Determining Overhead And Profit During Bidding
I responded in an earlier article to a writer asking about an “ideal, one size fits all” estimator and expressed that in my opinion, none probably existed although there are some very good products on the market. I do not endorse specific estimators so am offering some basic guidelines that I hope will be of assistance in your arriving at a realistic bid.
Last but not least, in this series is to touch on overhead and profit. My observation is that the larger the contract, the lower percentage these two items will be so long as the dollar amount is acceptable. I use the simple philosophy that I will accept 1 percent of $1,000,000.00 over 100 percent of $100.00, since the dollar amounts speak for themselves. Use percentages as a guide and sanity check. You may be able to develop percentages for certain types of accounts over time but the key is make sure that you can defend these factors and are in line with industry averages if they are available.
Overhead has to do with behind the scenes costs for managing your business. This can include building rent/mortgage, copiers, clerical work, computers, software, storage areas, electricity/ utilities and any other costs that cannot be directly assigned to a particular contract. My experience is that the larger the contract (think payroll, support systems, etc.) the greater proportion should be set aside. For instance, managing just the payroll for fifty or more staff at a large site is more involved than covering one or two workers at a smaller site.
Profit is what you hope to clear once all the other costs (both anticipated and unanticipated) and can be any amount you think you can get. Some companies have both profit and retained earnings with clear definitions of each. The profit is for the stockholders/owners to share and retained earnings is plowed back into the business for growth and stability.
This is the last of this series on Bidding Elements. As in all the other noted elements, make sure your run this by a competent accountant.
Your comments and feedback are always appreciated. I hope to hear from you soon. Until then, keep it clean...
Mickey Crowe has been involved in the industry for over 35 years. He is a trainer, speaker and consultant. You can reach Mickey at 678-314-2171 or CTCG50@comcast.net.