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  #11  
Old 02-16-2009, 05:27 PM
LB1234 LB1234 is offline
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Location: Central Jersey
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Quote:
Originally Posted by daveyo View Post
Wouldn't that make the cost of your plant $250.00?
My plant cost me 100 dollars. 150% is 1.5. 100 multiplied by 1.5 is 150 dollars. 250 would be 250% over cost. 100 multiplied by 250% or 2.5 would be 250 dollars.

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  #12  
Old 02-17-2009, 01:11 PM
Az Gardener Az Gardener is offline
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Overhead must be recovered and It is different than a shop charge. It was described earlier as office costs owners salary etc. In my case I build it into my labor cost.

You have your base labor costs and direct costs and then you have to add your overhead. To do this you divide the overhead costs into your estimated billable monthly labor hours. As I sell more labor for landscape maintenance my hourly rate can come down and I will still be profitable.

Example:
  • Your overhead is 3-K you need this to pay the rent, owner, phones etc.
  • If you have 3 employees each of them needs to generate 1-k for overhead.
  • So you take 4.3 weeks in a month X 40 hours = 172 hours
  • While they work that many hours they are not always producing income, only when they are on a job doing the work.
  • So lets say they are 78% productive in a day on avg, You take the 172 X .78 and you have 134 billable hours.
  • Now you have to get 1-K for your overhead so you divide the 1,000 = 7.47

So This is what you need on an hourly basis to cover your overhead. But it is clearly a moving target as it goes up and down with different production % more or fewer employees and all the rest. This is to say nothing of the money you make from product sales which should also have a component of overhead recapture in them too.
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  #13  
Old 02-17-2009, 02:16 PM
capnsac capnsac is offline
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I have figured out my overhead this way.

I take all my current expenses and added them up. I take an average working month (I work 6 out of the 7 days of the week) and then divide that number by the days that I am working. I need to make that amount of money each day just to survive.

The key is to know all of your expenses, even the variable expenses such as the amount of gas used on average in a month. You can then figure your overhead out from there.

(I am solo, so I have no employee overhead...yet :-D )
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  #14  
Old 02-17-2009, 02:49 PM
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BSDeality BSDeality is offline
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Location: Fairfield County, CT
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Quote:
Originally Posted by LB1234 View Post
My plant cost me 100 dollars. 150% is 1.5. 100 multiplied by 1.5 is 150 dollars. 250 would be 250% over cost. 100 multiplied by 250% or 2.5 would be 250 dollars.

please repeat 6th grade math.
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  #15  
Old 02-17-2009, 04:31 PM
capnsac capnsac is offline
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Quote:
Originally Posted by LB1234 View Post
My plant cost me 100 dollars. 150% is 1.5. 100 multiplied by 1.5 is 150 dollars. 250 would be 250% over cost. 100 multiplied by 250% or 2.5 would be 250 dollars.

Ok, ok, I'm not going to flame. This is going to be very simple for you to understand.

So for the sake of clarity we are changing the cost figures. If that plant cost you $200 and you charge the customer $300 you are making $100 on that plant, because 300 minus 200 is 100. What is $100(profit) out of $200(your cost) as a percentage? Well 100/200 is 50%. So you're making 50% on that one plant, or like you said you are making 1.5 times the cost of that plant. 1.5 times signifies for every ONE plant you sell, you would be making 1.5 times its' value, not 150%. It is not a 1:1 ratio.

I hope this clears things up a bit.
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  #16  
Old 02-17-2009, 09:57 PM
ford550 ford550 is offline
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Join Date: Nov 2008
Location: PA
Posts: 222
Quote:
this is where most new business owners struggle the most, with direct and indirect costs. Each project or job that we do has both of these costs involved in the process. Direct costs are just as it says directly related to a job.
Such as: You do a project at a customers house. It's a small mulch job needing 5 yds of mulch. Anything you buy that is specific to this job is a direct cost.
Mulch, snapshot, fertilizer, etc.
You wouldn't have had to buy these items unless you were to do this project. These are direct costs of this project. Now indirect costs are the things that aren't directly related to one specific job.
Such as: Office supplies, postage stamps, business cards, insurance, workers compensation, tax filing, office equipment, internet service, cell phone service, owners salary, maintenance, future expenses, the list goes on and on.
These such things are your indirect costs of doing business, or your overhead. The total of these things need to be broken down, and divided amungst your customers, or projects. Ours is broken down into a charge for each man hr of service. If your company is not doing this, that is a major problem.
Quote:
overhead must be recovered and it is different than a shop charge. It was described earlier as office costs owners salary etc. In my case i build it into my labor cost.

You have your base labor costs and direct costs and then you have to add your overhead. To do this you divide the overhead costs into your estimated billable monthly labor hours. As i sell more labor for landscape maintenance my hourly rate can come down and i will still be profitable.

Example:
Your overhead is 3-k you need this to pay the rent, owner, phones etc.
If you have 3 employees each of them needs to generate 1-k for overhead.
So you take 4.3 weeks in a month x 40 hours = 172 hours
while they work that many hours they are not always producing income, only when they are on a job doing the work.
So lets say they are 78% productive in a day on avg, you take the 172 x .78 and you have 134 billable hours.
Now you have to get 1-k for your overhead so you divide the 1,000 = 7.47

so this is what you need on an hourly basis to cover your overhead. But it is clearly a moving target as it goes up and down with different production % more or fewer employees and all the rest. This is to say nothing of the money you make from product sales which should also have a component of overhead recapture in them too.
bingo!!!!!
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  #17  
Old 02-18-2009, 01:23 AM
LB1234 LB1234 is offline
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Join Date: Dec 2004
Location: Central Jersey
Posts: 3,211
Quote:
Originally Posted by capnsac View Post
Ok, ok, I'm not going to flame. This is going to be very simple for you to understand.

So for the sake of clarity we are changing the cost figures. If that plant cost you $200 and you charge the customer $300 you are making $100 on that plant, because 300 minus 200 is 100. What is $100(profit) out of $200(your cost) as a percentage? Well 100/200 is 50%. So you're making 50% on that one plant, or like you said you are making 1.5 times the cost of that plant. 1.5 times signifies for every ONE plant you sell, you would be making 1.5 times its' value, not 150%. It is not a 1:1 ratio.

I hope this clears things up a bit.
Yes, yes, yes. Sorry...my statement earlier is incorrect. Its 1.5 five times the cost. And don't worry about flaming...I DESERVE IT!!
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