It is often a good idea to evaluate how much money you made on a specific job. You can then use this information to determine your future pricing. It can also help you to analyze why your overall profitability is below expectations.
The first amount you need is your total revenue from the project. This might be lower than what you billed if the customer requested a discount or you had to remove some billed items.
Next you should determine your cost of materials. This would be a significant amount for contractors but might be a rather low amount for professionals and other services.
Next determine your subcontracted costs. If you had to outsource any parts of the job to another company this will reduce your net proceeds.
Next determine your internal labor costs. This can be harder to determine. You will need to know which of your employees worked on the project and how many hours they spent on that job. The rate would include not only their hourly wages but also your cost of benefits, taxes, and insurance.
These three expenses: materials, subcontractors, and employees would constitute your variable costs. The variable costs are generally broken into two categories: Materials and Labor.
So far we would have:
Revenue: $ Materials: $ Labor: $ Subcontractors: $ Employees: $ Net: $
Some small business owners take the calculations this far and then stop. While this is your net from the job, it is not really your profit.
After variable costs, you need to determine your fixed costs. These might include:
These items are generally paid monthly and do not vary depending on what jobs you are doing. So you would determine your annual costs for these overhead expenses then divide that amount to determine a monthly, weekly, daily or hourly average. Then determine how much time was spent on the job. Multiply the time spent on the job (in hours for example) by the average hourly overhead cost.
Now you would have:
Revenue: $ Materials: $ Labor: $ Subcontractors: $ Employees: $ Overhead: $ Net: $
In some businesses you may want to assign some of these fixed costs as variable costs. For example if you used up a significant amount of tools, or the job was further than average, then you might want to include tools or vehicles as a variable cost per job.
Finally after you have your net profit per job you want to determine how much you personally accrued from the job. Take the net and divide it by the time you, as the owner, spent on the job. If you only do one project at a time this is pretty easy. If you have several jobs running at once then you will need to apportion your time to each job.
So lets do a simple example. A contractor took on a project for $40,000. The job took exactly one month to completed. From this $40,000 materials for the job cost $15,000. Another $3,000 was paid to an electrician and $2,000 to a plumber. The contractor has 4 employees. They are paid $12 per hour, but including workers compensation, benefits, taxes, etc. The real cost per hour is $20. The monthly overhead includes phone $400, insurance $400, vehicles $400, tools $300, and other $200.
The results would look like this:
Revenue: $40,000 Materials: $15,000 Labor: $ Subcontractors: $5,000 Employees: $12,800 Overhead: $1,700 Net: $5,500
If twelve of these jobs were completed during the year, the owner would make $66,000. Since the owner had to put in 60 hours per week to keep things going his hourly wage was $22.92. Over time you will see trends emerge. You might see that materials are always around 38% of each job, labor is usually around 45% of each job, overhead is around 5%, and your profit is around 14%.
Once you know your average profit margin you can determine your revenue goals. If you would like to make $100,000, you would divide the $100,000 profit by your profit margin of 14%. This would tell you your total revenue would have to be $714,000 in order to reach your goal.
This discussion completely ignored tax consequences just to keep it simple.