Profit margin

[Electra_Glide]

Is there a particular profit margin you're shooting for when you submit your bids, and if so, what is it if you wouldn't mind sharing? I'm taking about profit to the business, after all your job-related expenses (including YOUR wages) have been paid.

I realize that the specifics of a given project will sometimes dictate the amount of profit you can get out of it, but I'm just curious what people use as their target (10%, 20%)?

Joe

[jmac]

10% to 20% sounds good. But as you know 10% profit is not much room for mistakes. I have been told by some home builders they shoot for 30%.

[John Banks]

We just upped ours from 35% to 38%, some guys are up around 45%. If people want quality work, it shouldn't be too much of an issue. If they knew what we paid for equipment, maintenance, worker's comp, liability, etc. :eek:

[CT18fireman]

I am around 40-50%. However I don't run HEAVY equipment, most of my work is Skid Steer and Compact TLB stuff. I make juaround 50% lawn mowing though.

I think staying smaller has allowed me to keep a higher margin. Having only 2 employees & less vehicles has helped keep insurance down as well. Renting specific equipment for jobs I rarely do has is a big saver. I don't need to own every attachment for my skid steer.

I would agree with John, people will pay more for quality. After the big storm we had I saw, two retaining walls that had been done by a fly by night type of guy (I drove by them everyday while they were building) had collasped. So now it will end up costing the guy atleast double. If he had gone to a proper installer and had the wall desgined with drainage it would not have been an issue.

Thank goodness for the computer. Today I am home with an awful flu. All I can say is daytime tv sucks.

[surfer-joe]

Some years ago an outfit I worked for said they strived for 15-20% and were happy if they made 6%.

[Wulf]

So how much do you guys think your dealer makes on a new piece of iron?

[CT18fireman]

I guarantee they aren't making close to the numbers put up here.

[DPete]

Rule of thumb 30%, Last fall a job went my way and we cleared 50% wish I could do that all the time. DP

[Matt McGowan]

123 see below

[Matt McGowan]

During recent plotting and scheming I visited the local library to investigate what the Risk Management Association had to say on this very subject. According to the library's most recent copy (I think it covered the 04 - 05 time frame) of the Study of Annual Statements for site preparation contractors, with volumes between:

0 and 1MM in volume
Gross profit: 54.8%
Operating Expenses 53.2%
Profit Before Taxes -1.1%
30 statements analyzed

1MM and 10MM in volume
Gross profit: 34.2%
Operating Expenses 30.3%
Profit Before Taxes 3.6%
136 statements analyzed

10MM and 50MM in volume
Gross profit: 18.8%
Operating Expenses 13.5%
Profit Before Taxes 4.8%
63 statements analyzed

These studies are categorized on the government's SIC code. (Standard Industry Code). Typically bankers will look at these averages to see if what you are presenting in a business plan is even in the ball park and to get an idea of how much risk is involved in your trade. Other people use it to get an idea of how their comapny compares to other site work companies. Overall there are about 50 statistics / ratios for excavation contractors to look at in this SIC code. I think it is very worthwhile reviewing if you are serious about your business.

Don't try to add up the numbers above. There are several smaller line items I left out.

I'm sure there are questions so fire away and I will try to answer. Damn it's late (or early).:D

Thanks
Matt

[Mike J]

Matt, for contractors doing less than a million $ a year the gross profit is 54.8% and the profit before taxes is -1.1% but the operating expenses are 53.2%. What are these percentages of? I thought it would be of gross revenue but that can't be if your operating expenses and gross profit add up to over 1. What makes the difference between a gross profit of 54.8% and the contractor losing 1.1% before taxes?

[Mike J]

Oh and the 30 statements? I would think they would check more that 30 companys so it must be something else??

[Matt McGowan]

Matt, for contractors doing less than a million $ a year the gross profit is 54.8% and the profit before taxes is -1.1% but the operating expenses are 53.2%. What are these percentages of? I thought it would be of gross revenue but that can't be if your operating expenses and gross profit add up to over 1. What makes the difference between a gross profit of 54.8% and the contractor losing 1.1% before taxes?

Mike,

You are correct. The percentages are all calculated on gross revenue. However, it appears that you are confusing direct costs with indirect costs. The 53.2% operating expenses get subtracted from the 54.8% Gross Profit. The 53.2% represents the cost to keep the doors of the company open. This is overhead such as office rent, the receptionist, advertising, the office phones, office electric, the estimating staff, owner's salary, etc.

One line item I left out, that also gets subtracted, is "All Other Expenses" of 2.7%.

So it looks like this:
Contract Revenues: 100.0%
Direct Costs: 45.2%
Gross Profit: 54.8%
Operating Expenses: 53.2%
Net Operating Profit: 1.6%
All other Expenses: 2.7%
Profit Before Taxes: -1.1%


Does this make sense now? Please ask if you have any more questions.

Matt

[Matt McGowan]

Oh and the 30 statements? I would think they would check more that 30 companys so it must be something else??

Mike,

I went back and read the fine print about where these numbers originated from. The Risk Management Association received them from a similar organization know as the Construction Financial Managemnt Association (CFMA). CFMA mailed out 4,100 questionaires to member construction companies to compile this information. These could be general contractors, drywall contractors, curtain wall contractors, etc. 30 of those contractors, that returned the survey, fell in to the category of "Site Preparation Contractors" with a volume of less than $1MM. As such, I am impressed that there were even 30 sitework contractors, with a volume of less than $1MM, that have enough sense to join the CFMA to get advice. This is further highlighted by the two recent threads about what people are charging for dozer and mini-excavator rental. From those two threads it appears that people are charging based on their perception of what the market will bear and not what it costs to do the work and keep the doors of the company open.

Matt

[Mike J]

Thanks Matt, that makes sense now.

[Dollar Bill]

My first post here and this thread has provided some good info for me. When I reach the magic 3 post minimum I'll have a question to ask.

Great site.