Lately i’ve been working more and more often with my subs. My question is, what percentage above their price do you bill the H.O. for yourself? I’m used to doing everything myself but as I attempt to grow, I know I will have to rely more on these guys.
If it matters, this is not new construction, mostly remodels and in this case a basement.
Replies
msa.. you have to work it backwards..
figure your overhead, including your salary... then how you are going to charge in order to make your nut..
a combination of your rate... the markup on your subs and materials .. they all add up to get to your bottom line
"msa.. you have to work it backwards..
figure your overhead, including your salary... then how you are going to charge in order to make your nut..
a combination of your rate... the markup on your subs and materials .. they all add up to get to your bottom line"
Ok Mr. Mike ,
I have always had the assuption you live in money land as I think Piff does . My Father taught me and he WAS old school. So lets set of a senario here ,
You bid this A job and it requires 5 different subs . All five subs are making a nice profit over labor and material cost . So there we tack on a profit on labor and materials before you get your hands on it . Now you figgure your nut and add you 20 percent to their bill which also tacks on another 20 on material. BY now youre up to 50 percent markup of material and charging a heck of a price for the subs work. How else could this be ?
John Goodboy bids the job also. He doesnt need any subs and can wrap up the whole job as hes got mechanical people working for him as well as concrete and brick layersthat lay block, a painter that does all his drywall, a sparky that also is a carpenter. You get the picture .
If John matches your bid , hes gonna make a killing , if not hes gonna get the job anyway.
I hear you guys talking about marking up and marking up. Charging for bids and other things . Charge , charge ............
What keeps someone from clipping your wings ?
If I saw that kind of money in what you are doing , Id be trying and trying hard.
What would keep me from it ?
Edit ; I just read all of Jeralds and hes singing the same ole song too.
If yall would effectively anwer my questions it sure would help- me understand something that has been a mystery to me for a long time .
Tim Mooney
Edited 3/15/2005 4:59 pm ET by TIMMOONEY52
tim..... couple things
<<<BY now youre up to 50 percent markup of material and charging a heck of a price for the subs work. How else could this be ? >>>
exactly.. and most of the gurus say it should be higher..
now .. here's the secret .. and you've got to swear to not reveal it to anyone else
I'M NOT BIDDING AGAINST ANYONE ELSE..
we do nice work.. some say great.. some say ok... but we do have happy customers..
so .. i'm not bidding against tim... or john goodboy...
my customers want me.. not you.. not john goodboy... i give a fair price.. know how i know ?
cause i work my a*s off and i aint getting rich...
this idea you have that we ( piffen, me , jerrald) are making money hand over fist, just ain't true....
if you read Walt Stoeppleworth, you'll find out that a 50% markup is a marginal markup if you are trying to make a bottom line of 10% ( assuming your salary is part of the company overhead )...
these markups that people throw around (10%.. & 10% profit ) those are ok if you are folding all of your overhead and profit into your labor rate.. but then you need a labor rate of $75
in the end.. it doesn't matter where you make your markup.. but you have to make it someplace or go home..
i choose to spread mine so i can charge a lower hourly rate if i have to work T&M
now.. how do you get a job with these prices? marketing and sales
if you can't get your price.. go home and go to work for someone else....
and it took me about 15 years of listening to the gurus before i finally admitted that they were right..
either we're running a business, or we're working for wages..
if we're working for wages, you're better off working for someone else, because it's too easy to lose your shirt in this businessMike Smith Rhode Island : Design / Build / Repair / Restore
So Mike, do you see my explanation in
msg#55550.15 as a rationalization for a set of conditions under which "10 plus 10 works"?
However, there is a riddle in there. I didn't use 10% plus 10% to figure out the Price. I estimated our company time at our PM rate and that plus the markup for Net Profit on the subcontracting just happened to work out to the equivalent of 10 plus 10. (Those number while fictionalized were based on a real project we did).
We will use our version of 10 plus 10 (which is the 25% to 30% that I mentioned in msg#55550.7) as a shortcut on some small projects that seem very ordinary. Since we limit using the short cut to small projects if we are off we don't end up taking a bath. We prefer to estimate our Project Management hours because we do have some project where the ration of our time to the sub time or cost really soars. Some jobs just require more supervision than others.
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sure.. i knew that... you've allocated almost your entire O&P into your labor rate..
i chose to have my subs, equipment, and materials carry some of my overhead, which lowers my labor rate
in the end.. , as you know, you have to know your overhead costs. and be able to project what happens to those costs if your volume increases..
or if your number of employees shrinks to the point where you have to reallocate your overhead & profit dispersal among your production hours
i think the basic premise that tim has is.. no way could i compete with him..
which is true.. if we were competing on price. but i don't compete on price.. i sell satisfaction .. or , as much as i can deliver ..
and i found over the years that it takes money to deliver that .. so .. generally speaking, no one is going to come in under my price and deliver the same job..
they'll deliver a different job at a different price..
if i'm limited to bidding a stud wall, with drywall and three coats of tape... that's a commodity.. i don't build commodities, i put them together...Mike Smith Rhode Island : Design / Build / Repair / Restore
I wish I could share it all , but I just cant . Not my business to be telling about .
DW is very successfull at doing the same thing we are talking about . She works for an owner. Shes the general manager. I take a turnaround back seat to her doing this kinda thing. She has taught me to never figgure a negative. For a thousand times told me to take positives to the winners circle. She would never give her competiton underestimate. That would never figgure in it cause shes running her race and giving credit to her competion makes her try harder and wiser from learning from them . If you thought John was nothing , you would never learn from him. If you looked up to him, you would cling to what he did and said. Under estimating cometition is a fools bet.
