Meet Joe B, a fictional remodeler. Work along to figure just how much Joe must mark up his jobs in order to achieve the Net Profit he wants.

Joe is planning for his next business year. He's already completed STEPS 1, 2 and 3 -- figuring his desired Net Profit, anticipated Sales Dollar Volume and estimated Overhead.. (For explanations of these concepts, see the previous section Plan For Profit.)

He is committed to achieving a Net Profit of $25,000. Remember, this is over and above his salary. Joe is planning to sell and produce a Sales Dollar Volume of $300,000 and his overhead is $65,000. He wants to use an across-the-board Markup on all job costs. Now, let's figure out what Markup he will need to use to achieve his goals.

STEP 4  Add Net Profit and Overhead to determine Gross Profit.
Gross Profit is the amount that must be generated to cover Net Profit and Overhead. In this example, add the Net Profit of $25,000 and the Overhead of $65,000. This tells us that Joe needs a Gross Profit of $90,000 or 30% of his volume to cover these two items.

Think about this for a moment. What is your goal? Focus on the Gross Profit. Everything else is just a means to an end. I call this "bringing home the Gross Profit bacon!"

STEP 5  Determine Job Costs.
Subtract $90,000 of Gross Profit from his anticipated Sales Dollar Volume of $300,000 and you'll see that there are $210,000 dollars left to spend on Job Costs. Job Costs will be 70% of his total volume.

STEP 6  Determine the Markup Joe must use to hit these goals.
Use a simple mathematical formula:

Gross Profit Percentage
________________________

Job Cost Percentage

Just divide the Gross Profit percentage by the Job Cost percentage. In this case, divide 30 by 70. We see Joe will have to mark up his costs by 43% (multiply by Job Costs by 1.43) in order to hit his numbers. Thus, Joe would sell a job that costs him $1000 for $1,430.

If you are ready to create your own Plan for Profit for your company, select the interactive ProfitFirst System© Worksheet