I recently had a subcontractor who was using ProjectionHub reach out to ask how to structure their sales projections and cost of goods sold. This contractor installed different types of flooring in residential homes and commercial buildings. The challenge for this type of sales projection is that 1 contract really has two distinct types of sales. There is the sale of product which is the flooring material, and the service sale which is the billable hours for the project. So now I am just going to walk you through an example step by step for both the cost of goods sold and the sales projections for this type of business.
Step #1 – Structuring Sales Projections
Once you create an account at ProjectionHub one of the first screens you will come to is setting up your sales projection structure. You will see 3 questions:
- How would you like to project sales for products and services? I would choose “Project sales for each individual product or service”
- How many years of projections would you like to create? Obviously this is up to you.
- What do you sell? You will need to choose “Products and Services”
This last question can be tricky because many subcontractors might think they are only selling a service, but often times you are selling a product too. You probably bill the client for the materials you use (which is a product) plus the labor hours for the project (which is a service).
Step #2 – Adding Product and Service Projections
Now I am just going to enter in one example of a product and service. Let’s say you install tile flooring and for this particular tile you charge $2 per square foot for the materials. So you would enter in Tile Flooring as a product in ProjectionHub.
You will notice that I entered $2.00 for the price per unit. We are going to assume that 1 square foot is our sales unit. Then you can see in the Sales Assumptions text box that I typed out what I am assuming we will sell each month of this particular product. I took the easy way out here since it is just an example and said that we would sell 5,000 units each month. If you can come up with better, data-driven assumptions that will improve your projections. But once you hit submit on this pop up box you will then need to enter in 5000 for each month 1 through 12 because it asks you how many units you plan to sell each month.
Now you can enter as many types of products as you want here. If you install 10 different types of flooring, I would suggest entering all of them and estimating how much of each product you anticipate installing each month.
Now you need to enter in the service portion of your Tile sales. You will need to build your projections based on billable hours. So for example, maybe it takes you 1 hour to install 100 square feet of Tile. So in order to determine how many billable hours you will have each month you simply take your 5,000 square feet of tile sold and divide by 100 square feet installed per hour to come up with how many hours it will take you to install that month.
In this example you will have 50 billable hours each month for your 5,000 square feet of installation work.
Now let’s assume you bill the client $50 per hour for installation.
Now you just need to enter in 50 for the number of billable hours you will sell each month for Tile Installation.
You are done with sales projections for this product and service combination. Now you will just need to do this for each product or service combination.
Step #3 – Cost of Goods Sold for a Subcontractor
Now we move on to cost of goods sold for this product and service.
In this example we have 1 product and one service that we need to enter in cost of goods sold for.
For the tile itself you are charging the client $2 per square foot and let’s assume that it costs you $1 per square foot. So you won’t have any direct labor cost for the tile itself, but you will have material cost of $1 which you can see entered in above.
Then for the service portion we charge the client $50 per hour of labor, and you pay your employees $12 per hour, so you will enter in $12 for the direct labor cost per hour. In this example I am just going to assume that you don’t have any other material costs for the installation, but you might have another 10 cents per square foot related to the adhesive that you use to install the tile.
You are all set! Now you just need to move on to your general expenses for the business like phone, internet, supplies, etc.
Feel free to email me with questions at firstname.lastname@example.org