Tim Mooney
tim.. i never underestimate the competition... i just don't base my price on what they are going to do or not going to do..
i know what my price is and i sell it
my customers call me backMike Smith Rhode Island : Design / Build / Repair / Restore
They came up with a marketing secret that has set her company apart . The competion is there . The success of the secret was competition driven to gain control of market share.
Thanks Mike .
Your post was very honest and forthright. Every sentence make pure sense . It also answers my questions.
Stay tuned , Im not done.
Tim Mooney
You are right on the money on everything you said.(and I mean that both honestly and figuratively). I haven't taken on any new clients in about 9 months been working for all repeats. Hey, I'm not rich but I feed my family of five, pay my bills, and I get to be the boss.(when the wifes not around). Treat people fair, but don't be ashamed to make money thats why we do this.
Sub A can do the job faster and more efficient than employee B (who is the carp & electrician) in most circumstances. The cost for sub A to do the job is about the same as the raw cost for employee B to do the job. The mark-up is simply a case of marking up the sub OR the employee's work.
In addition... tools. If sub B is a plumber... he has the necessary tools (hopefully). Employee C has to buy tools (or more likely, the company must provide the tools) to do the job. BIG overhead cost.
carrying plumbers and electricians, when they are not working, is expensive. A plumber is not going to sit around waiting for the call for a 20 hr week on average. The sub has many jobs for the plumber (hopefully) and can keep him at it 40+ hours a week. If you employ the plumber... you pay for the down time and the work time. More overhead.
Materials. If I am buying for one house remodel... materials cost X. If I am buying materials for 5 jobs... materials cost X-10.
Contractor A (with all of the employees) has a huge overhead. Contractor B (utilizing subs) has much lower overhead. In the end, both can be competative... but Contractor A must have enough work to keep all of the trades busy.... thus is most likely a large contractor.
Once upon a time ago... finding the carp who also was a plumber was not super rare. Now... good luck. Specialization is the order of the day... and most plumbers I know I would NEVER trust to frame... and most framers I know will get their behinds chewed for even touching a pipe!! LOL
So all in all... when you add it all up... no matter where the mark-up comes from... the profit is about the same for one contractor VS the other. However the contractor with all of the employees is running a MUCH higher risk than the one who uses subs. And until the contractor is big enough... the safest and most profitable avenue is to utilize the subs.
Rich , my reply to you is going to be similar to Jeralds , so If I dont geter done in your reply , stay tuned.
I dont want to get into what you can or cant do , but you should also not get into what someone else can or can not do . Thats sets us up for failure to underestimate someone elses abilities. Theres a guy in another thread that didnt get his bid and he doesnt think its him since he has undervalued his competition. Big mistake.
Im not at your place and you are not here . I can only share what I know here .
Walk up and ask a journeyman plumber how much money he takes to the house every week. Do the same with hands from the other subs.
A difference in time is important but how much is it worth? Put a dollar amount on it . I find that sometimes its critical , but most times its workable.
Tools are not a large out lay of cost with any trade except dirt work. A lot of the toolsd used by one trade will do another . I think things like compressors and generators nearly every one uses. Same with scaffolding.
My purpose here is either to help or to learn . I hope we both take from it .
I know several men that do electrical, plumbing and hvac. No they arent carpenters , but they read a tape and are work oriented.
"So all in all... when you add it all up... no matter where the mark-up comes from... the profit is about the same for one contractor VS the other."
Im sorry , I had to paste that . As Ronald Reagon said , " there ya go again".
Im going to the third post in this extravaganza. LOL.
Tim Mooney
TIMMOONEY52 - "...Theres a guy in another thread that didnt get his bid and he doesnt think its him since he has undervalued his competition. Big mistake."
Tim what thread was that you're talking about?
"Walk up and ask a journeyman plumber how much money he takes to the house every week. Do the same with hands from the other subs."
Huh? Asking a journeyman plumber "how much money he takes to the house every week" sounds like you're asking him what he's making as a wage. Are we looking at the wages these people typically make or are we looking at the typical billing rates for these trades? Those are two different things and they don't necessarily correlate at all. For instance a roofer will typically make less than a carpenter as a wage but a roofing contractor may have a higher billing rate because of the higher cost of worker compensation insurance and equipment.
"A difference in time is important but how much is it worth? Put a dollar amount on it . I find that sometimes its critical , but most times its workable."
I have no idea what you are getting at or saying there. I reread Rich from Columbus' post msg#55550.14 since I think you are referring to something he wrote there regarding time and efficiency but I don't get what you are getting at.
"Tools are not a large out lay of cost with any trade except dirt work. A lot of the toolsd used by one trade will do another . I think things like compressors and generators nearly every one uses. Same with scaffolding."
That's a gross generalization that because it gross just isn't true. My company is primarily interior architectural woodwork and we have a very large tool cost per employee and yet there are other interior finish contractors whose tool and equipment cost is minimal. Yeah excavation has a huge equipment outlay but that doesn't mean tool and equipment costs to all the other trades can be looked at one lump group with low equipment costs. I have one framer whose equipment costs are a pickup, saw compressor nail gun and some horses while I have another who has flatbeds, cranes, a lull, and tons of scaffolding too. It all depends.
"I know several men that do electrical, plumbing and hvac. No they arent carpenters , but they read a tape and are work oriented." I know several of those jack of all trades too but just what they can accomplish is more often than not limited compared to the specialists.
When Rich from Columbus says "So all in all... when you add it all up... no matter where the mark-up comes from... the profit is about the same for one contractor VS the other." I think I agree with him,... to a degree that is. But given you comment to him using the RR quote " there ya go again" I know I certainly agree more with him than you do. The Project Management firm who subs everything and the GC who subs and does some work in-house and the jack-of-all-trades who does it all in house will for the most part still come up with close to the same project price.
