Profit Margin How to Calculate | Calculate Man Hours
The profit or benefit | Calculate Man Hours
The profit or benefit is defined as the income remaining after all costs are paid.
These costs include engineering costs, direct and indirect labor, supplies, input and consumption materials, cost of equipment, general expenses, financial interest, taxes, etc.
The profits obtained remain in the hands of the owners of the companies and these can decide to treasure the money in cash or reinvest it in the company.
In short, profit is calculated as total income minus total expenses.
The profit determination stage has as much or more importance than the previously studied phases.
Fixing the industrial profit, or net profit margin that the contractor seeks to obtain as retribution for his work is the final step in any estimate of a Budget.
When executing a Project, each Contractor puts into play his prestige, capacity, experience, capital, equipment and other relevant factors.
In order for an entrepreneur to be able to obtain at the end of a Project the amount of money foreseen as a benefit, it is crucial that the starting point is a reliable estimate that assures a lucrative Contract.
Any oblivion or omission in the estimation, can partially or completely diminish the expected benefit and provoke the subsequent breach.
the amount of the benefits is added to the budget as follows
1 – A percentage of the net cost of the estimate. (Markup on cost)
Final price (without taxes) = cost + (cost x %markup)
If the cost is 1 and the markup 20% the price is 1.20.
2 – It is calculated as a percentage of the selling price. (Margin on price)
Here the final price Pf (incognita)= Cost + Pf x %margen, clearing Pf that is what we want to know, remains:
Pf = Cost / (1 – %margen)
If the cost is 1 and the margin 20% the price is 1.25.
The percentage of profit that companies set, as is natural, depends on:
The characteristics of the work.
Of the previous experiences that each Company has in the execution of similar works.
The size of the Work.
Payment conditions.
The time required to complete the work.
Signatures against those who compete in the market.
The interest or need that the Bidder has for that particular work.
The risk that the Bidder considers reasonable to assume, etc.
Usual Benefit Percentages | Calculate Man Hours
In practice, the percentage of profit usually varies between 5 and 30%.
Commonly high percentages are common in small and/or risky jobs.
The usual is (only as a guide):
In small and/or difficult works the margin to load is between 20 and 30%.
In works of medium size and with less risk, margins of 15 to 20% are frequent.
In major works when the risk is not large margins of 10 to 15%.
For very large and low risk jobs from 5 to 10%.
Profit Margin How to Calculate | Calculate Man Hours