introduction to gpmd
TRANSCRIPT
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