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"I don't want to get into what you can or cant do , but you should also not get into what someone else can or can not do ."
Well, I am glad to hear it. I bid based on what I CAN do... and the competition bids on what THEY can do. If I worry about what they are doing... or if they worry about what I am doing... we both will drive ourselves nuts.
I have a profit margin that I think is fair. I have a set amount that I expect to make on a job.... and I could care less if I get it through markups on subs... markup on materials (or more correctly... how much money I do not lose on materials)... or by my billing rate and profit addition.
The day I cannot make the $$ I expect... I move on. Learned that one the hard way with a very large business I had prior. And learned that lesson in a VERY hard way. Errors are normal and expected... but it is what you learn from those errors is the true measure of potential for success.
"Walk up and ask a journeyman plumber how much money he takes to the house every week. Do the same with hands from the other subs. "
Yea... and I am not sure what your point is. My subs make money? I want them to make money... nothing wrong with making money. It's what I do.... why should I expect any less for them? Contrary to popular belief... profit is not a dirty word.
"A difference in time is important but how much is it worth? Put a dollar amount on it . I find that sometimes its critical , but most times its workable"
The single most valuable resource I have is time. Whether it is my time at home with my wife... or the time it takes to get a job done. If I am held up on a job waiting for a worker to get a plumbing rough in... I am out $$ and time (the dreaded double hit).
My time is worth 100/hr when we are talking actual "work-time". Down time on a job is worth 500/hr... and I have a clause in each subs contract that requires any actions by them that shuts down the job to be reimbursed at that rate (such as an OSHA violation that would lead to a work-site shut-down).
Each sub has direct input n the work plan. I am very open to what they have to say... and then I hold them to what they commit to. There are no excuses... only solutions.
"Tools are not a large out lay of cost with any trade except dirt work. A lot of the tools used by one trade will do another . I think things like compressors and generators nearly every one uses. Same with scaffolding. "
Scaffolding I provide to my subs when I have already set 'em up (require them to inspect before working off of them).... and I get a price break for doing so. It is a waste to put scaffolding up for soffit, etc... and then tear it down and have a bricklayer put his up. Same with lifts when needed... same with any other co-op opportunities that make sense for all of us. When you do a detailed plan for the build... it becomes easier to value engineer it. Part of that value engineering is making each sub as efficient as possible.... thus lowering cost.
Compressors and generators... I am not following you. Yea... we all have them... and we all use them.
Tools costs are not high? I will respectfully disagree. It is a large nut that never ends. Good employees help to reduce that cost... but it still is high with even the most conscientious workers.
"My purpose here is either to help or to learn . I hope we both take from it . "
That is why I am here... to both share my experience... and to learn. Glad to hear the same is true for you.
I know several men that do electrical, plumbing and hvac. No they aren't carpenters , but they read a tape and are work oriented.
I know a few myself... and I am happy as a pig in slop when I can hire one. Unfortunately, those guys are fewer and fewer every day. It's a shame too... I remember learning the basics in high school shop... along with learning from my uncle. Now... IF there is a shop class... it is a joke.
I also know many that THINK they are an HVAC, plumber, electrician... and they can save the world in 20 seconds.... just ask them... they'll tell you! They talk a good game... but when faced with actually doing the work... they are as slow as molasses... mostly because their mouth is running too much. And their quality of work is sub-par... and has to be redone before it can pass muster. These guys last about 30 minutes on my jobsite. The reason they last 30 minutes is because it takes me 10 minutes to cut their final check!
As Ronald Reagan said , " there ya go again".
I knew Ronald Reagan. Ronald Reagan was a friend of mine. ... ohhh... wrong quote! (I really didn't know Reagan well enough for him to be called a "friend"... but had the distinct honor of being one of the hosts for a visit he did to OSU in the 84 campaign. One of the most engaging humans that I have ever met... never will forget the way that you immediately thought you were the only person in the world he cared about, while he was talking to you)
To the point of the contractors making roughly the same profit. Either they do... or they are not competition for very long. Sure... we all have a different way of getting there... but if you average the profits of well-run firms over several years... it will be amazingly close.
If someone is making more... doesn't bother me.... more power to 'em. If they make less... it actually does bother me... for when they go out... it reflects poorly on the industry as a whole.
Edited 3/16/2005 1:17 am ET by Rich from Columbus
Tim I guess your asking me for a response to your scenario too. Here goes: There's no clear cut single answer. Its a marketplace and markets are chaotic. That said....
"You bid this A job and it requires 5 different subs . All five subs are making a nice profit over labor and material cost . So there we tack on a profit on labor and materials before you get your hands on it ."
Correct or at least that should be the case. What does happen out there is there are a lot of solo operators who call themselves independent contractors who are not charging enough to earn that "nice profit over labor and material cost" that you speak of. They aren't really business people, they're really only working as independent contractors to create a job for themselves. Their rates typically start at 55% of what the "genuine subcontractor" charges. There are a lot of GC's out there that seek these guys out and exploit that naivety. In fact I think those exploitative GC's and those naive "independent contractors" may make up 50% of the market. But that's a whole other topic for discussion I think.
