charge customers and make a profit. I know the cost of materials, but there's also the cost of gasoline, telephones, and driving around to give free estimates. How much should I charge, percentage-wise, over my expenses? So far I have been losing money.
A: If you're charging only enough to cover your materials and labor on each
job, you'll never keep a business alive, let alone make a profit. You need to do some homework -- or better yet, write a business plan that includes
financial projections -- if you're serious about making a go of this business.
Your job quotes need to include both overhead -- the cost of keeping your company going -- and a profit margin. If you've been in business long enough to know you're losing money, you've probably been around long enough to know roughly what your monthly overhead is. Fixed expenses such as rent, office equipment (including telephones), utilities, supplies, and payroll should be totaled for each month and projected out over a year's time. Variable expenses, like fuel costs, which will be higher during your busy season, should also be estimated and averaged out over the entire year.
"Construction jobs are usually priced at a rate of so much per square foot.
Roofing jobs are typically quoted per square of roofing tile," says Daniel
Segal, partner in charge of real estate and construction for the accounting
firm of Holtz Rubenstein & Co. in Melville, N.Y. You should take your direct costs -- materials and labor -- per square of roofing tile, make projections about how much business you'll do this year, and then figure out how much your overhead costs you and what percentage of your total business it represents. Once you come up with that percentage, Segal says, you add that to your direct costs to cover overhead.
For instance, if your roofing jobs cost you $500 per square in direct costs, and you expect to put down 1,000 squares this year, that means you'll charge $500,000 for materials and labor. Now, say your annual overhead is $10,000. Divide that by the $500,000 total, and you'll find that you will need to add 20% to the direct cost of each job to cover your overhead.
To make a profit, you'll need to add in a profit percentage on top
of that number, based on how much you want your company to make. Remember,
however, that you need to stay competitive. It shouldn't be too difficult to figure out what other roofing contractors in your area are charging, Segal says, since the construction industry tends to be tight-knit, and word gets around quickly about what prices the market will support.
"If you go out and quote 10 jobs, and you wind up getting none of them, your prices are out of the ballpark," he notes. When you lose out on bids, make a polite phone call to the would-be customer and ask how much the winning company bid on the job, or ask if your quote at least put you in the running. "You'll be surprised at what people will volunteer," he says. Have a question about running your business? Ask our small-business experts. Send us an e-mail at firstname.lastname@example.org, or write to Smart Answers, BW Online, 6th Floor, 2 Penn Plaza, New York, NY 10121. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.