Need some advice on the mechanics/methods of charging for overhead & profit & such. Up to now all my jobs have been fixed price lump sum bids, with everything rolled in. I have broken out the cost of a couple of items, and frequently break the bid up into sections, but the actual cost has always been buried. Now I’m faced with a different (for me) type of project. Client is a well-to-do HO having their second place renovated, and she is happily visiting different showrooms selecting stuff and getting prices. Let me interject that I get the feeling that they fully intend for me to make a buck, and they don’t expect me to work for free. So, for example, when she goes to the hardwood floor store and finds what she likes and the sales guy says it’s $15/sf installed by their crew, what’s next? Except for the appliances and furniture, I imagine that I will be buying all the material and subs. So do I go back to the floor place and tell them that I heard the price he quoted, now what’s my price? Or do I show that number on the flooring line, and show some % at the bottom for my fee, or what works best? And how ndo you word it when you present the proposal to the HO and there’s a nice markup at the bottom?
Do it right, or do it twice.
Replies
I don't think you need to place all your cards on the table for the customer to pick and choose the ones they like. Your bottom line is not their business.
Nothing wrong with negotiating a discount or contractors price with a supplier and the retail price you know will give you a head start on pricing. If flooring is not your forte then you should sub it out for speed and liability. Unexperienced, you could lose much of your profit due to mistakes. Also, if you are taking the time to purchase her selections then by all means you have an expense to charge. Not only the time involved but a percentage for the overhead and profit of the job. Otherwise the customer would not need you. A little shopping around could also get you a better price for the same material from another supplier.
The customer may know the price of certain portions of the job and you may feel comfortable to include those prices as an allowance item but as I said above, your job costs are not limited to those items she has shopped and you must include them in your total price. It's SOP (according to many contractors) to mark up subs and material costs. You ARE coordinating the whole shebang so BE COMPENSATED and do what you're comfortable with - give a lump sum - with the allowance items she has chosen
Ok Ralph, so I give a proposal that says total project cost $50k which includes the oak floor from ABC and the cabinets you selected from XYZ and all other costs to complete the project?
Do it right, or do it twice.
That's the general idea.
I was also wondering about this in relation to how the company I work for breaks it down; we have two 'ways' of recovering OH and profit:
the estimate is broken up into sections with lump sum prices for each phase; the "labor rate" is given, but of course this labor rate includes a substantial amount of OH...
then the whole estimate is 'marked up' with a percent for 'OH & P'. I don't know the exact numbers but looking at our labor rate, it seems like this 'OH & P' really is a pure profit markup.
if the client chooses the subs shouldn't there be some kind of disclaimer about the GC not being fully responsible for installation/warranty/etc.?
best, GO
Sounds like they are asking you to do Construction Management, vs GC. ALL my customers shop. I explore a "to the trade" price if I know the limits of the shopping, but if I don't I go another route. All that shopping and negotiating could make you nuts, especially if you have long-term relationships with subs and the products they use. Sometimes if I feel strongly that they have headded in the wrong direction, I tell them that directly. For example if they are leaning toward a sub who has a bad rep, or a product that I think won't hold up, and I tell them that I will only be responsible for co-ordinating the selection into the scope of the work. They seldom go that route after I say that. Seems they want to shop, but don't want the responsibility of purchase! Alternatively I explain the difference between my CM vs GC contracts, and tell them they could save themselves some money with CM IF everything goes right... but if it goes wrong, it all could cost them more. Usually that works. I just always try to be really clear about how much I'm making, and how much others make and materials cost. I pass along all invoices to the client as a NET cost and my money comes straight to me. This way the client has no way to complain about double dipping - which in my neck of the woods is a HUGE no-no, and will cost you referrals in the end. My business is 95% referrals, so I have no desire to go there!
if I know the limits of the shopping Don't understand "limits". In this case, she is not looking at subs per se, but picking out the floor and wall tile, the special wood for the floor, cabinets etc, and I have to assume it would be impractical for me to go to another outlet and try to find the same products. San Antonio is a big-small town, with not a lot of up scale outlets, so I suspedct that there's only one place in town that carries a given brand of cabinet or whatever. I'll probably go back to the outlets after she makes her selections and work on a trade discount...wonder if I can trade my mother-in-law...?Do it right, or do it twice.
"limits" maybe read "extent"?
I see - if you suspect you know where she is going you might try calling before she gets there ( too late, huh?) and working with one salesperson, and then trying to get her to work with YOUR salesperson. That way you could lock in your profit in her price. I am on the east coast - I guess what's customary in one part of the country may not be in another. We have a lot of sources for things with competing products - my clients usually ask "who do you know at ABC flooring..." before they start.
Good luck with your project - sounds like it might be a nice house to build if you can work out this kink before you start.
trying to get her to work with YOUR salesperson. Not really...the places she shops are too expensive for my projects, so I don't have any contacts at 'her' places. So I'll go back after the fact...actually I need to work with the salesperson on details anyway, minor stuff like dimensions, you know, make sure it will fit in the room...hey, it looks good, it has to fit...
It's a remodel so we have to work within the shell of the house. It's going to be fun...I hope; and profitable...I hope even more!
Do it right, or do it twice.
Edited 6/17/2003 3:28:32 PM ET by ELCID72
Sorry that I got into this a little late, but for the record, this is what I do.
I have contracts that are fixed price and I have a number of customers that prefer a cost plus arrangement. If it is cost plus, I have them sign a contract that lays everything out up front - the rate for labour ($42.50 per hour each man), materials and sub-contract at cost, but with a 10% overhead and profit calculated on the material and subs.
Seems to work fine and everyone knows where they stand.
(I still prefer to work on a fixed price basis though)