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Discussion Starter · #1 ·
I'm new to the forum and greatly appreciate the insights in the many posts that I've read.

I'm trying to develop a model of the overhead costs vs direct labor costs and benchmark it to information I've read from other sources. How do you go about defining 'gross margin'? Once source I've see says that you should target a gross margin of 50% and another indicates that nationally the gross margin for painting contractors with revenues of $500K-$1M is 46%. Unfortunately, none of those sources provide any details about how the value is calculated/defined. Would you expect that margin to be based strictly on the wages; wages+health insurance, payroll taxes, workers comp, retirement, etc.; or something else?

Using an example with 50% gross margins, if I have $500K in hourly wages for the painting crew the total revenues should be $1M. However, if the gross margin is based on wages plus those other costs which probably add 20%, I would be looking at total revenues of $1.2M. That's a 20% difference in billing rates. Obviously, you can only charge what the market can bear but I'm trying to get in the ballpark.

Any insights would be appreciated!
 

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Google is your friend on this one. Business is business. Trying to narrow it down to just how it applies to painting companies probably won't give you a lot of answers.

One way to look at it is to work somewhat backwards from your net or what you want your net to be. As an example; total up your fixed overhead. Total up what you feel your fluid overhead would project to be. This is your employee wages, taxes, and workman's comp. Also any projected differences applied to having multiple employees.

Those figures should give you an approximation of what your base hourly rate would be. If you feel, (as I did), that staining, finishing, decorative, etc., should be at a higher rate, then that's what you need to do.

Honestly, all I really concerned myself with was the net. That allowed me to budget equipment purchases, and any hard assets. (This would give you the "net net") And, it allowed me to have a savings "stash" to take care of any incidentals.

Go to a bank for a loan. They'll show an interest in your gross, but their main sight is on your net. That's what they're going to base their decision on as that's where you're going to pull your dollars from to pay them.

Don't make it harder than it has to be.
 

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Gross profit is sales revenues minus cost of goods sold (paint and sundries). Net profit means all revenues minus all expenses including the cost of goods sold, all payroll, benefits, works comp, general and administrative expenses, and the nonoperating expenses. Similar to resturants the cost of goods sold for a painting business is a little different than say a convenience store. We don't sell paint we apply it and then sell it. It would be nice to have some benchmarks for these catagories. Like what is a good percentage for paint and sundries?What is a good percentage for labor? Amongst the bunch of us we could probably get some decent ballpark data.
 

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Total Revenue (all sales)
- Cost of Goods Sold (materials for jobs and labor, I include WC here some do not)
= Gross Profit
- Expenses (insurance (some include WC here), vehicles, tools, office staff wages, owner salary, cell phone, etc). Retirement costs would go here as well. Health insurance, etc.
= Net Profit

That is how I do it. COGS is everything directly attributable to a job. Expenses are all others costs not directly attribute to a specific job.

Revenue - COGS = gross profit
Gross profit - expenses = net profit

Everyone seems to do this stuff a little different with some items. The main thing is be consistent. But, if we all do it a little different, it is hard to compare any number except Net profit. Which is the one that really matters. I like to track COGS vs. Gross profit as well to make sure it falls in the percentiles I like to see. I want to make sure I am not getting too top heavy or having too high of COGS as well.
 

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Discussion Starter · #5 ·
Google is your friend on this one. Business is business. Trying to narrow it down to just how it applies to painting companies probably won't give you a lot of answers.

One way to look at it is to work somewhat backwards from your net or what you want your net to be. As an example; total up your fixed overhead. Total up what you feel your fluid overhead would project to be. This is your employee wages, taxes, and workman's comp. Also any projected differences applied to having multiple employees.

Those figures should give you an approximation of what your base hourly rate would be. If you feel, (as I did), that staining, finishing, decorative, etc., should be at a higher rate, then that's what you need to do.

Honestly, all I really concerned myself with was the net. That allowed me to budget equipment purchases, and any hard assets. (This would give you the "net net") And, it allowed me to have a savings "stash" to take care of any incidentals.

Go to a bank for a loan. They'll show an interest in your gross, but their main sight is on your net. That's what they're going to base their decision on as that's where you're going to pull your dollars from to pay them.

Don't make it harder than it has to be.
Problem I have with the net is that two companies could have exactly the same revenue and expenses other than the owner/operator's salary. If one decides his salary is $50K and the other uses $75K the net profits are substantially different. If both companies are owned by the person operating it, the "free cash flow to the owners" is the same. But if one has silent partners who only share in the profits...
 

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Like what is a good percentage for paint and sundries?What is a good percentage for labor? Amongst the bunch of us we could probably get some decent ballpark data.

Our materials hovers between 10-12% percent of the gross sales annually. On some individual jobs the materials can jump to as high as 18-20%, ie expensive wall covering projects or any of the floor membranes that we install, but overall it is 10%.
 
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