# Electrical contractor profit margin



## HailMary (Sep 16, 2016)

Just curious, but I imagine if you had a 10-20% profit margin,and occasionally more, I think that is a successful contractor. Are these margins I just listed possible in the industry? 

Of course, rent, fuel, workers comp, insurance, maintenance, benefits etc is kept in mind while trying to maintain a profitable company


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## HailMary (Sep 16, 2016)

And I am talking about net profit.


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## Majewski (Jan 8, 2016)

This is going to be somewhat tailored to everyone differently.....


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## telsa (May 22, 2015)

HailMary said:


> Just curious, but I imagine if you had a 10-20% profit margin,and occasionally more, I think that is a successful contractor. Are these margins I just listed possible in the industry?
> 
> Of course, rent, fuel, workers comp, insurance, maintenance, benefits etc is kept in mind while trying to maintain a profitable company


Such impressive margins, when they happen, usually represent the skill of the owner -- not the profit of the business, as a business.

They are never seen as firms scale up -- unless there's a building mania going on -- which happens -- say once in a life-time.


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## Essex (Feb 4, 2015)

20% is what I aim for. Not worth it otherwise.


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## drewsserviceco (Aug 1, 2014)

I was told during an estimating course that the national average for EC's is 6%. That would explain why many feel like a dog chasing its tail.


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## Southeast Power (Jan 18, 2009)

HailMary said:


> Just curious, but I imagine if you had a 10-20% profit margin,and occasionally more, I think that is a successful contractor. Are these margins I just listed possible in the industry?
> 
> Of course, rent, fuel, workers comp, insurance, maintenance, benefits etc is kept in mind while trying to maintain a profitable company


Search of some of Flyboy's threads.
I believe he puts some reality in the subject.

You are going to hear something more like 300% from him but, you have to understand the relevancy of what that means to your business.

Also,
There is a sticky up on the business section here:
http://www.masterplumbers.com/utilities/costcalc/

Its an interesting reality check


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## MechanicalDVR (Dec 29, 2007)

Mods, should this not be moved to the Business Lounge?


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## Essex (Feb 4, 2015)

MechanicalDVR said:


> Mods, should this not be moved to the Business Lounge?




Surely it is up to the OP.


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## telsa (May 22, 2015)

MechanicalDVR said:


> Mods, should this not be moved to the Business Lounge?


I second that. :yes:


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## jw0445 (Oct 9, 2009)

Would HailMary be allowed in the business lounge being a newcomer?


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## Essex (Feb 4, 2015)

jw0445 said:


> Would HailMary be allowed in the business lounge being a newcomer?


Exactly my point. Nobody has to post if they do not want to disclose details. It is the ops discretion as to where they want to post their thread. It is in the general discussion thread so unless the ops requests it it should stay put.


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## MechanicalDVR (Dec 29, 2007)

jw0445 said:


> Would HailMary be allowed in the business lounge being a newcomer?


Good point.


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## HackWork (Oct 2, 2009)

I don't think most contractors would know how to actually calculate their profit margin. We've got long time contractors here who determine if their company is "profitable" by saying they own second properties. 

Anyone who tells you 20% probably isn't calculating it correctly, or is skewing it by taking a very small owner salary or draw.


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## Essex (Feb 4, 2015)

HackWork said:


> I don't think most contractors would know how to actually calculate their profit margin. We've got long time contractors here who determine if their company is "profitable" by saying they own second properties.
> 
> Anyone who tells you 20% probably isn't calculating it correctly, or is skewing it by taking a very small owner salary or draw.


Please explain?


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## HackWork (Oct 2, 2009)

Essex said:


> Please explain?


Explain what? I don't know how to break down what I said any further.


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## Essex (Feb 4, 2015)

HackWork said:


> Explain what? I don't know how to break down what I said any further.


You suggest that anyone suggesting a 20% PM is 'not calculating it correctly'.

What are your suggestions to the op?


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## HackWork (Oct 2, 2009)

Essex said:


> You suggest that anyone suggesting a 20% PM is 'not calculating it correctly'.


 Yes, that is part of what I said.



> What are your suggestions to the op?


 To love his/her neighbor.


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## HailMary (Sep 16, 2016)

Majewski said:


> This is going to be somewhat tailored to everyone differently.....


I imagine that location along with the amount of work a ec gets throughout the year determines what profit margin he could maintain


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## cdslotz (Jun 10, 2008)

drewsserviceco said:


> I was told during an estimating course that the national average for EC's is 6%. That would explain why many feel like a dog chasing its tail.


