# profit margins.



## ultimatetouch (May 27, 2006)

I am just curious what profit margins some of you are working with. Are gross profit margins are usually around 28-35%. When I am in the fielding doing a job it is much higher. I think to know this will prevent some guys from cutting themselves short or screwing up the market.


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## George Z (Dec 23, 2004)

ultimatetouch said:


> I am just curious what profit margins some of you are working with. Are gross profit margins are usually around 28-35%. When I am in the fielding doing a job it is much higher. I think to know this will prevent some guys from cutting themselves short or screwing up the market.


45-50% for us


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## Ed the Roofer (Dec 12, 2006)

I just checked my accounting program for the gross margins.

Cash Basis = 48.9 %

Accrual Basis = 54.4 %

Ed


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## marc (Mar 18, 2005)

We average 46% gross

Quite honestly............
What does a 40% gross profit mean if your overhead is 40%

NET is the only thing that matters


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## marc (Mar 18, 2005)

ultimatetouch said:


> I am just curious what profit margins some of you are working with. Are gross profit margins are usually around 28-35%. When I am in the fielding doing a job it is much higher. I think to know this will prevent some guys from cutting themselves short or screwing up the market.



I'm sorry...........I'm trying to figure this out. How can gross profits be higher when your in the field? As an owner my salary comes out of the gross. My gross profit doesn't go up or down when I'm working in the field, working in the office or on vacation.


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## George Z (Dec 23, 2004)

marc said:


> We average 46% gross
> 
> Quite honestly............
> What does a 40% gross profit mean if your overhead is 40%
> ...


It means exactly nothing?


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## George Z (Dec 23, 2004)

marc said:


> I'm sorry...........I'm trying to figure this out. How can gross profits be higher when your in the field? As an owner my salary comes out of the gross. My gross profit doesn't go up or down when I'm working in the field, working in the office or on vacation.


He could mean direct costs are down because of his presence,
or working in the field. Owners production rates are usually higher.
Therefore gross profit is up.
For a small company, that's possible


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## Ed the Roofer (Dec 12, 2006)

I know from personal experience on the flat roof specialty single ply membranes we used to do all of the time, that the production went up phenominally when I was present. 

Even on the occassions where I just watched and instructed for which tasks to be done next or for hor far to push to to meet my daily goal.

But I agree 100 % with you Marc about the only thing that matters, is how much is left after everyone is paid.

Ed


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## Grumpy (Oct 8, 2003)

Allstate told me they allowed for 9% I laughed HARD. I told him to multiply that number by 5. That's on top of labor AND material. However I've found a sweet spot in my pricing, even though I just raised it and was terrified to do so. If my costs are to go down, my markup will go up to maintain the same pricing. However if my costs go u, so do the customer's prices.

Agreed with what marc said, Net matters most. 

My pay is salary base. I pay myself a flat ammount every other week. Now, if I were to work on some jobs the gross profit of those jobs would go up... or would it?! No it wouldn't in theory I should be paying myself for the time spent on those jobs. Ok, but if I sold a job my gross would go up because I am not paying a salesman's commission. WRONG. I should pay myself the same commission. Why not? I did the work, I should be paid for it. 

I actually found the opposite to be true in your statement Ultimate. When I work on jobs I find my overall NET profit goes down because my time is better spent managing the company, keeping all my little profit producer in line, and serving my customer. I can find guys to swing a hammer better and fater than I ever did. 

What's left after everyone is paid is the real profit, and usually at the endof the year we've got debt.  Which is good because it limits taxation.


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## ultimatetouch (May 27, 2006)

Part of the reason for this post is to look at things in a different perspective. I have zero employees, I sub contract almost everything. I should be looking at it from your perspective Marc as far as time and such. What I meant if I build an addition I get it done faster and all the proceeds go to me. This has not been possible lately since I have three jobs going at a time. I do know that when I am working I am not selling jobs. I agree Grumpy that you could always get someone to swing a hammer and getting someone to run your business would be harder and less apealing.
The only reason I say gross profit margin is because I havent figured out what my net profit is per job. I know that I dont have much overhead and I have no office outside my house at this point. All I know right now is that I pay myself a decent sallery and I have a healthy bonus at the end of the year. I want to take a deeper look at things this year for sure and I would like to make sure I am asking a the right amount for my jobs.


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## PressurePros (Jul 3, 2006)

I see both points about margin either going up or down if I am on a job. If I take my salary as a constant regardless of my participation my margins will go up because I eliminate an employee from that particular job. By the same token, Grumpy's point is well taken. If I am spending time on a jobsite that is time away from refining marketing, selling jobs, networking etc. It has been mentioned that productivity goes up when an owner is on a site. For me, the opposite is true. The quality of the work goes up a bit but so does the time spent on the job due to my perfectionist nature.


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## porkchop (Nov 17, 2007)

What is the NET profit that you guys strive for? After supplies, labor, overhead....


