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Plan for Profitability in 2012 Webinar 1: Budgeting & Overhead Recovery

On October 19th, 2011, DynaScape presented a webinar on budgeting and overhead recovery, given by landscape industry specialist and consultant Marcus vandeVliet.   The response from attendees has been enthusiastic, and we’re pleased to offer the contents here for those who missed it or wish to view it again.

The PowerPoint slides from the presentation are available here.  The supporting article can be viewed here.  You can view the webinar in its entirety by clicking on the video below.  And finally, below the video link on this page are answers to those questions from attendees that we didn’t have time to address during the webinar.


Answers to questions from the webinar:

Q: Is there help in setting up a budget for first time using Manage360?
A: During our implementation, we initially do a kick-off meeting so that your company understands its responsibilities during the process, and what information needs to be gathered. After this initial meeting, we can assess whether or not additional consultation is recommended before the implementation officially starts.  We do offer consulting services, but they are associated with additional costs.

Q: I have a multiple division company.  What is the best way to look @ or split overhead for each division?
A: There are three primary criteria for setting up your divisional budget. Each category is allocated according to:  1.  Gross sales volume. 2.  Number of overhead people. 3.  Number of field people.  For example: uniform expenses would be broken down in each division based on the number of field people as a percentage.  Advertising is broken down by sales volume.  Overhead people should be allocated based on the time spent in each division as a percentage; in many cases, one person works for multiple divisions.

Q: How much of your budget/pricing information is shared w/ the client? residential work?
A: I would typically not share any budget information with a residential client.  I would perhaps share my breakeven price, and the profit applied to the project.  This would be a last case scenario.  The break even and profit numbers are shared with the customer in an effort to educate them about my scope of work and the quality of the work being performed.  To prove that my price is a good value.

Q: Couldn’t that change the % drastically if one uses a lot of subs?
A: If your company is a general contracting company, and subcontracts all its work, the percentages would be different.  Your overhead would be recovered on a project by project basis.  This could either be based on the length of each project, or a specific overhead recovered on each project.

Q: Does gross sales include sub work?
A: Yes, because you’re charging the client for the work it does.

Q: What are your feelings towards stabilizing labor costs by way of paying the crew for work performed such as a $ amount per plant, per ton of rock, per sq. foot, etc.
A: This would be a wonderful way to increase production and motivate your field employees.  The first possible scenario would be setting up a system that both the estimator and the field employees agree on.  Unfortunately, there are many variables on each project.  It could be possible to set up standard production rates for each major function.  A series of general conditions would have to be agreed on for each project.  A second possible scenario would involve including the labor force in the estimating process.  The production crew would agree to a lump sum labor price for the project.  In either scenario, they would have to be agreement between the estimator and the crew prior to the commencement of the project.  There would also have to be an understanding on how change orders would be handled.  There would also have to be an agreement on unforeseen site conditions and mistakes made during the estimating process.

Q: Do you treat your design staff as an OH office labour or field labour? They have billable hours, but also incur office OH items.
A: I would recommend leaving the design staff in overhead.  You could determine what percentage of that time is billable versus non-billable, and only include the non-billable percentage in overhead.  An alternative would be to include the revenue generated by the design in the sales volume for the company, and then recover the entire design staff cost in overhead.  The other consideration would be whether the design fees are included in the estimate cost for the project, or are billed as a separate line item to the client.

Q: How much do sales/estimating staff need to know about how profit is determined by the ownership?
A: I think your sales and estimating staff should know how the profit is determined for each project.  An estimated profit does not usually translate into actual profit.  I would recommend sharing job cost profit and actual company profit with these key people.  Some companies’ profit applied to projects is high because they are not accounting for all the direct costs in the estimating process.  In my experience, if all costs are covered, then the profit percentage is usually between 10 and 20% in a normal marketplace. It is also important for the salespeople to know what the profit amount is, because that’s all they have to negotiate.  Salespeople and Estimators are key people and should be trusted with profit information.

Q: How often do you recommend meeting with someone like yourself to get feedback as well as having someone else look at our business?
A: The consultation should be designed around your specific needs.  This is typically driven by your budget and how quickly you want to change and implement new systems.  It also depends on the current state of your company.  I would be able to give you a better idea after an initial meeting and company assessment.  I have clients I meet with on a monthly basis, I also have many clients that I meet with each quarter.  My goal is always to develop a long-term relationship based on your requirements and comfort level.

Q: Could Manage360 be used by a estimating business?
A: This would depend on how many companies you’re estimating for.  My recommendation would be to set up a division for each company.  You would then be able to use company-specific information for each estimate.

Q: Does the 7-10% Equipment vs Gross Sales ratio include Depreciation?
A: The 7 to 10% equipment number is based on the cost to purchase, operate and maintain each piece of equipment.  The actual payments for your equipment should be used, not the depreciated amount.  The cost of equipment should be based on replacement cost.  The cost of your equipment used in estimating should remain the same, even after the piece of equipment has been fully paid for.  Theoretically, this amount would then be applied for the down payment on the replacement piece of equipment.

Q: Is it possible to get a PDF or PowerPoint of these slides emailed to us?
A: Yes it is possible, email and we will have it sent out to you.