This is correct and it applies to the largest firms in the country.
Even though our estimates are bid with 10-15% profit. When all of the losses and gains average out over time....it's around 5-6% net


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## macmikeman (Jan 23, 2007)

You know what happens to all that massive profit don't you? That's right- underground fancy end of world security bunkers with bowling alleys and swimming pools.............


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## Essex (Feb 4, 2015)

cdslotz said:


> This is correct and it applies to the largest firms in the country.
> Even though our estimates are bid with 10-15% profit. When all of the losses and gains average out over time....it's around 5-6% net


Apologies if I am being dim but are you saying that your target is 10-15% but due to poor pricing at the end of the financial year it goes down by 10%?


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## MechanicalDVR (Dec 29, 2007)

cdslotz said:


> This is correct and it applies to the largest firms in the country.
> Even though our estimates are bid with 10-15% profit. When all of the losses and gains average out over time....it's around 5-6% net


Yup, the larger the company it seems the less the profit margin.


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## Essex (Feb 4, 2015)

MechanicalDVR said:


> Yup, the larger the company it seems the less the profit margin.




Generally due to the increased overheads required to run it.


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## telsa (May 22, 2015)

HackWork said:


> Explain what? I don't know how to break down what I said any further.


He wants it in 'English' not 'American' ?


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## HackWork (Oct 2, 2009)

Essex said:


> Generally due to the increased overheads required to run it.


A) The more workers cover the increased overhead, often making the burden less, not more.

B) If the overhead was higher, the larger companies would know to raise the rates to cover it. They don't get hung up on bullcrap "going rates" nor do they charge low amounts that simply can't sustain a profitable company.

C) Are the larger companies actually making less profit? Or is their profit simply more accurate compared to the little guys who don't know how to properly calculate it? The guys who don't realize that they are not doing nearly as well as they thought?


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## Essex (Feb 4, 2015)

HackWork said:


> A) The more workers cover the increased overhead, often making the burden less, not more.
> 
> 
> 
> ...




A very nice speech. All bolloxs but very nice all the same.


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## HackWork (Oct 2, 2009)

Essex said:


> A very nice speech. All bolloxs but very nice all the same.


You seem to be mad about something.

Quit acting like a child, if you believe something that I said is inaccurate, quote it and refute it.


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## HailMary (Sep 16, 2016)

Somebody pass me a cold beer & a bag of popcorn, seems like things are starting to get good &#55357;&#56833;


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## Glock23gp (Mar 10, 2014)

HailMary said:


> I imagine that location along with the amount of work a ec gets throughout the year determines what profit margin he could maintain


How do you correlate "amount of work done" to profit margin?

If I do one job for 400% profit 

vs 

Ten jobs at 3% profit

Then just because I have lots of work doesn't mean I'm making mad money.

Sent from my SAMSUNG-SM-T337A using Tapatalk


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## HailMary (Sep 16, 2016)

Glock23gp said:


> How do you correlate "amount of work done" to profit margin?
> 
> If I do one job for 400% profit
> 
> ...


I never said anything about making mad money


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## TRurak (Apr 10, 2016)

Hack and Essex, you guys really need to have it out in person, you can cut the tension with a knife in every thread you guys are in together!


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## cdslotz (Jun 10, 2008)

Essex said:


> Apologies if I am being dim but are you saying that your target is 10-15% but due to poor pricing at the end of the financial year it goes down by 10%?


On commercial projects that last from 6 months to 2 years, there are increases/decreases in materials, labor overruns/savings, good/lousy GC's, good/lousy employees, etc.....

Every play in football is designed to score a touchdown......

That's why good estimating, management, supervision is so important


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## telsa (May 22, 2015)

HackWork said:


> A) The more workers cover the increased overhead, often making the burden less, not more.
> 
> B) If the overhead was higher, the larger companies would know to raise the rates to cover it. They don't get hung up on bullcrap "going rates" nor do they charge low amounts that simply can't sustain a profitable company.
> 
> C) Are the larger companies actually making less profit? Or is their profit simply more accurate compared to the little guys who don't know how to properly calculate it? The guys who don't realize that they are not doing nearly as well as they thought?



You are correct -- right across the board. :thumbsup:


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## drewsserviceco (Aug 1, 2014)

I think it's safe to say that all this stems from the fact that we start our careers with being trained as electricians and not accountants (or more accurately, business operators). 

