Overhead & Profit: What are Yours?
Here’s to suggesting that you bid and complete profitable work and leave the rest of the jobs being offered on the bidding table for others to do
The Florida Supreme Court just ruled this past July in the case of Trinidad v. Florida Peninsula Insurance Company, that “... an insurer’s required payment under a replacement cost policy includes overhead and profit, where the insured is reasonably likely to need a general contractor for the repairs, because the insured would be required to pay costs for a general contractor’s overhead and profit for the completion of repairs in the same way the insured would have to pay other replacement costs he or she is reasonably likely to incur in repairing the property...”
I believe this is great news for both the contractor and the insurance company. This clears the discussion table as to what both entities should be charging for their services to the policy holder. The Supreme Court went on to say what exactly it considered to be overhead and profit. It stated: “Specifically, overhead includes fixed costs to run the contractor’s business, such as salaries, rent, utilities, and licenses, and profit is the amount the contractor expects to earn for his services.”
I have been collecting sales, direct costs, overhead costs and profit information since the mid-80s from thousands of contractors. The data has been submitted to me on our forms with our definitions. What this has allowed me to do is to average any and all contractor data. It has also allowed me to identify and rank contractors as to who is better regarding their submitted data. All of the companies that have submitted data have signed a statement that the numbers are correct to the best of their ability and knowledge.
There are line items that they have assigned their data for sales, direct cost, overhead cost and profit. If the line item isn’t clear to those submitting their numbers, they can refer to the definitions that are attached to each line item. If they are still not clear, they can discuss it with our staff and resolve their questions. At first one might think that people might not be honest in their submittals. In order to decrease their concern, the first thing that they are assured of is that their data will only be reviewed by people that they authorize to see it within their network. After that scrutiny by their network and by our Business Networks staff, their numbers are averaged in with every other company that has gone through the same process, but no names are attached to anyone’s data. As a result, we have averages that are rock solid and are used by companies to measure their progress, or lack of progress. This then allows for benchmarking. We are estimating that our 2012 averages will be ready to share with industry contractors this month.
A lot of contractors have been looking for the Holy Grail of numbers for a long time. A few have found them by being willing to share their numbers with others and others feeling comfortable enough to share their numbers back.
So, where does this Florida Supreme Court Ruling take us? I’m for sure that if you are working in Florida, it’s good news for you! If you are working in any of the other 49 states, you might say good for Florida… and only 49 more state Supreme Courts to go.
So while the other 49 states are working to get the issue to their state Supreme Court, each contractor must continue to work and work the best that they can. So here are some tips that you might want to consider doing while you are fighting for the same issue to be adopted by your state Supreme Court:
- Apply your direct costs, overhead costs and profit to every job that you bid.
- If you do not charge every job like you should be, produce what you did charge for the same amount that you bid it for.
- Produce every job that you do at the numbers you estimate them at.
- Produce what you bid it for and know the reason(s) why it did not go as estimated.
- Get involved with your local and national associations, so that you can have what has been done in Florida.
I look forward to talking with you at the various shows this fall. In the meantime, here’s to suggesting that you bid and complete profitable work and leave the rest of the jobs being offered on the bidding table for others to do!