Gross Profit Per Man Day

Agenda• The challenge of using mark-up / margin when quoting jobs• The basics of Gross Profit Per Man Day• How to figure out your hourly charge?• NEE’s guide / Template

The Bottom line• http://www.bizstats.com/corporation-industry-financials/construction

-23/specialty-trade-contractors-238/plumbing-heating-and-air-conditioning-contractors-238220/show?asset_class_id=3&submit=Apply

Good…Better…Best Approach (most common)

$3080 $3920 $4900

Single Stage ECM 2 Stage Variable Modulating

Reminder: margin is not markup…

To arrive at a 10% margin, the markup percentage is 11.1%To arrive at a 20% margin, the markup percentage is 25.0%To arrive at a 30% margin, the markup percentage is 42.9%To arrive at a 40% margin, the markup percentage is 80.0%To arrive at a 50% margin, the markup percentage is 100.0%

Costing with Mark-up / Margin

Equipment$1600

Equipment$2200

Equipment$2900

Single Stage ECM 2 Stage Variable Modulating

Labor10 x $60 = $600

Labor10 x $60 = $600

Labor10x$60 = $600

Cost$2200

Cost$2800

Cost$3500

Markup = 1.4 Markup = 1.4 Markup = 1.4

Price: $3080 Price: $3920 Price: $4900

Good

Better

Best

Price: $3080

Price: $3920

Price: $4900

Profit$880

Profit$1120

Profit$1400

The 3 main problems with markup / margin

1. Doesn’t reflect $ margin per job

2. Tend to over-price profitable opportunities and under-price average jobs

3. Doesn’t reflect capacity

What is Gross Profit Per Man Day?

Your hourly rate includes:

direct labor cost ($) + overhead ($ allocated per hour) +

profit ($ expected per hour)

• All margin / markup is reflected at your hourly rate

Welcome to Comfort Heating & Air

3 Installers 2 HelpersOwner (1) Office (1)

1. Analyze your monthly overhead

3 Installers 2 HelpersOwner (1) Office (1)

BillableOverhead

Rent

Insurance

Training

Advertising

Vehicles

Travel

Bank fees

Office Expense

?

Salary Salary

$30,

000

2. Calculate your number of billable Hours

5 employees

22 Days

8 HOURS

x

x

880 Hrs.

75%x = 660Hrs.

Utilization factor Billable hours

3. Calculate your Direct Hourly Cost (Labor)

$32 Hourly

+

=

Benefits

+WCB

+Vacation

$50

4. Set your Monthly Profit Target

$25,000

5. Calculate your Gross Profit per Man Hour

Overhead

Direct Labor Cost

Profit per hour

GPMH

5. Calculate your Gross Profit per Man Hour

Overhead

$46

Direct Labor Cost

$50

Profit per hour

$38

GPMH = $134

$30,000 / 660 billable hours

$25,000/ 660 billable hours

What Does It Mean?

If Comfort Heating & Air invoices 75% of their billable hours at $134 per hour, the company will achieve net profit of $25,000 per month

Let’s compare GPMH with Markup Pricing….

Equipment$1600

Equipment$2200

Equipment$2900

Single Stage ECM 2 Stage Variable Modulating

Labor10 x $60 = $600

Labor10 x $60 = $600

Labor10x$60 = $600

Cost$2200

Cost$2800

Cost$3500

Markup = 1.4 Markup = 1.4 Markup = 1.4

Price: $3080 Price: $3920 Price: $4900

Let’s compare GPMH with Markup Pricing….

Single Stage ECM 2 Stage Variable Modulating

Price: $3080 Price: $3920 Price: $4900

Profit $880 Profit $1120 Profit $1400

Let’s compare GPMH with Markup Pricing….

Equipment$1600

Equipment$2200

Equipment$2900

Single Stage ECM 2 Stage Variable Modulating

Price: $3080 Price: $3920 Price: $4900

Using our GMPH rate with no markup on equipment

10 x $134 - $1340 10 x $134 - $1340 10 x $134 - $1340

Price: $2940 Price: $3540 Price: $4240

Why Gross Profit Per Man Day or Hour?

• Simplified approach to pricing• Easy guide allowing you to focus on the more profitable opportunities • Improve closing ratio on high-end jobs• Differentiate your offering (your competitors are likely to use markup….)• Align targets with actual $ and not %

OK…..so what now?

Know your numberCalculate your target Gross Profit Per Man Hour

Test your quotes with the new logic / number

Refine your offering / pricing strategy