How to charge for offsite & onsite overheads
Everyone knows a house is made of bricks and sticks and labour… in round figures. But when you are pricing that house, there are other things that need to be factored into the equation.
There is a cost attributed to EVERYTHING. Every single time you answer a call from a client, the phone you are making the call on, the shirt you are wearing while you make the call, the ute you are sitting in while you are in the shirt making the call. How the call came to you in the first place…. I could go on all day long. So how do you cover all of these intangibles?
Basically, they fit into two different categories.
Offsite overheads, and onsite overheads (commonly referred to as Preliminary & General, or P&G).
To figure out what fits into each category, you need to understand the definition each term has.
Onsite overheads – costs that exist because the job you are charging them to exists.
Offsite overheads – costs that directly relate to running your business.
To break it down further, here are some things that would be considered Onsite Overheads :
2. Health and Safety
3. Access equipment hire
5. Site supervision
6. Site set out
7. Job administration
8. Asbestos testing
9. Site security
11. Tool and plant hire
The list goes on, and to see a more definitive list the NZS4202 has a whole section at the front of it.
Now for offsite overheads, remember, these are related to running your business :
2. Yard lease
4. Office administration
6. Legal fees
7. Company uniforms
8. Stationery and printing
9. Computers and IT
I can pretty much hear you from here, what about things that sit in both camps you say? Good question. There are a few things that could effectively fit in both onsite and offsite overheads list.
One of my favourites (oddly enough!) is Quantity Surveying. This comes in a couple of parts. There is the cost of initial pricing (irrelevant of who does it, including you. Nothing is free!!!). There is the cost of initial pricing that you win, and also the cost of pricing jobs that you lose. Both MUST be factored into your jobs.
For a few reasons, my preference on how to manage adding in for QSing is to look at it like this; I am sure that roughly you know how many jobs a year you win, and how many you lose. Right there is your calculation of your conversion rate. If you quote in total say, 10 jobs a year, and if your average QS fee for a job is say, $3k, then your total investment per year for pricing jobs is $30k. Now, if you know you convert say, 20% of the jobs that you win, then the amount of the ‘costing budget’ you would attribute to jobs is $6k, and the remaining $24k needs to be included in your offsite overheads budget.
So how does that look? My suggestion is that every job you price has your QS fees in the Onsite Overheads trade. That way if they accept, you recoup it. Onsite overheads are itemized costs. The remaining $24k is calculated alongside the rest of your Offsite Overheads in your margin. This margin is applied to EVERY job, won or lost and it is defined by your accountant as a percentage of your overall turnover. The definition of MARGIN is Offsite Overheads % + Profit %.
If you want to know more, phone Paul Watson, Ph. 027 238 1866. Email : firstname.lastname@example.org