I’m often asked, “where can I learn more about this Capacity Based markup you speak of?” Whare here are a few books and articles that will put you on the right track.
Running a Successful Construction Company is David Gerstel’s classic book and in Chapter 5 Estimating and Bidding of Gerstel’s book and more specifically on pgs 167 through 168 Gerstel talks about using what he calls a “Capacity Based Markup” which is the same thing as what is otherwise known as a PROOF or Indexed or Labor Allocated Markup which Irv Chasen, Ellen Rohr, and I all talk and write about and why it’s a ![Nail Your Numbers: A Path to Skilled Construction Estimating and Bidding by David Gerstel]()
safer better bet for a new contractor with a varied mixed of projects to use.
safer better bet for a new contractor with a varied mixed of projects to use.
David also has a brand new book out entitled Nail Your Numbers: A Path to Skilled Construction Estimating and Bidding which is his complete guide to estimating accurately and bidding wisely. Highly recommended!
How Much Should I Charge?: Pricing Basics for Making Money Doing What You Love is Ellen Rohr’s classic on how to set an accurate price for your time. While she never uses the phrase ‘Capacity Based Markup’ in plain simple language that anyone can understand Ellen Rohr lays out and explains the mechanics of setting a price for your work using the ‘Capacity Based Markup’ methodology.
Ellen Rohr has also written a great companion book I also highly recommend entitled” Where Did the Money Go?: Accounting Basics for the Business Owner Who Wants to Get Profitable.
Allocating Overhead to Labor Makes Financial Sense — Journal of Light Construction Jan 2004 by the late Irv Chasen — “If I were to ask ten contractors how they calculate and apply overhead (indirect expense) to their estimates or time-and-material work, I would get ten different answers. If I were to press further as to how they arrived at their numbers, most of their methods would turn out to be arbitrary or have some element of guessing. For nearly 40 years, I have been working with contracting businesses to help them improve their cost-accounting systems, and most of those I have worked with had no scientific method as to how…”
How To Charge For Overhead — Journal of Light Construction Sep 2002 By Les Deal — An Iowa based remodeler explains how he has successfully practiced using a PROOF/Indexed/Labor Allocated Overhead methodology for over 20 years.
A Simple System for Turning a Profit — Journal of Light Construction March 1998 By Jim Zisa — Jim Zisa of West End Woodworks in Winston-Salem, N.C., explains how with only so many billable hours in a year available for us to work by including overhead and profit in our labor charges, a small construction company can ensure that all its costs are covered.
Science, not art, and certainly not guessing — by Irv Chasen — A short quick article on the merits allocating overhead to labor.
OVERHEAD: Recovering the Obvious — A 1976 article by Irv Chasen published on the Association of the Wall and Ceiling Industry web site. Because it was written so long ago the dollar figures may seem strange and foreign to the reader today but the principles and theory still hold true today.
In addition to the materials, I have listed above I have also written some of my own blog articles on the topic too and here are links to them…
