Figuring Gross Profit Washington DC

We write a lot about gross profit here, but judging from some of our survey results, a lot of readers are still fuzzy on the concept. The calculation is simple — gross profit equals revenue minus direct costs — but as with so many other financial concepts, the devil is in the details.

We looked at three ways to calculate revenue before. Although the percent-complete method is best suited to remodeling, the important thing is to pick one method, make sure you understand how to do the math, and then stick with it.

With revenue under control, we turn our attention this month to the other part of the gross profit formula.

If any accounting term is aptly named, this is it. Direct costs are all of those expenses that can be directly billed to a particular job. Sometimes called “job costs” or “cost of goods sold,” direct costs fall into five general types that should be separately tracked:

• Materials: This includes any building material, product, fitting, or fixture that is built into or stays on the property when the project is completed.
• Labor: This is the total cost of all employee labor for work performed on a particular job. This figure includes all payroll taxes, benefits, and other so-called “labor burden". It may also include supervision time.
• Subcontractors: This includes the invoice amounts from plumbers, electricians, and any other workers.

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