Assuming I using "genuine good business sense subcontractors" who have correctly marked up the labor and materials they provide I'm really not marking them up as much as you think. I mentioned in my post msg#55550.7 we have two ways we approach projects. Our preferred way is to figure out how much time it will take our people to supervise the work and work that in to the price so we might have a project that looks like this:
Sub
Sub Cost (L&M)
Our Supervision Time
Our CM Fee For That Time
Sub 1
$5600
4 hrs
$500
Sub 2
$12000
16 hrs
$2000
Sub 3
$26700
12 hrs
$1500
Sub 4
$2400
8 hrs
$1000
Sub 5
$7580
2 hrs
$250
Sub-Contracting Sub Total
$54,280
42 hrs
$5250
Our Markup for Net Profit on Subs (15%)
$8142
$54,280
Our Total Fee
$13392
Project Bid Total
$67672
Our Fee would amount to 20% of the Projects Cost (19.8). The Subcontractors 80% (80.2). There are a lot of people who will tell you that you can't possibly make it in this business on a 20% Markup but look at the numbers in this case. The project took 42 hrs of our Project Managers On Site Time billed at $125 per hour. That covered his wage and all of our company overhead associated with his time. And 15% of that 125 per hour we figure as Net Profit. That's $787.50 of Net Profit on our "labor", our time. In this case our labor was to supervise. Plus the company earned another $8142 in pure Net Profit on the work we sub contracted. So the total Net Profit earned by the company comes to $8929.50 (13%).
"Now you figgure your nut and add you 20 percent to their bill which also tacks on another 20 on material."
Our "nut" was figured in and cover for in our hourly rate. We didn't directly or literally supply the material. We supplied the subs who supplied the materials. So we're not marking up any material costs,... directly that is. We have marked them up indirectly when we marked up the subs total to us.
"BY now youre up to 50 percent markup of material and charging a heck of a price for the subs work. How else could this be ?"
No were not. And even using your math how did you get "up to 50 percent markup"? Where did your other 30% come from?
"John Goodboy bids the job also. He doesnt need any subs and can wrap up the whole job as hes got mechanical people working for him as well as concrete and brick layersthat lay block, a painter that does all his drywall, a sparky that also is a carpenter. You get the picture ."
How would his price be any less? If the subs in my chart represent those trades you just mentioned that Jon Goodboy does in house he has all those associated overhead costs the same as those subs so his cost is still the same and he still has to supervise them and that supervision has a cost attached to it too.
In fact his overhead cost are actually going to be higher than the OH costs those sub have because when he is done with the concrete all the tools and equipment for concrete then sit idle until the next time they are needed again. They are still part of the Overhead Cost but they are sitting idle maybe %80 of the time while the other trades are being performed. They are generating revenue only 20% of the time. The specialized sub's tools and equipment are being utilized and generating revenue close to 100% of the time.
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Jerald , I love ya to death buddy, but every time I read one of your posts , I say , "do what " ? But Im gonna try . <G> I mean that as a negative on me.
Your first big paragraph states what other people make and what their profits are . We dont know that . If I did a job for you , you wouldnt have a clue what I made unless you stayed there all the time . Ive paid hangers for days of work that a few times in my life time Ive seen a couple do in a day. I almost got my azz whipped one time for not showing up to pay a couple of hangers that hung a 4,000 sq ft house in 8 hours. I didnt believe them and didnt show up. Those were the fastest hangers Ive ever seen in my life and Im 52 and Father was a building contractor. Rich , that was for you too.
My last job that I did with 90 percent blockage in 5 ateries , I did with a helper. Of course no one knew if I was sick or not including me , but I did feel bad . I simply thought I was getting old and fat. I was 50lbs over weight. My price for finishing was 25 cents per foot labor,and the contractor furnished the material. I ran 5,000 dollars a week and this is the south. Super and the constuction co owner were yelling at me to get more help that I "would be" holding"up the job. I got pizzed off and ran my automatic tools up their Mexican crews azz. I caught a crew of Mexicans that were four strong journeyman , with a sick old man that had a heart attack 2 weeks later and a first time ever helper. I was stopped by their drywallers and had to go home . I called the super every thing but a white man and told him to get his crew out of my way,they were costing us money. I was that pizzed.
That super and co owner undrerestimated me and showed me disrespect. Ill bet if they live to be a 100, they will remember. I got paid my final check and they asked me to do another job. I told um both to shove it up their azz.
Dont ever make the mistake of underestimating someone else or you might find something up your butt.
how would his price be any less? If the subs in my chart represent those trades you just mentioned that Jon Goodboy does in house he has all those associated overhead costs the same as those subs so his cost is still the same and he still has to supervise them and that supervision has a cost attached to it too.
At least you asked in your assumption .
Mechanical contractors make a tremdous amount of money. I dont have a clue why they arent rich. Ive seen them spend an hour at an old ladys house and charge her 500 dollars. One charged my fatherinlaw that and he was there an hour and a half.
You think thats out of line ?
I paid a plumber to have my house roughed in [new house] . He sent a jourenyman and didnt show up till he wanted paid for the rough in. The help told me he was making 10 dollars an hour. He was there a day and a half . Hell, lets make it two days at 160 dollars . I wrote the plumber a check for 2800 smooth mouth dollars for the rough in. I did an estimate of the materials after he left and priced them at a hardware store between 3 and 350 dollars. He was paid 5600 total and I furnished the fixtures and harware. The journeyman spent 1 day on top out and another 1 1/2 days trimming out. That plumber made more per hour on that house than anyone did including me .
I know what that sub made because I was there all the time and paid all the bills, plus I figgured his expenses roughly. You cant build specs and pay the plumber more than you make per time spent.
Jerald , again , you sound like a car salesman. Youre tellin me you only mark up 10 and 10 or 20 percent . But you charge to manage me 125.00 per hour? Horse hockey! You would have a 5 minute phone call to me to figgure your job. I would do the figguring. Call you back and tell you the price . Yoo would then ok it all in 10 minutes. YOu would need to mail me the check. If Im not competent as a sub to take care of your work , you dont need to be calling me or supervising me for petes sake. Just how much do you think you know about finishing drywall or laying brick that your sub cant handle with out you? Come on Jerald get real. You only have a mark up of 20 percent but have charges that just arent there and of 125.00 per hour at that.
