10-06-2006, 08:33 PM
When trying to figure out profit margin for a particular job, one must calculate expenses for a job including materials AND labor. If you hire employees that's easy, how much does it cost to pay an employee per hour (wage plus taxes & ins.) But what about an owner. I don't pay myself an hourly wage. So how much should I "charge" the company for my time on paper to figure profit on job. How do other go about this situation?
10-06-2006, 09:42 PM
This is one way to figure out what you are looking for.
I believe that it would be good practice to imagine that you are the owner of the company, not the key employee. What would an investor/owner need to pay someone to perform your job. When you think about this, consider the many ways that compensation is made and how much it costs a company.
Wages, for instance, can be figured over an FTE (Full Time equivalent), but you will likely work more than the FTE of 2000-2200 hours per year. If you are comfortable with hourly compensation, think about a manager's salary - maybe 18-20 per hour (hypothetically). This person would cost you about 40,000 in payroll, not including taxes.
Fringe Benefits are a gray area. Do you drive the company truck? That is worth something. If you had to provide a truck for a key employee, what is that worth?
Health Benefits are always a factor, I think single, young, healthy men cost about 200 per month, families can be about 1000 per month.
I could probably go on about the details, but you need to stop at some point an apply your own reality. The owner's wages become your overhead, in my opinion. Unless you constantly add for that hidden overhead, whether it is paid to the owner, retained as profit, or re-invested in the business, it should always factor in. This way, when you want to hire more management, you will already have factored for it. Assuming that you agree with the FTE I mentioned, divide the owner $$$ you want by 2000 and add that result in to every billable hour when you calculate your hourly overhead. The more crews and employees you have the more diluted that number becomes, because more labor is contributing a larger volume of dollars per hour to the bottom line. That is, the more billable hours you sell, the larger the number becomes that you divide into the owner's $$$, the less it affects each job.
If you don't do this, or something similar, you are actually only working for the company, and may not realize the benefit of being the owner. This could result in a situation where you think your overhead is less than it should be. At the end of the year you will be looking for the profit, but it may not be there.
10-07-2006, 08:38 PM
this is an easy question...
you should be paid a salary if you are not paid hourly... if not then you are not making money as a business.....
divide your yearly salary by 2080. That will be your hourly rate.
10-09-2006, 10:07 AM
I agree. I see all to many guys just taking whatever profit the company makes and considering that thiers. Nearly ALL sucessful businesses in the long run keep themselves seperated from the owners. I take a draw every month off the company. I worked it so its the same every month wether we are slow or busy. Works for me and works for the company.
Im sure as business continues to grow I will take a nice raise too :) just be honest with your raises to yourself. Afterall the benifits are great. Company truck buringing company gas with company maint. Lunches with clients are covered. Im not paying company bills out of my pocket. I still make my own hours for the most part.
10-09-2006, 12:36 PM
I am set up as a sole proprietor so my income is whatever is left at the end but I still like to give myself a wage to see hypothetically what the business would profit. I pay myself $30/hr for doing field work. This probably averages out to about $25 because I do not keep track of my time spent doing the books or repairs that my employee doesn't take care of.
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