Paradigm Projects: Capacity/Activity Based Markup & Pricing Seminar

Building a Robust, Agile, & Sustainable Pricing Model For You Company Using Capacity/Activity Based Markup ((OPPH)

Back in the later 1980s I took a one day seminar sponsored by New England Builder Magazine (which later became The Journal of Light Construction) taught by the late Irv Chasen called How To Survive & Prosper in the Contracting Market in which I was introduced to the PROOF Pricing Methodology which a few years later I would see described in David Gertstel’s 1st edition of his classic book Running a Successful Construction Company as Capacity Based Markup. In the 35± years since then and numerous other seminars it remains the most important and most memorable training seminars I ever took in regards to running a building and remodeling company.

This online seminar (three days of 2hr session over Zoom) recreates and expands on what I learned back then and brings it into the modern internet connected marketplace we have to operate in today

February 21st, 22nd, & 23rd 2023 4PM to 6PM EST via Zoom

Investment is $455.00 per company $410 if you sign up in January (save 10%)

What’s Included:

  • Up to 3 people from your company can participate
  • the Capacity/Activity Based Markup Excel Workbook
  • Additional supporting Excel Workbooks
  • Access to the Capacity/Activity Based Pricing Wiki (an online reference manual)
  • Access to the video recordings of the training sessions
  • 1 year of Capacity/Activity Based Markup Workbook support

The Program Outline:

The Pricing Strategy to Charge What Your Company’s Time Is Really Worth With Activity Based Pricing

Building A Robust, Agile, And Sustainable Pricing Model For Your Company:
Building and Using a Capacity/Activity Based Markup (OPPH) Model

I Have and Accountant and/or Bookkeeper why do I need to know this?

  1. 20% of Contractors Are Making 80% Of The Industry’s Net Profit*
  2. What is “Agility” and why is it important.
  3. The Five Stages of Growth
  4. Markup and Margin

The History of Markup and Pricing in the Building & Remodeling Industry

Markup and Pricing Methods: The Good The Bad and the Ugly

  1. The Factoring or Multiplier Method
  2. The Market-Driven Unit Pricing Method 
  3. Dual Overhead Recovery Method (DORS)
  4. Multiple Overhead Recovery System (MORS) 
  5. Gross Profit Margin aka Single Overhead Recovery System (SORS) 
  6. The Capacity/Activity Based Markup Method (aka G&A Overhead and Net Profit Per Hour Method OPPH aka PROOF) 

A Brief Overview of the Capacity Based Markup Workbook

A brief overview of the Capacity Based Markup Workbook and how it works and can be modified (e.g. for use with more than 7 field employees, more office staff etc.)

 

Identifying and understanding the differences between Fixed and Variable Overhead Costs

  1. How to identify and assign true fixed and variable overhead costs
  2. How to determine the True Burdened Labor for your field employees
  3. How can this overhead cost be recovered on an hour by hour or job by job basis as the business progresses 
  4. What happens to fixed and variable overhead costs as field employment increases or decreases
    • How OH Percentage Changes As Field Employment Rises or Falls
  5. How do increases in labor and other costs affect the overhead structure
  6. Planning for Employment Fluctuations

Variable Overhead Items

  1. The Cost of Non-Billable Time Is Higher Than You Think
  2. Payroll Taxes & Insurance
  3. Tools & Equipment
  4. Inventory
  5. Vehicles
  6. Maintenance  

Fixed Overhead Items

  1. Setting up and sizing a OCRA  (Operating Capital Reserve Account)
  2. What is the optimum number of field employees. 
  3. How do you deal with an owner that works both in the field (billable time) and in General Administration Management (non-billable G&A)
  4. How do I adjust when fixed and variable overhead costs change. How does adding or subtracting field personnel affect your Fixed Overhead. 
  5. Net Profit: The Line Item and How Much Is Enough?

Your Fully Loaded Billing Rate(s)

  1. What mode should you be using to charge for field employees time? Picing by the hour, or day, or team, or week?
  2. What goals should be set for volume of business (How Many Billable Hours Can You Create)
  3. How to determine actual net profit or loss on each job
  4. Breakeven Point
  5. Percentage Overhead or Flat Rate for OH Recovery?

How to Markup For Other Direct Job Costs

  1. Materials
  2. SubContractors
  3. Equipment

Strategy & Special Cases

  1. Using a Good-Better-Best Approach to Pricing
  2. Can you ever sell labor on a project below you standard rate 
  3. Using a Temp Labor Agency 
  4. Overcoming the Fear Factor of Raising Your Billing Rates 
  5. Charging for Helpers/Production Assistants
  6. Overtime
  7. Productivity (Rate(s) pf Production)
  8. Material Handling
  9. Small Job vs. Large Job
  10. High Labor to No or Low Materials & Subs
  11. High Materials & Subs to Low Labor
  12. What happens if all the Labor is Subcontracted
  13. Departmentalization 
  14. Caution: Don’t Confuse Project Overhead (General Conditions) with Company Overhead
  15. Breaking Out Overhead & Profit as Line Items
  16. Overhead Recovery on Non-Contracted (Retail) Sales
  17. Is 10% Overhead and 10% Profit  really a myth?

Monitoring Your Strategy

  1. Timekeeping & Daily Job Reports
  2. Nine of Eighty-One Combinations
  3. Monitoring Gross Profit
  4. Cash Flow
  5. Job Overruns
  6. The Monthly M.A.D. Report (Monthly Audit Data)
  7. Cost Accounting 
  8. When and How Should You Go About Raising Prices (Billing Rates)

The Pros and Cons of other Markup and Pricing Methodologies.

  1. The Factoring or “Multiplier” Method
  2. The Gross Profit Margin or Single Overhead Recovery System (SORS aka Volume Based Markup)
  3. Market Driven Unit Pricing Method
  4. The Dual G&A Overhead Recovery System (DORS)
  5. The Multiple G&A Overhead Recovery System (MORS)
  6. The Capacity/Activity Based Markup Method (aka G&A Overhead and Net Profit Per Hour Method OPPH aka aka PROOF) 
  7. The Problems With Overhead Recovery on Functions Other Than Labor

Financial Ratios

The Total Management Team

Survival Techniques

  1. Selling Below Cost
  2. Furloughs & Layoffs

Discussion Q&A

  • A general Q&A discussion of Capacity/Activity Based Markup and other markup methods
  • A discussion about my friend and author David Gerstel’s Jan/Feb 2023 JLC article A Smarter Way of Charging for Overhead & Profit

References & Resources

Books:

Research Papers:

Paradigm Projects and Journal Of Light Construction Articles:

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