I am amused, then disheartened by the amount of business operators that don't even know how to calculate their profit margin. They will often throw some impressive numbers around that after a little probing are not even close to their actual margin, largely due to inexperience and lacking a grasp of accounting fundamentals. 

This ultimately costs us all money. If your competition doesn't charge enough to keep their business afloat and is winning jobs (but the ship is sinking, and they don't even know it), they are driving down the publics perception of what a good price is.


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## macmikeman (Jan 23, 2007)

TRurak said:


> Hack and Essex, you guys really need to have it out in person, you can cut the tension with a knife in every thread you guys are in together!


That will be classic , and probably will garner some real international press what with Essex driving a u-haul truck to New Jersey Home Depot parking lot in a blizzard all the way from England.........:thumbsup:


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## splatz (May 23, 2015)

MechanicalDVR said:


> Yup, the larger the company it seems the less the profit margin.





Essex said:


> Generally due to the increased overheads required to run it.


No, the larger companies are generally more efficient than the smaller companies - less overhead relative to income. 

Example: d If a small company has just one office person who makes $60,000.00 / year doing the books etc., and a larger company has an accounting department with 5 people that costs $500,000 to pay, the larger company has more overhead in that department. But the larger company might have ten times the sales of the smaller company, so relative to sales, they have lower overhead. 

I think the larger companies are competing with other big guys for huge projects, and they have to bid with thinner margins to win. It's OK because 5% of $100,000,000 is still decent money  

Of course they also may deliberately plan their finances to keep the profit down for various reasons, it may be better to pay off debt, invest in equipment, etc., rather than show more profit and pay more taxes. They have that whole accounting group sitting around to figure this kind of thing out...


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## HackWork (Oct 2, 2009)

splatz said:


> No, the larger companies are generally more efficient than the smaller companies - less overhead relative to income.
> 
> Example: d If a small company has just one office person who makes $60,000.00 / year doing the books etc., and a larger company has an accounting department with 5 people that costs $500,000 to pay, the larger company has more overhead in that department. But the larger company might have ten times the sales of the smaller company, so relative to sales, they have lower overhead.
> 
> ...


All bolloxs!


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## Majewski (Jan 8, 2016)

I see myself as small... I wonder how big you need to be to have an office employee who makes 60k! I wish I had an office and a big old lady who ran it, with fun, crude humor and knows how to tug big conductor.... Wink wink


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## drewsserviceco (Aug 1, 2014)

splatz said:


> No, the larger companies are generally more efficient than the smaller companies - less overhead relative to income.
> 
> 
> 
> ...





I would venture to say it is more a function of the scale of the work being done more than the the scale of the company doing it. 

Those big jobs have a lot of moving parts each moving with a ton of inertia behind them. Any mistake is going to be a costly one. I can't think of a job I've been on that has gone off without a hitch. 

And we're talking about jobs that are super competitive from the start. 

What's the impact of a safety stand-down that resulted from an accident that happens to another trade and the EC experiences lost time for the investigation, re-training, added protocol and gossip? And there's 100 electricians on site...

That'll cut into your margin quickly.


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## telsa (May 22, 2015)

The fact is that EVERYONE gets 'bit' -- and has to eat losses -- often shocking losses.

The Big Boys have better operational leverage, so they can still do okay in terms of return on capital.

The primary source of Big Boy operational leverage is the IBEW. It, its talent pool, removes a major headache for any EC bidding huge projects.

The other reason for low margins: Federal contracting rules. By law, fat margins are prohibited. They are 'clawed-back' in the parlance of the accountants.

The flip side is that the Feds will allow ECs -- and others -- to petition for extras when 'this or that' happens on a massive project. So the risk to the EC is massively reduced.

In war projects, this often took the form of Cost Plus contracts. Since absolutely no-one knew what the bidding ought to be, the Feds gave the contractors an open check book -- subject to audit -- where all reasonable expenses would be eaten by the government. Then the contractor would be awarded a bonus -- a profit -- equal to, say, 5% of the sum. Since there was no risk to the EC, and the figures were staggering, everyone raced to get the business. Yet there was so much to do that every EC was working flat out, plus overtime.

Many smallish ECs got Big during WWII -- and never looked back.


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## Essex (Feb 4, 2015)

Majewski said:


> I see myself as small... I wonder how big you need to be to have an office employee who makes 60k! I wish I had an office and a big old lady who ran it, with fun, crude humor and knows how to tug big conductor.... Wink wink




My general rule is it takes about 3 productive staff to warrant a non-productive staff.


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