I get my 50 percent from I dont dress up pricing . I know subs make good money cause I are one and I make more than the GC per hour. Now if I want to dress it up and fip out numbers I could give you 20 percent pricing also, but then Im making it off labor like you do. Anyway you slice it , its bottom line and nothing else comes in for a second. How many thousand dollars can you put on your kitchen table in a year and spend it to prove you "made it "? Thats bottom line and thats the way it is , not dressing numbers to sell clients by the hour.
If john boy came to town and blew you away with his business , you might as well throw those numbers in the trash you are sporting . You might as well sit on a stump and read them cause thats what they would be worth. They have no monetary value. They are your way that you have copied to run your business and keep it in check to know your profits and try top keep your business profitable. They will not wage one step of war against Mr Goodguy.
DW has a sign on her door that puts us all humble.
The customer is the boss . He or she can fire every one of you simply by taking their business elsewhere.
Tim Mooney
Tim Mooney - "Your first big paragraph states what other people make and what their profits are . We dont know that . If I did a job for you , you wouldnt have a clue what I made unless you stayed there all the time. "
What makes you say that? ya know I ain't a dummy and I ask lots lots of questions regarding business of the people I work with and while I may not know precisely how you are really doing I sure as hell and going to know a lot about how you run your business and calculate costs. If I plan to use your company in the future I have to know those things if I am going to even roughly estimate what you are going to charge for work in the future. I reverse engineer numbers all the time and with a few key answers to some questions I can tell a lot about how my subs figure things.
Although ya know what I find I think maybe 50% of the time? Most subs maybe most contractors don't really have any system at all! I then take them, when I can, and work with them to help them develop so kind of consistent system that really works....When I can,... some people just don't want any help.
"My last job that I did .........Dont ever make the mistake of underestimating someone else or you might find something up your butt."
I'm not sure what the point you are making there is.
"Mechanical contractors make a tremdous amount of money. I dont have a clue why they arent rich. Ive seen them spend an hour at an old ladys house and charge her 500 dollars. One charged my fatherinlaw that and he was there an hour and a half."
I don't want to put word in your mouth but don't you mean "Mechanical contractors charge a tremendous amount of money" instead of "make a tremendous amout of money" because I read something just the other day I think on the Mechanical HVAC a Plumbing trade consultant Tom Grandy's site that had a statistic that showed their average net profit industry wide was in the low single figures. I make a point of reading and studying this a lot. That's probably what got me to Grandys site. I have a real good idea why they and most contractors in general aren't getting rich. It's called they still don't know their numbers and perhaps even more importantly how the numbers relate to each other!
"You think thats out of line ?"
Not necessarily. What was the $500 for? Just labor? I doubt it. But still that mechanical contractor was still probably charging over $100 per hour and probably rightly so.
"....That plumber made more per hour on that house than anyone did including me ."
And that tells you what? I started a topic over on the JLC site the other day called Why do they always seem to charge more? my theory which seemed to escape everyone there is that the Plumbing Mechanical and Electrical trades seem to have a better more mature more pragmatic understanding of their numbers than the carpentry trades and contractors in general do. They as a group seem to have better business sense. My point over there that no one seemed to understand or pick up on had to do with crunching the number to come up with a billing rate. Using a Capacity Based Markup (aka PROOF or Labor Allocated ) generates a higher billing rate than does the Traditional Total Volume Based Markup. My data may only be anecdotal but it been my observation that a lot more Plumbing Mechanical and Electrical trades use a Capacity Based Markup mythology than do carpentry and general construction contractors.
In case you hadn't picked up on one of my mantras I think using a Capacity Based Markup is a dramatically superior strategy to using a Traditional Total Volume Based Markup strategy. I think that so sincerely that when I saw the topic here the other day entitled Resources that you DON'T recommend I was going to post the book Markup & Profit because the book recommends using the Traditional Total Volume Based Markup and I think that is just naively dangerous. You must have seen me post links to my paper The Potential Problem Using Total Volume Based Markup. I can't really tell you just how stupid I think it is to use the so-called traditional markup method. The only reason I didn't post that was I didn't want to completely diss the book just for that since there is some other good stuff in it but I did think about it.
"Jerald , again , you sound like a car salesman. Youre tellin me you only mark up 10 and 10 or 20 percent . But you charge to manage me 125.00 per hour? Horse hockey! You would have a 5 minute phone call to me to figgure your job. I would do the figguring. Call you back and tell you the price . Yoo would then ok it all in 10 minutes. YOu would need to mail me the check. If Im not competent as a sub to take care of your work , you dont need to be calling me or supervising me for petes sake. Just how much do you think you know about finishing drywall or laying brick that your sub cant handle with out you? Come on Jerald get real.
Tim I'm sorry but you obviously don't know what Supervision really means. It's not sitting there and micro managing looking over the subs shoulder to make sure they are doing their trade right. It about managing the project. making sure that the subs are working together towards a common goal and not working counter to each other. You have a lot to learn about what project management really is grasshopper. But again that is a whole other topic. You'll notice in the chart I displayed that some of the trades only required an hour or two of supervision. That's the two hours it takes to show up and point out to the sheet rocked the the reveal bead needs to be mitered not butted in this area or that. Minor point but it still needs to be done. It means being there to answer the subs questions so that the stair installer doesn't drill into a beam that has a pipe right next to it. All those things are part of supervision. If you think you can just hire trades and expect things to happen perfectly you are dreaming.
The musicians in an orchestra can all play their instruments superbly but they still need a conductor to play a concerto. Is that "conductor" worth $125 per hour? Easily. Come on Tim Get Real. You of all people are smarter than that.
You only have a mark up of 20 percent but have charges that just arent there and of 125.00 per hour at that."
