Financial Management

 

Not all jobs are created equal.  A decent sized job may look attractive, but it may not necessarily be so.  Jobs with a high labour component will keep you busy, but will limit your total gross profit achievable.

The following are 2 extreme examples to illustrate the point, courtesy of John Teder, consultant to the HVAC industry in the US:

  Job #1 Job #2
Materials Cost $2,000 $1,500
Labour Hours 6 16
Labour Cost ($30/hr.) 180 480
Total Cost $2,180 $1,980
Materials Selling Price (45% GM) $3,636 $2,727
Labour Selling Price ($90/hr.) 540 1,440
Total Job Selling Price $4,176 $4,167
Selling Price $4,176 $4,167
Less Cost 2,180 1,980
Gross Margin $1,996 $2,187
= 48% = 52%
Total Hours 6 16
Gross Margin/hr. $332.67 $136.69
Total margin for 1800 hrs $598,806 $246,042

 

Moral of the story….Calculate the Gross Profit(Margin) per Hour when looking at jobs. Focus on jobs with a higher per hour gross profit and you will much happier with your end of year results.