Profit estimation is hard to predict in these economic times. The mark up, which is part of your profit, is constantly being lowered because there is so much competition in the construction industry. Companies that would normally not offer bids on small jobs, are now flooding the market with extremely low bids. The plan is to secure many jobs with lower profits and lower labor costs to keep a constant profit flow. Do your homework before a bid and don't take on a project that does not bring you a profit.
Write down all of your company's overhead expenses for the month. Overhead consists of office personnel salaries, general liability insurance, workman's compensation insurance, employment insurance,company vehicle insurance, rent, and equipment. Any items that does not bring in profit is your overhead. Some companies label this as loss revenue. You will need this number to determine your profit in electrical construction.
Monitor material costs, which can fluctuate in the electrical field as fuel prices rise and fall. The insulation on wire and some of the other materials you may use are petroleum products. Make your material prices mirror rising gas prices or put a clause in your contract to cover this eventuality. A general rule for supplies is to mark them up anywhere from 2 percent to 4 percent before taxes to cover price hikes. Mark up your supplies up between 7 and 15 percent to cover your overhead.
Determine what type of job you are working. Government jobs require you pay a minimum wage to your electricians. The minimum amount for electricians are $35 per hour and helpers receive $18 per hour. Add your tax burden into these figures plus $10 per electrician and $7 per helper per hour. Other than the taxes, the other additions are a part of your profit for electrical construction labor. (see Resources)
Bid each electrician and helper to cover hourly wages, worker's compensation, and any additional benefits you may offer. Estimate an additional $7 to $10 per man to include in your profit margin for construction labor. The additional amount should be competitive and appealing to the customer. Charging a labor cost and mark-up that is too high will result in your loosing that bid. At the minimum estimate, a realistic profit that pays your employees, insurances and brings you a profit.
Get a realistic time-line for the project length. This can be challenging because of the unforeseen setbacks on the job other trades might cause. Keep your delay paperwork up to date and get this signed by the general contractor so you will not be held liable for delays or overages on the job. The general contractor has to pay the fines to the client or forfeit the job. These charges are usually passed on to the sub-contractors that cause the delay. Keep good records to avoid this loss in profit.
Lock in a price with your supplier for at least 30 days or let the general contractor know that these prices are only good for a certain amount of time and the prices may go up after the time expires. Get this signed by the general contractor.
Most contractors will try to get you to lower your prices. Be very careful before you commit to this because it is the No. 1 reason companies go out of business as subcontractors.
- Business and Contract Management for Contractors, ISBN 1-889834-17-3
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