I often get asked how much contractors should mark-up their work to make a profit. Construction company owners are looking for the magic percentage that’ll guarantee a profit on every job. But mark-up is tricky. It’s a function of what you need to cover your fixed overhead costs plus a profit margin combined with what the market will bear. Smart business owners realize all jobs are not equal and mark-up should vary with every job. When you use the same mark-up for every bid, you are not maximizing your profit potential or helping your company make more money.
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Markup Smaller Bigger!First determine how much total annual mark-up for overhead you need to cover all of your fixed general and administrative expenses for the year. For example, if your total annual overhead is $500,000 and your total job costs are expected to be $5,000,000, you need an overhead mark-up of 10% to recover your overhead costs. Next determine how much total annual profit you want to make for the risk you take. If you want to make $250,000 annual pre-tax net profit, your net profit mark-up must average 5% using the above example. Now you have a minimum mark-up of 10% for overhead and a total profit mark-up goal of 5% for a total of 15%.
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by George Hedley George Hedley works with contractors, entrepreneurs and business owners to build profitable growing companies. As a construction company owner, he has built over 500 projects valued at over $500 million and was name Construction Entrepreneur of the Year. He is a leading construction business expert, professional business coach, popular professional speaker, best-selling author of “Get Your Business To Work!” and presenter at his Hardhat BIZSCHOOL online university. To find out how George can help your company, signup for his e-newsletter, be part of a group BIZCOACH program, or join a peer mastermind BIZGROUP, visit his websites @ www.HardhatPresentations.com or www.HardhatBIZSCHOOL.com or e-mail [email protected].
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