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My question is after every single bill is paid and every salary, except the owners (just so we keep everyone on the same page) what percentage of your sales revenue is left as profit?
"As much as possible!" But seriously folks.....
I think you are going at this a little backwards. You must know your costs - direct and indirect. Salaries included. Everything included. This will get you to a number (lets say monthly) that can be divided by the number of shop hours worked each month, to generate a dollar amount that is your cost. Mine is a simple $58.00 per hour, without anything for me. I charge $100 per man hour. But I do not get the remaining $48.00 per hour. I do a lot of 'free' work to keep the shop running smoothly and efficiently.
I have not yet found anyone to pay me for my time on Woodweb.....
The hourly rate of costs is what is needed, minimum, to keep the doors open. The minimum you need to charge, per hour, to continue on. Now if you would like to have 10% profit, add that to your total costs, and use it for estimating/pricing future work. 20% profit, do the same.
David there's a way to spin woodweb straw into gold. Imagine a Bates Motel type movie. FamilyMan & Cabmaker might really just be the same guy?
Notice how you never see them in the same room at the same time?
I'm intrigued by this one. I think at the end of the day this is the figure that really matters for most shop owners, assuming they are busy. I'm going to go out on a limb and say it varies drastically. A one man shop is going to be higher than a large shop, but the volume will obviously be different. Someone who outsources will be lower than someone who does not.
My apparent alter ego has a completely different way of doing things and yet it works for him. I'm sure there are hundreds of other stories here on Woodweb and it's working for them. There is certainly a lot of variety on how we approach and run our businesses.
Alfred, for all anyone knows, I may be the only one on the forum, furiously typing away. Asking questions, giving answers, arguing with myself, and giving plenty of praise, with a bit of criticism every now and then.
But as for my original question - I mean the O P's original question, Profit is after costs. Whether those costs are for in house, shaper made cabinet doors or outsourced doors has little impact on the total costs. That is, if a door requires 3 hours at $100 per man hour to make, or can be bought for $200, with a 50% mark up, makes no difference to the total cost. Unless the cabinetmaker does not know to mark up materials.
I don't see the drastic variation. 10 man shop making everything, vs a 2 man shop doing nothing but offloading trucks and repackaging to ship out can both have the same sales numbers per month/year, but get there quite differently. Now we can go backward and say the two shops will have the same costs - money going out the door - whether to DoorCo or to Fred and Wilma employees.
Neither has anything to do with profit. Profit is only after all else is tallied.
I think any shop under 10 people or so, you really can't talk about "profit margin" because the owner is typically so embedded in the company that there's no way to replace him and see what profit there is without the owner involved.
And what if you are Sub chapter s, using rule 179 to minimize profits? You can have 0 income 0 taxes, some debt and positive cash flow.
What you really want is EBITA or adjusted EBITA with the owners salary fed back in but that brings up questions like company vehicles and all sorts of expenses.
And how can you compare if one company is on cash basis and another is on accrual?
Considering the O P's fundamental question, I thought I'd skip over the S Corp variations. They can get complicated fast.
Hell, I went from sole proprietorship to S Corp for 12 years, and then back to S P, and can say I never had a full grasp of what the S Corp did did beyond the tax advantages and equipment purchases.
This allows us to have a 401k with matching, its simpler to get group health and some other things.
The key difference is profit is after we have been paid.
Either way profit as a percentage is a misleading number.
Lots of tax based decisions affect profit, cash flow or adjusted EBITA is better constant.
I have had years with no profits, paid every bill, paid 401k, bought equipment and had more cash in the bank at the end of the year than at the beginning. so I had a 0% or negative profit, yet my adjusted EBITA would be a positive number.
I guess the real question is what is the OP trying to measure and why?
Unless we are all using GAAP the profit #s have no way of comparing. I've seen guys on here claim 50% profit, really!
Last year profit was 27,145 on sales of $255k or 10.6%. That includes $6500 worth of 179 equipment purchases, and also $20/k a year on machinery lease payments. One employee who's annual payroll cost is $29k. I do not pay myself a salary, but did take draws comparable to the $27k profit.
Profit numbers can be skewed. The middle of December I purchased a container load of wood and expensed it. However that $15k is still sitting in the shop, just in the form of wood and not cash.
While every business owner needs to know his costs, I fully disagree about using cost plus pricing. It's stupid. The reason you're in business is to make as much money as possible. Why would anybody in their right mind limit their earning ability by using such a system that would only only them to profit 10% or 20% on every sale??? Your selling price needs to be as much as the market will bear. Whether you choose to go the sell higher and do less volume, or sell lower and sell a whole lot more is up to you. Get as much as you can without ripping people off.
Put it this way. If you bought Microsoft stock in 1980, would you be ok with just a straight line 10% annual return, or would you want the 1000's of percent it has increased along with all the stock splits as well?