TIP: Markup For Overhead?

[waynesag]

I am trying to figure out my percentage for my overhead markup. I watched the video, but not sure I am understanding clearly how to get my % amount. Can someone further explain to me so I can get an accurate report.
Thanks

[steven kiser]

The way i did and still do it is this way. I take the total cost of being in business. Insurance, heat, labor cost, basically everything that it costs to run a business right down to toilet paper and stationary supplies. With that figure i can calculate my profit matrix on parts.

[timbre4]

I believe the question is more about calculating the overhead figures in F12 Check Profit and not parts markup per se.

The premise is totalling up all the expenses that it truly takes to keep the doors open beyond labor and materials costs. (Utilities, etc) Then figure out the average # of invoices written per year. Given these two factors you should be able to figure out the overhead you need to collect on each invoice to cover it.

[steven kiser]

Agreed to a point. The whole idea of making it a per job average by work order is a bit confusing. If 90% of your income comes from oil changes it would be a walk in the park. Mine doesn't, i have a basic formula % of daily shop activity of 20% oil changes, 10% tire sales or repair, 10% diagnostic, 10% electrical or fabrication services, 30% service maintenance work, 10% state inspections, 5% customer relations and 5% bull ****. My labor rate for "normal activity" is one figure. This figure is based on a flat rate description derived from the mitchel guide. Any work that doesn't fit in the guide is considered specialty and the labor rate is adjusted. A common % i use is if i'm paying a tech 50 bucks an hour i need to bill out 150. It's a 1/3rd figure that works for me. It keeps me in the circle of competition. I use that word as a description only, i do not compete with other shops as far as my labor pricing goes. I know what i need to make to be profitable as well as what i need to pay to have good qualified techs to do quality work. I had a person call and ask my hourly labor figure and i told him. He told me that other local shops were charging a bit less, i told him "pay peanuts, get monkeys" and if he got quality work for that price good luck to him.

If i could adjust the quality of my work to compete i still wouldn't. It's a matter of pride for me. I'm a fairly busy shop and it's taken me 20 years to establish myself as a shop that puts out quality, is honest, a bit pricey but well worth it.

The price that does slide is parts. There are a few exceptions but 95% of the parts is sell can and will move on a weekly basis or sometimes a daily one. You need to watch any insurance, tax, and other hidden increases that will blind side you. I call my insurance company 3 months in advance to see if there will be any increases and stay on top of them. One year i got blind sided by a significant increase in my overall insurance cost. This include the health insurance, unemployment contribution, medicare, and liability. It amounted to about 16 grand and i spent the better 1/2 of the year playing catch up.


Every shop is different so the formula is some what enique to themselves. I try to stay within certain limits of the area i'm in as far as my pricing but am a stand alone type of guy as far as competing. I know of shops that will tell people that they're cheaper than Kiser and when a person calls me for a quote and tell me that i tell them it feels good that other shops know enough to compare themselves to me because that must mean that they think i'm a quality shop and better than themselves.

[ricmorin]

I believe the question is more about calculating the overhead figures in F12 Check Profit and not parts markup per se.

The premise is totalling up all the expenses that it truly takes to keep the doors open beyond labor and materials costs. (Utilities, etc) Then figure out the average # of invoices written per year. Given these two factors you should be able to figure out the overhead you need to collect on each invoice to cover it.

I'll take this one step further.

Since the figure is reflected as a percentage, you'll need a percentage for input. What I do is figure my expenses not including cost of labor and goods as Tim states. Then figure the total sales for the same period. Divide the two and multiply by 100 and you'll get the percentage. The number will vary depending on your shop. That's what you can input on the Overhead line.

Let's say it's 50% for example. An order that totals 100 bucks will show 50 dollars in overhead. This is an average and you use it as guide. You'll also see that there are other expenses added in. That's where you are getting COG's and payroll numbers. At the bottom you'll see what's left over. Hopefully it will be a positive number. You might want to set a goal as to what that number should be. 20, 30% or more. It's up to you.

What's nice about this setup is it allows you to see what jobs are profitable and what one's are not. Armed with that knowledge, you are now better prepared to do something about it!

[waynesag]

Thank you so much for the explanations. Makes better sense now.

[ricmorin]

Our pleasure. That's what this forum is all about.

BTW, If you want to have a reality check, you can take that number you got from your overhead, then divide it by the number of hours of labor you sold during the same time period. The result will give you your hourly overhead cost.