You can be busy all year. You can win everything you bid, run good crews, do good work, and never have a customer complain. And you can finish the year with nothing in the account.
That is not bad luck and it is not the market. It is two pieces of arithmetic almost nobody in this trade ever got shown, and neither of them takes more than an afternoon to fix.
One note before the numbers: everything worked below uses round figures to show the method. They are not anybody's books.
Overhead Is Not the Office
Most contractors hear the word overhead and picture a desk and a phone. That is not what it is.
Overhead is everything you pay for that is not on a job. Written out honestly it is considerably larger than the picture in most people's heads, and it is dangerous precisely because it never sends you a bill on the job that caused it. It leaves the account quietly, every month, whether the machines worked or not. So it never shows up as the reason a job lost money. It shows up as a year of hard work with nothing at the end of it.
Step One: List It Out Loud
For one year, on one page, without softening any of it:
- General liability insurance on the business
- Workers compensation
- Personal property tax on the iron, which catches almost every new contractor unprepared and is a major blow the first time it lands
- The truck that never goes on a job, and the trailer
- The shop, the yard, the lights, the phones, the software, the accountant
- Licences, and the continuing education required to keep them
- Any machine payment in the months that machine did not work
- Office wages
- Your own time when you are bidding instead of running
That total is the money that has to come back to you before you have made a single dollar.
Step Two: Divide It by Billed Hours, Not Hours Worked
This is the half that gets people.
Not the hours in the year. Not the hours you worked. The hours you actually billed.
Round numbers make the shape of it obvious. Sixty thousand dollars of yearly overhead across twelve hundred billed hours is fifty dollars an hour. The same sixty thousand across eight hundred billed hours is seventy five dollars an hour.
Same business. Same year. Same costs. Twenty five dollars an hour of difference, produced by nothing except how many hours made it onto an invoice.
Which is why the unbilled hours matter so much. Every move, every idle hour waiting on a truck, every repair hour, and every hour eaten because a crew was slow, shrinks the bottom of that division and raises the number carried by every hour that is left.
Step Three: Margin Is Not Markup
This is the single most common arithmetic error in the trade.
Markup is what you add to your cost. Margin is what you keep out of the price. They are not the same number, and they get used interchangeably every day.
Take a cost of ten thousand dollars. Add twenty percent markup and the price is twelve thousand. Two thousand kept out of twelve thousand is sixteen and two thirds percent. The intention was twenty. The result is sixteen and two thirds.
To keep twenty percent of the price, divide the cost by point eight. Ten thousand divided by point eight is twelve thousand five hundred.
Five hundred dollars a job. Every job. For a career. And nobody ever finds it, because the job still came in on budget, the customer was happy, and the crew went home. It simply was not the money anybody thought it was.
Step Four: Read One Finished Job Backwards
This exercise is worth more than the rest of the article.
Take one job you have finished. Put the bid on the left and what it actually cost on the right, line for line. Not a total against a total.
Then find the line that moved. It is never the big obvious thing. It is one line you were light on, and you do not find it until the machine is loaded and you are going home.
Then ask when you knew it was going bad, and whether you could have known sooner. On most jobs that go wrong the answer is yes, and the moment was on the site walk.
The Write-Offs Nobody Counts as Overhead
There is a category almost nobody puts on the page, and it is real.
There are times a customer runs out of money partway through and the extra time goes in anyway, to make it as right as possible, because a name is worth more than the invoice. There are times an owner walks every job before the equipment leaves, meets the customer, and sends the crew back over something they thought was good enough. Crews find that annoying. Customers never see it. It is not free.
That standard is a legitimate business choice. But it belongs inside the overhead number rather than turning up as a surprise at the end of the year.
What to Do on Monday
One page of yearly overhead. One honest count of billable hours. Divide. Put the result on the bid sheet as its own line, so it is visible every time a number gets written.
Then go back through last year and work out whether you have been marking up while calling it a margin.
Neither of these is a talent problem. They are both arithmetic, and arithmetic can be fixed on a Sunday afternoon with a pen.