No! I don't have a Markup of 20 percent. I have a Margin on the project of 20%. And what charges " that just arent there" are you talking about?
"I get my 50 percent from I dont dress up pricing."
What are you talking about? What dressing up? I don't We don't dress up our numbers. We give the client the $67672 Project Bid Total. We don't tell them the mechanics of how we came up with the number. I explained the mechanic here for the benefit of the people in this forum who just don't get it yet and there are tons of them.
"If john boy came to town and blew you away with his business , you might as well throw those numbers in the trash you are sporting . You might as well sit on a stump and read them cause thats what they would be worth. They have no monetary value. They are your way that you have copied to run your business and keep it in check to know your profits and try top keep your business profitable. They will not wage one step of war against Mr Goodguy."
What the F is wrong with you? What are you talking about? Go ahead Tim send him here. Wanna bet that your Mr. Goodguy gets crushed and doesn't survive for long.
I don't know your not making any sense to me at all. I really have no idea what you are talking about. Talk some real numbers. Model out what you are talking about so we can debate it logically. Show me the numbers. Show me how Mr. Goodguy wins. Model it out like I did. Show me the numbers!
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What am I getting at ;
I know that it takes profit to stay in business and how much profit you are able to make determines your place on the food chain. You could have simply said that the profit is there to take as Mike did. Either the profit is there for the taking or you must make it which is exactly what what Im getting at . Or of course both are getting present with our help. You take the business of profit as verb to success in my mind and I take work accomplishment as my verb to subject. What you are talking about is very important but it doesnt get the work done . I think you deal in residential developement as I do. A house is worth a set amount that is given by appraisel. As someone mentions you can work backwards from that total. That represents backing out expenses to the bottom line . Whats left if there is any is profit. The people you work for want that bottom line figgure or it isnt worth their time. So then with out that bottom figgure we produce the work for what I call a net amount that is fixed. One of my greatest points to make is that we all have ceilings in what we are able to charge because all the numbers have to come under the net figgure which is fixed. To me this is reality.
For one thing I see from all the charging that you three do that your ceiling level must be high. In fact Rich sounds like hes commercial or very high level residential. We all know the ceiling level but you guys dont discuss it very much at all. From the pricing I see you guys playing with , I see some fat . Theres no doubt what you are doing is satisfying you because you seem proud of it . Im happy for you and negative was not my intent. The ceiling level is not very high where I live and to get those profits higher we must work on efficiency. Fact is the ceiling level is so low I will no longer be in that market. I have to buy used homes with problems to get that net I want, plus rentals which are the same set of problems using net factors.
So when I see the numbers and "charging", I think wow, must be nice to have the margin to place your numbers to start with and I was just thinking about back country intervention putting up full projects in house like we did here at one time . No middle men and no subs making profits was on my mind. Just another way to do business . I have also been thinking about Ubuild it . At the prices yall are charging I can see their future success. Homeowners and Lowes working together through technology to eliminate general contractors.
Tim Mooney
Ya know it's true I do work in the stratosphere of high end luxury remodeling
but I think the business sense and business principles I am talking about apply every where. I believe that so much that
I have been considering starting a new middle market company. I actually
believe there is still a lot of money to be made in the middle and low end markets.
I do agree somewhat with you however that working in an ultra high end
market (provided you can break into it with something the market wants and needs) is picking the low hanging fruit as far as earning a profit is concerned.
But good business sense and business techniques work in any market.
(And just because we are in the ultra high end luxury market doesn't mean that market isn't competitive too! They, the owner-clients, still have choices)
"So when I see the numbers and "charging", I think wow, must be nice to have the margin to place your numbers to start with and I was just thinking about back country intervention putting up full projects in house like we did here at one time ."
I actually try very hard not to talk about the numbers and instead talk about the principles whenever I can because most contractors don't want to spend the time understanding the principles, they just want a quick fix they can take that will work for them right away. I think a big mistake I might have made in my earlier post was saying the fee for Construction Management was $125. I'll bet you that 99% of the people who read that and are wondering what to charge are going to use that $125 per hour figure rather than taking the time to figure out just what their figure is really supposed to be. And you should note while the example I gave was based on a real project the numbers were intentionally fictionalized, $125 is not what we charge although it is close to the number we use.
See the danger in talking $$$ and not the principles is the $ number don't translate well across the county. In Texas $35 per hour may very well be what the billing rate for a carpenter contractor is. Here in the NY suburbs or even NY itself that $35 might be just the wage with billing rates appearing from $60 to $90 per hour. However the principles are always (or at least should be) the same everywhere and anywhere. The problem comes in when you try to explain the principles you have to plug in some numbers to show how the principles work and then the shortcutting reader then just takes and uses those numbers!
"Homeowners and Lowes working together through technology to eliminate general contractors."
There is absolutely no doubt that Lowes and Home Depot have seen that there is a lot of money to be made in the middle market and that is why they are there (and doing well) but they aren't going to eliminate the GC. They are going to change the marketplace for sure as they already have and GCs will have to adapt (learn more and/or better management) but they will still be there.
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No GCs wont be eliminated, but the move I see is going to put on serious hurt on the industries people trying to make a living off it. Walmart led the innovation of thinking and is still expanding . So far unions are non existent . The people who build products for their shelves are on low profit share. Those are the items we buy kinda like the music we hear played is the music we buy .
DW likes to leave the TV on on her side of the bed. Every morning at 3 am I awake to this guy telling me I can make millions buying real estate. If of course I send him money for the packet. This has been going on for a long time , so I figgure the marketing is working. Its harder to buy at auctions , I know that. Whether what he says is true or not , its caused a movement.
Used to home improvement show came on on Saturday morning . You remember the drill. Now we have a home improvement channel that runs 24/7.
