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View Full Version : How do you figure out what your overhead is


jymie
03-13-2013, 02:38 PM
A lot of new business owners struggle with this and as a result many end up on the short end of business income potential. A list of things to consider when figuring your overhead, meaning the cost of you doing business would be very useful for those just starting out.

Heres some things to consider:


Sales Tax
Cost of Business Insurance
Cost of gasoline and how much you use
Setting a side a slush fund for repairs
Employee cost
What your profit per job should be


I myself have used 33% markup to cover these expenditures. How do you figure your overhead cost? Do any of you have a spread sheet that helps you figure this out?

Caskey Lawns & Landscapes
03-13-2013, 03:12 PM
I believe everyone's operating cost would be so different that there would be no way to set a standard or formula to enable this..It's one of those things that as you grow your business and complete different jobs that you will learn what you need too charge too ensure the profit...After being in business for a year or so you should be able to determine your operating cost and know what you must charge a customer...I hope I didn't miss the point here...lol...Just my thoughts..........

grass guru
03-14-2013, 05:19 AM
Its hard to set a % to things, because your operating costs for lawn service will be different from mulching, which differs from plowing, which differs from sprinklers, etc. In lawn care, I take 55% for business expenses and growth, 25% for myself, and 20% for employees (not really sure by what you mean as a markup. I have those expenses built into cost of busines averaged out over 1,200 hours. This may change as I get older, or plans change). I also pay my maintenance expenses from plowing from the lawn care fund. Mulching, I have a markup on materials, but that is a base price that is set by the supplier.
I guess I dont understand how you have a markup on a service price, where you set the base price, and expenses for it.

Steve
03-14-2013, 12:03 PM
What about things like your own personal living expenses? How important do you feel it is to include those costs in your total operating costs?

grass guru
03-14-2013, 01:12 PM
Personal bills, and business bills are completely separate, and should not be combined for tax purposes, and to better manage money on the business side. One should know how much they need to make in their own paycheck, to make ends meet at home, but if you include your mortgage, personal car payments, home owners insurance, etc. in your overhead, Im not sure how Uncle Sam will feel about it.

Steve
03-15-2013, 12:32 PM
I understand and wouldn't suggest commingling them. It's just that in the bigger picture, if you want to survive while running a business, you need to be aware of every last cent you spend regardless of it being a personal or business expense.

If you can't pay your business expenses because you don't charge enough, your business will fail. Likewise, if you can't pay your rent or mortgage, your business will equally fail because you will have to find some other form of employment that will cover it.

So it's good to be aware of everything.

dpld
03-15-2013, 02:36 PM
I understand and wouldn't suggest commingling them. It's just that in the bigger picture, if you want to survive while running a business, you need to be aware of every last cent you spend regardless of it being a personal or business expense.

If you can't pay your business expenses because you don't charge enough, your business will fail. Likewise, if you can't pay your rent or mortgage, your business will equally fail because you will have to find some other form of employment that will cover it.

So it's good to be aware of everything.

i agree but most people confuse cost of doing business with what they should charge.

whether you are a 1 man show with a push mower or a big company with multiple employees your hourly rate per man hour should be pretty close to what everyone else charges.
the final number that the customer sees should only reflect what each company feels it will take time wise to do the job, not because this guy charges 50 per hour and this one charges 60 per hour.

the cost of doing business gets compared to what you are making to determine what your profits will be if any at all and if you need to make adjustments to your bidding by allowing more or less time on your jobs.

in my area the industry standard of what legitimate companies charge is between 65 to 70 per man hour regardless of how big your company is and your hourly rate should never have to be changed as your business grows with the exception of inflationary increases.

by establishing your hourly rate by your local industry standard rates among real legitimate companies you will never have to deal with that again unless of course inflation forces you to do so.

one of the downfalls to basing your rates based on the size of your business is that as your company grows so will your rates and all your current customers will bail on you because you keep raising your prices.
you need to charge based on customary rates so your prices stay even as your business grows with the exception of inflation.

if you start out small and base your rates on say 40.00 per hour because that is your operating cost what is gonna happen with your existing accounts when your operating costs are 60.00 per hour because your business grew and you now have more overhead?

you are either gonna have to raise your prices and risk losing your accounts or you are gonna have to bite the bullet and work for a loss.
customers understand and can except price increases as long as it is within reason like a increase of a couple dollars per cut because fuel prices sky rocket.
i have seen guys raise their rates 5 to 10 dollars per cut because of a 50 cent increase in fuel and lose their account because of it.
i have also seen guys lose accounts because when they started out they based their charges around the size of their business and when the business grew so did their prices

your hourly rate needs to be established and set in stone from day one and your costs for doing business subtracted from your income will determine your profit and if you base your prices around your cost you will have no profit.

i don't know if i made any sense to anyone but subjects like these are hard to condense in a post without being three miles long.

Steve
03-18-2013, 12:07 PM
one of the downfalls to basing your rates based on the size of your business is that as your company grows so will your rates and all your current customers will bail on you because you keep raising your prices.
you need to charge based on customary rates so your prices stay even as your business grows with the exception of inflation.

Do you feel this is where as one grows, you either need to find services that can be priced at these higher levels or perform higher quality work that can be charged more?