When a builder bids on a project, it has to be both competitive and profitable. Before setting the bid price, the builder has to estimate her costs in time, material and labor. A rough estimate can result in a bid that won't cover the construction expenses. If the builder bids carefully, she'll earn a gross profit and a net profit.
Gross and Net
Gross profit measures the profit the builder makes over and above the direct costs of the job. Direct costs include equipment, repairs, labor costs and supplies. Net profit, however, is the measure that tells the builder if he's really doing well. Net profit considers both direct costs and overhead -- the indirect expenses, such as rent on the company offices and administrative time, that aren't directly attributable to the job. If a builder makes a good gross profit but no net profit, that's not good news.
Different builders have different standards by which they measure overhead. Some companies include the benefits and employee taxes on the job crew as a direct cost, but others count it as part of the overhead. The Building Advisor online magazine says some companies base the amount of overhead they assign to a project on what it costs to build, while others base it on the time involved. The amount of overhead the company assigns to the job will affect the net profit estimate, but not the gross profit estimate.
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