Now theres even game shows that take prime time of either building someone a new house and tearing theirs down or a remodeling make over all while they are on vacation.
Women not only bear kids and run a mini van , but they work a job, do house work, make love [I guess] , and put on their leather gloves and leather work boots and build things out side with the husband or worse alone on weekends. Its amazing what Ive seen those women do on TV. What ever they do doesnt take any longer than an hour. When husband and wife are working , there doesnt seem to be any limits set.
Lowes holds classes every day to learn to install their products.
They say they have a "plumber" on staff to answer your questions.
Tim,If you had to figure YOUR labor rate, what would it be?>>>>"Homeowners and Lowes working together through technology to eliminate general contractors."I agree that this will become a bigger issue in the future but I don't feel threatened by HD or Lowe's. They do not, at this point, have enough systems to effectively replace a GC. Half the time they can't even get the orders right so how could they manage an intricate remodeling project?And if HD was to really develop their "installation" programs, I would bet that their price would be equal to or greater than what our peers here charge.
Jon Blakemore
"In fact Rich sounds like hes commercial or very high level residential. "
My company niche serves mid-range markets. Our specialty is taking a trac-home and providing common sense improvements that will give that trac home a custom look and feel. I also consult regularly with appraisers to know what home-improvements are giving the most increase in HO-value in given areas.
Or in other words... I take a McMansion ("mansion" in the eyes of my customers. although they may be 1800 sqft or 3000 sqft) and turn it into their own LaMansion. This comprises 65% of our work. We work in tight proximities to maximize efficiency.
Example... if we are doing a stone face on a trac home... we actively market the area for more stone facings (different designs, of course... no one wants to do the same thing as Mrs Jones when we are talking customization) within 2 miles of the first job ... thus giving my subs an incentive to crank the numbers in our favor. My stone guy loves me... he can simply move from one house to the next with no real issues other than moving his equipment. Right now, he is doing 5 homes within 8 blocks of each other.
Another example. We are doing quite a few bathroom renos in the next few weeks. I have my plumber scheduled for two days... 6 houses... all right next door to each other (or close enough). When it's time for inspections... we will do them all in one day (you should see the look on the inspector's face when we do this!).
I have taken the marketing effort and utilized it to maximized the efficiencies that you speak of. Small jobs... done in close proximity... and managed with profit and customer satisfaction working hand-in-hand... not as opposing values. Working with my customers... we schedule their jobs in a manner that cuts costs for me... thus cutting costs for them.
The other 35% of the work we do is in high-end markets. Last year we did two new-builds.. higher end... but not super-ultra high. We did reno jobs within close proximity of each of the new homes that maximized the subs time in the area (had one that was scheduled for a final electrical inspection on a certain day... so we were sure to maximize the electrician's time by having him do some small electrical (5 circuits... home runs... real simple) work a couple of blocks away on a different job we were doing. My bill for that job (the second one) was 1/2 what it would have been had I had to have the guy come out and do the same job 8 days later. That is reflected in both my profit AND my customer's bottom line... and at the same time... in my sub's bottom line.
When I entered the construction market... I did a lot of research before doing it. One major weakness in the construction industry is tunnel vision, IMO. We go out and sell a job... schedule it... and complete it... all within the shortest time frame. Sounds good... but is very narrow in vision.
What I did was take some of the efficiencies that I have learned through my prior experiences and applied them to this market. What difference does it make if a job starts on 3-15... or 3-25... as long as you communicate with the customer? What I do is take the job that starts on 3-15... move it to 3-25... and have other jobs dovetail with the original job. Maximize any possible efficiency that I can.
This is why my construction schedule is so sacred. If I have a sub not complete on schedule... I risk having three other jobs run behind. I am constantly looking at the progress of jobs and adjusting schedules (hopefully moving them up). No excuses... only solutions.
Another weakness I noticed was a lack of effective management. The owners were more interested in hammering nails than managing the job. I can understand this... it's human nature.. but it is not efficient and has huge risks for the rest of the job(s). If a framing job is running behind... it is not the job of the manager to hammer nails... it is the job of the manager to obtain the needed help to get the job back on track. Sure... I will pick up a nail gun... but if I am at the nail gun more than 1-2 hrs... I am not doing the rest of my job. And that is dangerous for the bottom line.
You said not to underestimate my competition. I don't. I actually exploit their weaknesses to my advantage... and minimize my own weaknesses. I maximize my strength (management).. and realize my shortcomings and work toward improving them... or minimizing the risks that those shortcomings bring. It's the heart of management... maximize that which persons do well... and minimize the effects of that which needs improvement.... and when a cancer appears; cut it out quickly.
Thats the type of management talk Im used to hearing . Quite different from most and refreshing . Since you are working on mid range remodels and even small jobs that done even rate as such , I can see where time management and a close watch on money is important.
I also see where the profit levels are born. You are doing work that is not highly sought after because normally as you mention one job would be costly. Those are the type of calls that contractors dont take seriously.
Then I suppose you have added marketing to that to sell the services?
Tim Mooney
Ok, since you were so nice to do an imformative post ;
Sonny used to talk about making a good income on handi man work, but he called it solutions or somthing like that.
Smaller jobs people can pay for from their checking account in full offers different profits. They dont necesarily think bottom line . If they want it and can afford it they might purchase it as you already know .Impulse buying at its best. Reqaurdless whether its value in comparison. A lot of people appreciate someone just showing up and returning calls for such small jobs.
The problem has always been in completing such jobs and creating a bottom line as you mentioned . Good for you.
Tim Mooney
My marketing is nothing more than a highly targeted flyer campaign that is generated on the 'puter at night. That... and word of mouth from the original customer (much larger success than flyers... but they work well in conjunction with each other). I get a majority of my business from the word of mouth... but the flyers generate some fill-in work.
