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Reply by lblankenship

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Posted on Calculating Overhead & Shop Rate

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lblankenship

53 posts in 1150 days


#1 posted 05-07-2019 12:54 PM

Thanks everyone for the responses so far. This is all really helpful, I want to try and get started off on the right foot so I appreciate all of your insight.


I started out trying to sell direct to public. It was a disaster and I quickly realized their was no money in it, in my area. Other areas maybe different.

I lucked out and had a wholesale opportunity plopped on my lap as I was getting out of selling direct. Used my old ties in the furniture industry and created/found a niche. It still took(takes) a ton of work to get business. Honestly sales is the only thing I worry about.

- CWWoodworking

That’s good to know, when you started out did you attempt selling custom made to order pieces or did you have an inventory of items that you made and then sold almost like a storefront setting? I feel like a storefront inventory type approach is just asking for disaster especially when starting out so I was wanting to stick with making pieces as the orders come in.

Now if I add a profit of 20% to both of those my totals would come out to be:

Bid 1: $345.60 (Profit of $33.60)
Bid 2: $633.60 (Profit of $105.60)

- lblankenship

I can t help with your base question, but wanted to point out that you re shorting yourself on profit if you do the markup method.

Instead, calculate the margin you d like to make.
Take your cost and divide that number by (1-percent profit expressed as a decimal) for actual margin.

Example
20% profit margin on $100 is 100/(1-0.20)= $125.00
36% profit margin on $100 is 100/(0.64)= $156.25

Profit margin is calculated off (sale price minus cost) divided by sale price x 100.
If you re adding 20% to cost, your margin is 16.67%

Also, the 20% values you listed above don t jive with the sell price from what I can tell.
20% on $345 should be $69 and $633 would be $126.60

- Scap

Interesting. Yes, I think I might have entered the wrong $. I was typing a lot and I think I miscalculated. Here is the formula I did to come with my quote.

materials + labor + overhead + profit = Sale Price

$100 + $140 + $48 + 57.60 = $345.60

Overhead is (materials + labor) x .2

Profit is (materials + labor + overhead) x .2

I looked at is as my total cost to make the piece was materials + labor + overhead which in this case was $288 then multiplying that by .2 for 20% would give me a clear 20% profit after I have covered all expenses and paid myself. However, now looking at what you’re saying I guess I did a 20% markup rather than “profit”.

Thank you for bringing this to my attention. It probably would have taken me awhile to realize this.


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