Estimating Profit

Net Profit

Net profit is the amount paid to the owner or owners after all costs (including a salary for the owners and family workers) are paid. Net profit covers the risks of doing business, plus a return on the investment tied up in equipment, training, advertising and 'good will.'

NOTE: Net profit should not be confused with markup or gross profit. Both of those items include overhead and other costs that are itemized elsewhere in the BidMagic construction estimating software program.

The cost of labor actually performed by the owner should not be considered a part of net profit. Owner labor (and the labor of family members) is covered by the overhead percentage, by soft costs such as Supervision, or by specific line items in Specifications.

Net profit usually ranges from 0% to 12% of hard costs (0% to 8% of overall costs) for construction companies. The amount of profit you can take (and still win bids) depends on the state of the economy, the competitive situation and your company's cost structure. It's a real judgement call that you'll have to make on your own!

HINT: Some construction businesses use a higher profit percentage during the busier part of the building season, and a lower profit percentage during the 'off' season.

To 'hide' your profit percentage when printing or showing costs to clients, turn off the Show Soft Costs option on the Bottom Line (see page 335). If you need to completely 'hide' your profit, you can also lower the profit percentage to zero, then adjust either Overhead or the Overall Fudge factor upward to make up for the reduction.

If you are doing insurance reconstruction work, you may need to work on a '10-10' basis, with 10% overhead and 10% profit. If this results in a lower total bid than your calculated percentages for overhead and profit, use the Overall Fudge factor to adjust your final bid back to where it should be, increase your Contingency percentage, or add additional costs in Hard or Soft Costs.