This document discusses Gross Profit Per Man Day (GPMD) as an alternative to using mark-up percentages when pricing jobs. It explains that GPMD reflects overhead costs, labor costs, and profit targets per billable hour. An example company, Comfort Heating & Air, is used to demonstrate how to calculate GPMD. Comfort analyzes its monthly overhead costs, billable hours, direct labor costs, and profit target to determine its GPMD should be $134 per hour. This allows the company to know if invoicing at the $134 rate will achieve its monthly profit goal, unlike using different mark-ups on different jobs.

1. Gross Profit Per Man Day

2. Agenda
• The challenge of using mark-up / margin when quoting jobs
• The basics of Gross Profit Per Man Day
• How to figure out your hourly charge?
• NEE’s guide / Template

3. The Bottom line
• http://www.bizstats.com/corporation-industry-
financials/construction-23/specialty-trade-contractors-238/plumbing-
heating-and-air-conditioning-contractors-
238220/show?asset_class_id=3&submit=Apply

4. Good…Better…Best Approach (most common)
$3080 $3920 $4900
Single Stage ECM 2 Stage Variable Modulating

5. Reminder: margin is not markup…
To arrive at a 10% margin, the markup percentage is 11.1%
To arrive at a 20% margin, the markup percentage is 25.0%
To arrive at a 30% margin, the markup percentage is 42.9%
To arrive at a 40% margin, the markup percentage is 80.0%
To arrive at a 50% margin, the markup percentage is 100.0%

6. Costing with Mark-up / Margin
Equipment
$1600
Equipment
$2200
Equipment
$2900
Single Stage ECM 2 Stage Variable Modulating
Labor
10 x $60 = $600
Labor
10 x $60 = $600
Labor
10x$60 = $600
Cost
$2200
Cost
$2800
Cost
$3500
Markup = 1.4 Markup = 1.4 Markup = 1.4
Price: $3080 Price: $3920 Price: $4900

7. Good
Better
Best
Price: $3080
Price: $3920
Price: $4900
Profit
$880
Profit
$1120
Profit
$1400

8. The 3 main problems with markup / margin
1. Doesn’t reflect $ margin per job
2. Tend to over-price profitable opportunities and under-price average
jobs
3. Doesn’t reflect capacity

9. What is Gross Profit Per Man Day?
Your hourly rate includes:
direct labor cost ($) +
overhead ($ allocated per hour) +
profit ($ expected per hour)
• All margin / markup is reflected at your hourly rate

10. Welcome to Comfort Heating & Air
3 Installers 2 HelpersOwner (1) Office (1)

11. 1. Analyze your monthly overhead
3 Installers 2 Helpers
Owner (1) Office (1)
BillableOverhead
Rent
Insurance
Training
Advertising
Vehicles
Travel
Bank fees
Office Expense
?
Salary Salary
$30,000

12. 2. Calculate your number of billable Hours
5 employees
22 Days
8 HOURS
x
x
880
Hrs.
75%x = 660
Hrs.
Utilization factor Billable hours

13. 3. Calculate your Direct Hourly Cost (Labor)
$32 Hourly
+
=
Benefits
+
WCB
+
Vacation
$50

14. 4. Set your Monthly Profit Target
$25,000

15. 5. Calculate your Gross Profit per Man Hour
Overhead
Direct Labor Cost
Profit per hour
GPMH

16. 5. Calculate your Gross Profit per Man Hour
Overhead
$46
Direct Labor Cost
$50
Profit per hour
$38
GPMH = $134
$30,000 / 660 billable hours
$25,000/ 660 billable hours

17. What Does It Mean?

18. If Comfort Heating & Air invoices 75% of
their billable hours at $134 per hour, the
company will achieve net profit of $25,000
per month

19. Let’s compare GPMH with Markup Pricing….
Equipment
$1600
Equipment
$2200
Equipment
$2900
Single Stage ECM 2 Stage Variable Modulating
Labor
10 x $60 = $600
Labor
10 x $60 = $600
Labor
10x$60 = $600
Cost
$2200
Cost
$2800
Cost
$3500
Markup = 1.4 Markup = 1.4 Markup = 1.4
Price: $3080 Price: $3920 Price: $4900

20. Let’s compare GPMH with Markup Pricing….
Single Stage ECM 2 Stage Variable Modulating
Price: $3080 Price: $3920 Price: $4900
Profit $880 Profit $1120 Profit $1400

21. Let’s compare GPMH with Markup Pricing….
Equipment
$1600
Equipment
$2200
Equipment
$2900
Single Stage ECM 2 Stage Variable Modulating
Price: $3080 Price: $3920 Price: $4900
Using our GMPH rate with no markup on equipment
10 x $134 - $1340 10 x $134 - $1340 10 x $134 - $1340
Price: $2940 Price: $3540 Price: $4240

22. Why Gross Profit Per Man Day or Hour?
• Simplified approach to pricing
• Easy guide allowing you to focus on the more profitable opportunities
• Improve closing ratio on high-end jobs
• Differentiate your offering (your competitors are likely to use markup….)
• Align targets with actual $ and not %

23. OK…..so what now?

24. Know your number
Calculate your target Gross Profit Per Man Hour

25. Test your quotes with the new logic / number

26. Refine your offering / pricing strategy