Estimating Tips - How Much Work Is Enough!





Note: The English spelling for Labour/ labor has been used in this article.

The question is often asked "how do I win the amount of work I need or how much work do I need to make a profit"?

At the start of every year we should calculate the value of work we need to win and complete to cover our overheads and make a profit. Simply saying "I'll win all I can" is not the answer, there is an optimum turnover for every business which will grow in value as the company grows.

Method

  1. Calculate the cost of the firm's overheads which include, motor vehicle expenses, leases & repairs, office & workshop rent, cost of administration & supervisory staff, telephones, computers etc. The overheads are expressed as a percentage of turnover.

  2. Through your own observation and a number of years experience you will become aware of the percentage which will win jobs. However a starting point is 20% for business with $250,000 turnover, 15% for business with $1m turnover dropping to 10% as turnover climbs to $3m to $5m (this is for the plumbing trade).
  3. The higher the turnover the lower the percentage will be.
  4. The firm's turnover must be such that when the percentage is applied for overheads there will be adequate income to cover them.

    Eg: If the companies overheads are $54,000 then $300,000 turnover is required, if the overheads are to be maintained at 18%.

  5. The next piece of valuable information which needs to be acquired by observing over a period of time is "what percentage of work tendered does the company win".

    If $1m worth of jobs are tendered each year and the success rate is 30%, the firm would win $300,000 as used in the example above.

  6. To guarantee a consistent flow of work the estimator needs to divide the $1m tendered by eleven months (one month is lost through Christmas). Resulting in $91,000 tendered per month.

    This method allows the manager/supervisor to know exactly where he/she is, plan the company expansion and only to take on the work they can handle.

    Not winning sufficient work will leave the overheads short, taking on too much work may result in losing control and ultimately disaster if the increase in work is not planned.



Copyright Paul Funnell
Author of Estimating for Plumbers
www.esti.com.au
Email paul@esti.com.au

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