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## Herk (Aug 1, 2007)

Grumpy said:


> My pay is salary base. I pay myself a flat ammount every other week. Now, if I were to work on some jobs the gross profit of those jobs would go up... or would it?! No it wouldn't in theory I should be paying myself for the time spent on those jobs.


Of course you should be paying yourself for that time. But, to keep it all fair and square, you have to also deduct an equivalent amount of your salary because you didn't come to your normal job that day. You'll effectively get a pay cut because I'm guessing that owner's salary is higher than worker's pay.


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## marc (Mar 18, 2005)

ultimatetouch said:


> Part of the reason for this post is to look at things in a different perspective. I have zero employees, I sub contract almost everything. I should be looking at it from your perspective Marc as far as time and such. What I meant if I build an addition I get it done faster and all the proceeds go to me. This has not been possible lately since I have three jobs going at a time. I do know that when I am working I am not selling jobs. I agree Grumpy that you could always get someone to swing a hammer and getting someone to run your business would be harder and less apealing.
> The only reason I say gross profit margin is because I havent figured out what my net profit is per job. I know that I dont have much overhead and I have no office outside my house at this point. All I know right now is that I pay myself a decent sallery and I have a healthy bonus at the end of the year. I want to take a deeper look at things this year for sure and I would like to make sure I am asking a the right amount for my jobs.




Here's another way to look at things. You say you don't have much overhead and that you don't have an office outside of your house.

Think about this. What pays your mortgage? If it's the money you earn from your company, wouldn't you consider that overhead. If you worked for someone you would consider it personal overhead. So why wouldn't you consider it business overhead? 
Just another way to look at things. 
Most people if asked would say their largest asset is their home. I would consiter it your largest liability (or overhead) 
It's where the largest amount of your money goes unless you have a multy family and you are actually making money on your home.

Liability.......Things that cost you money
Asset.........Things that make you money


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## marc (Mar 18, 2005)

porkchop said:


> What is the NET profit that you guys strive for? After supplies, labor, overhead....



Here is a rule that I learned a long time ago...........

it's called the 10/10/10 rule

Owners salary should be 10% of gross sales
If the owner also sells he should make another 10% commision
and the net profit after everything is said and done should be 10%


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## PressurePros (Jul 3, 2006)

My company net profit is about 20%. Officer salary accounts for 30%. My business is different from you guys that remodel though. My materials are inexpensive and getting to a half million gross is a battle I have not won. If I drew out 10%, I'd need welfare in the winter.


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## dirt diggler (May 14, 2006)

marc said:


> Here is a rule that I learned a long time ago...........
> 
> it's called the 10/10/10 rule
> 
> ...


hit me over head here marc ... 

but for a small guy - $200,000 annual gross sales is not unheard of ....

if owner sallary is only 10% of that .... business would close pretty quickly I think

just not sure that your 10/10/10 concept is applicable.


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## marc (Mar 18, 2005)

dirt diggler said:


> hit me over head here marc ...
> 
> but for a small guy - $200,000 annual gross sales is not unheard of ....
> 
> ...




Small guy = $200K

10% Salary...$20K
10% commision...$20K
10% net.....(owners) $20K

Total for owner $60K
That's typical (if he pays himself that much) 30% of gross sales

Been there, done that..................sucks. 
(actually I made a lot less than that for the first 16 years of my business) 

Now we do just over $3,000,000 and I pay myself less than 4% and we shoot for a 7% net profit. BTW....I don't take any of the net profit. To me that is for growing the company. We also share profits with employees and uncle sam.


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## Grumpy (Oct 8, 2003)

Herk said:


> Of course you should be paying yourself for that time. But, to keep it all fair and square, you have to also deduct an equivalent amount of your salary because you didn't come to your normal job that day. You'll effectively get a pay cut because I'm guessing that owner's salary is higher than worker's pay.


I agree totally, if you want to be fair and square. But also if youw ant to be fair and square, wouldn't I then have to pay someone to manage my business if I were out doing other things thus putting us right back where we started, but only shifting responsibility  

Just kidding really, I understand what you are saying.


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## Grumpy (Oct 8, 2003)

marc said:


> Here is a rule that I learned a long time ago...........
> 
> it's called the 10/10/10 rule
> 
> ...


I've got a similair rule. 10% for the manager, 10% for the salesman and 10% the share holder. If I am all three I should be earning 30% in my pocket. 

Those are currently just numbers to shoot for. I heavily re-invest my earnings into the company's growth but I feel they are totally realistic to be achieving pretty soon as my company is not as established as Marc's is. 

If you are not paying yourself a sales commission on the jobs you sell you are just working to cover over head, and if you are working to cover over head then you are really just creating an enviroment for other people to make money. Regardless if it be sales, or installations you should be paying yourself for the jobs you do. If so, your gross profit shouldn't be changing. It just means you are not keeping track of your hours/commission and deducting them from the job.


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