margin. To adjust the profit margin up or down, simply increase or decrease the 1.43 multiplier. Call to learn how to set different profit margins by doing this.
So now it’s a case of putting your new knowledge into action. For some, this could be challenging due to time constraints or other reasons. If this is you, and you’re tired of not winning jobs because you feel your quoting is off or you’re not making enough money on the jobs you do get, then call me. I’ve been helping technical and trades businesses for a long time and I’m certain I could save you time and help you make more money on each job. Call me today for help with this Ph: 0409 402 474
Let’s get your business profitable today!
