Cost and Profit Tracking for a Small Shop
From contributor T:
We encourage all of our clients to do this. It is somewhat time consuming, but the information is well worth it.
From contributor B:
This is pretty easy to do. I have employees report activities as you describe (cabinets, faces, receiving, etc) and they are entered in Quickbooks as service items. You can then build a report and do an analysis of bid vs. actual revenues on subassemblies. Breaking down materials cost is a bit trickier... We separate our expense accounts up a bit so solid wood and sheet goods are separate. Sheet goods are usually associated with cabinets, solid wood with doors, etc. And of course PO's are always associated with a job, so materials costs get expensed to the appropriate job. We're a 6 person shop. I use this information specifically for job costing and setting bid prices.
From contributor C:
All good points, and obviously from ongoing operators of shops. We do cost out every area of operation. And a good installer is a must, a problem and jobsite condition solver. We have found that each area should and better cover its costs. If each and every separate operation goes over in budget repeatedly, it needs to be adjusted... each and every separate operation, whether value added or not. A typical operation that is not value added and yet must be accounted for is material handling.
From contributor N:
I don't know if it's what you are looking for, but we have a time tracking log that goes with each job. When we work on a job, we track time taken for each task, sanding, assembly, finishing, etc. I know I have to charge a minimum of $100/door. I know we spend more of our time sanding than any other process. I know our second most labor intensive process is in design and pre-production planning.
I know our drawers cost me approximately $25 bucks for a basic drawer and I sell it for approximately $75 bucks. I've also found that the size of the drawers really don't effect my cost of the drawer. Same with the doors. A cabinet box is approximately $150, clear maple finished one side. Face frames are about the same. We don't do per foot pricing. I've found it is very inaccurate. However, the per part price comes very close because I can add variables easier.
It takes time but it does not have to cost you much. Just have employees track jobs for a while and trends will develop.
It also gives me an idea of what tooling I need when I go to IWF. The way cool saw thingamajig will not save me nearly as much time as I think it will because I can pull the numbers and know we don't really spend that much time doing whatever anyway.
The hardest thing is to get the employees to fill it out. Unless you make it their timesheet and pay off that. Most important tool I have in the shop.
From contributor L:
We are a little larger shop and employ 5 shop computer terminals for employees to enter their start and stop for each job/operational area. The software automatically applies it to the job so we can get reports showing all costs. Materials that are standard (i.e. not specific to a particular job - white melamine) are issued by the saw or router operator. Materials ordered for a particular job are assumed to have been used and are expensed against that job by the office. Same with all hardware items. We found it too difficult to have common hardware items issued in the shop. At any rate, the big variable is always time and that is the one thing we always track so we can compare to the bid at the end of the job.
The one item that misses the job estimate most often is engineering. We only track the CAD/programming time (3 CAD operators). Other office and supervisory functions are part of general overhead. Our software allows easy graphing of results and that is the easiest way to see if you are improving over the long run as opposed to job by job. Set your trend line assumptions correctly and it is a good tool. Our services are more wide ranging in store fixtures than kitchens, so we really need to closely track costs so we donít make the same pricing error too many times! General overhead is calculated at the end of the year and divided by the standard shop labor hours (not including overtime). Our job tracking software uses the actual pay level for each employee plus the direct OH costs for labor. The same is true for our bidding software. Except in rare occasions, we do not add any additional labor costs in our bids for overtime. The assumption is that even though direct labor cost goes up by 50%, overhead costs do not. Weíve run the numbers several times and overtime is actually slightly more profitable than regular time. We try to limit it so no one gets burned out.
From talking to the smaller kitchen shops around here, I have the feeling that they donít take all of their costs into consideration when pricing. If you want to grow a business so you have something to sell when you retire, you need to price to allow for that growth.
From the original questioner:
Thank you to the above posters who posted their thoughts and ideas regarding my questions about cost and profit analysis in a small shop. You get into this business because you like to make things and work with your hands, and then find out that the quality of your paperwork (how you keep track of your business) is as important or more important than the quality of your finished work. I really appreciate your spirit of cooperation and sharing. WOODWEB's forums have been a great source of information - and inspiration - for me over the past several years.
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