The above graph (click for bigger view) will show the margin needed to cover your material cost, O.H. and 10% profit based on O.H. to labor and material to labor ratios.
Enter the graph at the estimated material to labor ratio and go over to your O.H. to labor ratio curve. Drop straight down to required margin to cover O.H. job material cost, labor and 10% profit.
Bidding a job with estimated $25,000 material and $10,000 labor @ 2.5 material to labor ratio. Total estimated cost = $35,000.
Example "A": 1:1 O.H. to labor ratio
Margin required = 29.5%
Using a divisor - $35,000 / 70.5 = $49,645 sell
Using a multiplier - $35,000 x 142.0 = $49,700 sell
Example "B": 2:1 O.H. to labor ratio
Margin required = 42%
Using a divisor - $35,000 / 58 = $60,345 sell
Using a multiplier - $35,000 x 172.4 = $60,340 sell
The 1:1 contractor can sell job @ $49,700.
The 2:1 contractor has to sell job @ $60,345.
Suppose the 2:1 contractor gets a call from the general contractor and is offered the job if he can do it for $49,700. This is what the job would look like on his operating statement.
