Reply by Scap

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Posted on Calculating Overhead & Shop Rate

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130 posts in 804 days

#1 posted 05-07-2019 01:48 PM

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.

- lblankenship

No worries. I resell for a living, so markup vs margin got “real” for me real quick when my paycheck was suddenly 100% commission.

Another aspect to consider is that overhead may be a somewhat fixed value, but it’s a variable percentage of each project.

Let’s say you have a fixed overhead expense of $1000 a month (lights, payroll, CPA). But you’re only doing a single $1000 project this month. The overhead is 100% for that project. Next month you do a $10,000 project, now overhead is only 10%.

So something to consider in your bid matrix would be to look at your overhead amount on your spreadsheet. Does it make sense to use a flat 20% or should you override the amount and enter a flat value?

Also, margins are a moving target. You might only factor single digits margins on a huge job, but small jobs should necessarily have higher margins. Which is why many shops have minimums in place. It’s just too expensive to setup for a single one off piece versus a production run.

These are morning coffee ramblings, so it may not apply to your situation.

Good luck with your venture.

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