It's not really rocket science. We have a safety/planning meeting every morning. After the safety/planning meeting... my guys go out and deliver quite a few flyers in about an hour in a targeted area. We then assemble at the existing job location(s) and get to work.
The first hour of a guy's day is completely worthless, IMO. He is thinking out his day, trying to get it all straight. Drinks a few cups of coffee... BS's with the other guys about his latest conquest(s)... yada yada.
I send the guys out in sets of two and let 'em get their exercise for the morning and loosen up (good for safety.. having a loosened up worker)... drink the coffee... BS with their buddy and think about his upcoming workday.... all while delivering a few pieces of marketing. No real big deal... and they get paid their regular rate for walking around... so why would they complain (and yes, I have had some complain... they didn't last long)?
My goal is to maximize my guys' time. And maximize my sub's. And maximize mine. And one of the biggest wastes in the "smaller job market" is the time it takes to get from one job to the next. Eliminate that travel time... maximize efficiency.
My prices are competitive, I guess. I have had no problem getting business.. so I am most likely either too cheap or on target. I start with what I want to make... and work up from there. If the job is priced too high after I work the numbers... I either move on; or find a way to make my profit and still do the job (most of the time, that involves a discussion with the homeowner.. explaining that I realize the cost is high ...but don't back off the number... and one of the ways I lower that cost is to generate more work in the area to maximize my workers' time to justify any lowering of the cost). You'd be amazed at how many people they know who need a door replaced, or a screen door put in... or whatever. Just opening that door of communication can yield unconscious results. People... by their very nature... WANT to help. You just need to give them an avenue to do so.
Impulse buying? No... not in most cases. Plus... the three day rule is very effective in eliminating the "impulse buy". I think it is more the "buying of something that I have been thinking about doing for a long time... but procrastinated". Show someone a way to "get 'er done"... and many times, they will.
It all begins with the first job. This is normally the backbone of the schedule. Then.. once the schedule is done... you need to fill in the empty spaces. that is where the targeted marketing is so effective... and opening that line of communication with the customer.
Example. Room addition. Small one. We do the schedule.. and there are a lot of holes to fill in do to sub availability, probability of inspection delays, etc. I sit down with the customer... and show them the schedule (same as any other contractor should do) We go over it in detail. I mention that I am looking for XXX number of hours in the area to keep the electrician busy enough... and low and behold... the guy next door is wanting to convert his garage into a workshop... but needs help with the heavy lifting (electrical, insulation, drywall, etc). The customer calls the guy next door as soon as we finish the schedule review... and we have another job within 30 minutes.
If you don't ask... you never know the answer (or solution).
Edited 3/16/2005 1:28 pm ET by Rich from Columbus
What's your time worth?
How much time will you spend with the client, the sub and with the task at hand.
times both together and see how you make out.
The concept of marking-up a % for subs is good if only your selling their services, but if your acting as a supervisory "agent" for the owner, your gonna hafta figure higher because of all the time and risk you'll be investing.
Mikes got it right.
I 10% the whole shelonga. Don't know that it's all according to hoyle (whoever he was) but it does bring the bottom line closer to the desired result. I would say it's worth that much just to keep it together. Handling subs isn't just a phone call. 10 barely covers the responsibility. Guys in more lucrative markets would scoff at that amount.
Remodeling Contractor just outside the Glass City.
Quittin' Time
Wow, thanks for all the quick replies. It is not as simple as making a call. I work closely with my subs, I offer them a hand, make sure they're not stepping on each others toes and keep them on schedule.
I was hoping for a simple answer, but as usual, there is much more involved. FWIW I was considering 10% but mike smith makes a good argument. I'm not just selling services here. I want to remain active on the sites, I enjoy that, but I feel that if i'm going to succeed with my goal (not being a solo gig forever) I need to figure out how to make working with subs profitable.
Exactly, and it sounds like you are getting a good start on it.
Best of luck.Remodeling Contractor just outside the Glass City.
Quittin' Time
I would either bill my clients by my well calculated hourly rate* for sub supervision based on how much time I supervision time I estimate that particular project will take. Doing it that way I then also place a 15% markup for Net Profit on the dollar sum of the sub contracted work. Please note I said that markup is for Net Profit not Gross Profit because I covered my overhead costs through my hourly rate.
If I don't want to or can't estimate the hours the supervision will take I would at least charge a minimum of the 10% plus 10% that we so often hear is the "industry standard". (That 10% plus 10% works out to 21% by the way.) The amount I actually charge when I work that way is 25% to 30% but nine times out of ten we crunch the numbers in the estimate and come up with a budget for supervision time and use that with our hourly rate.
(* How I calculate the hourly rate: The Freeware "PILAO" Capacity Based Markup Worksheet)
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Edited 3/14/2005 10:14 pm ET by Jerrald Hayes
Jerrald,
Dunno if it's my browser or your site, but these links on that page didn't work for me.
After downloading this Excel Worksheet you might also want to download and checkout the Freeware HistoricalDatabase solution and BurdenCostCalculator too.
SamT
Nah they don't work. Thanks for spotting that. I haven't moved those applications and their related pages over to the new domain yet. I 'll try and do that before I head out this morning. Thanks for spotting that. I been having all my friends help me proof read and stuff and all they ever say is "looks great" which I've since learned is really a euphemism for "I don't really have the time to look it over for you".
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Fixed,.. I think,... keep checking and let me know what you find. With this move I went from traditional HTML to a Cold Fusion served site and there are links that sometimes look for files with .HTML extensions when they should be .CFM and vice versa so there still might be some glitches in there somewhere.Thanks again for spotting that.
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J,
They work now.
SamT