Paul,

 

First it great to hear you are putting a budget together for  next year. This is one of the most important thing you can do to run a successful business. The next thing I encourage everyone to do is run monthly profit and loss statements.

 

Now let’s talk about the numbers. 

 

Labor in the stone side of your business should run between 27 to a maximum of 30% labor will be your largest expense. When I refer to labor cost I refer to Direct labor, this does not include burden rates. This is strictly the employees hourly rate of pay per hour or salary however you pay your technician.

 

Materials and Supplies will run between 5 to 7 % max. if you are exceed these percentage we need to talk. If you really track you materials and supplies and your technicians are using the proper amount of chemicals you could see you material and supply cost down as low as 4% . however if you are in the 5 to 7 % I would not loose too much sleep over those percentages.

 

Bottom line profitability  ????? this will depend upon on several factors. First the gross profit margins you are trying to achieve in your stone business. A good operation will average between 60 to 65 % gross margin. This is taking into consideration your are costing out a job with these items as your cost of sales, Direct  labor, material & supplies and fuel to and from the job. Using these cost of sales you should be in the 600 to 65 % gross profit margins.

 

Your overhead depending  upon how you charge off some of your expenses should be between 40 to 42 % of your sales. This would then give you based upon a 60 to 65 % gross margin a profit between 20 to 23 % this is considering you are taking a management salary every month . if you are not taking a salary the profit would be higher. The other thing that will increase or decrease your profits would be what you are expensing as overhead.

 

I have seen operations that have a low profit margin because they are writing off thing as season sport tickets, vacation, and other items this all has a bearing upon your profit.

 

I always caution operator that writing off too many personal items could and will have an effect on your business should you decide to sell it someday. The value of your business  is based upon the profitability of the business .

 

The biggest factor in the profitability of your company depends upon SALES VOLUME !!!!

 

Once you cover your monthly overhead the higher the sales volume the more  profitability will drop to the bottom line. This is due to adding additional sales means you’re only cost increase are labor , material & supplies, workman comp payments. All your other overhead cost will remain somewhat the same.

 

I know operation that have sales of $ 1 million in sales and their profits are in the 30 to 32 % range and could be higher , however they do some special incentives for their technicians, which has an impact on the profits but if you have a great staff KEEP them and over the long haul it will pay you back with greater profits.

 

Then their are other operator  that can do the same sales volume and they don’t control their labor, their material and supplies cost and their net income is in the 20% range.

 

 

If I recall we spoke during your training on pricing based upon profit margins , and the formulas for bidding jobs to make profits  and assure your technicians are using the timing process for all their work and you should using this formula for you bidding of jobs. If you have any questions , call me. 

 

The telephone support you receive as a premium partner with Stone and Tile Pros includes both phone technical support and business support

 

Hope this helps  

 

 

John E. Freitag

President/Director

The Stone and Tile School

Office 407-567-7652

Cell 407-615-0134

jfreitag@thestoneandtileschool.com

 

 

www.thestoneandtileschool.com

 

 

  

 

 

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