I have a customer who wants a pergola attached to the house, with some fencing/screening to block the neighbors view. A mini version of the same things next to the garage. An arbor entrance in the middle of the fencing area, and a couple other custom made details fitting in with the plan. Trouble is there was only a overhead view of the yard with “this here and that over here”. I’m working on a materials list and had to go over designs from pictures and books with HO to focus down the style and details. From there I made scale drawings to be able to get my list and remember how I was going to build it all later. The total for materials is getting up there and I’m wondering what the design/drawings part of the job is worth in %? I’ve spent a fair amount of time on this already and haven’t even calculated labor yet. Years ago when I started as a helper to my dad he used this old rule of thumb…. double the materials and add 10%, that should be your price. Does that even work anymore? Is there a % for design/draw? Can anyone help me here?
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the time to negotiate your design fee has already passed. I think you know that.
hopefully your client will be understanding and pay you your regular carpentry rate. if not then try to build the work into the over-all quote
above all, dont turn over any drawings until you get a contract in place. its far too easy for the client to take your drawings to another carp and not have to pay him for conceptual drawings
"build the work into the overall quote".
That's what I'm trying to ask. What is it worth? 4%...5%.. This HO has been a close friend of mine for 22yrs. He won't take it somewhere else but he may balk at how high its getting already. The wives are even closer and since I'm now on my own he presented me with this plan for the backyard.
I remember a thread awhile back where the idea was to only charge by the hour. I'm sure that included enough to pay for overhead. Being solo, this intrigues me. It is however a far cry from 1.67x. I'm not sure that would land me much. There are alot of laid off auto workersand others that would be able to undercut 1.67x.
they sure will...
that's why you never bid against them.. not unless you like working at a lossMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
So far I've not had to bid AGAINST any others and you're right, I don't want to either. Mostly I've been recommended and I try to keep the whole thing resonable. This one though, needed working drawings. I'm quite happy doing the drawings, its getting a little time consuming and then there's this thing called the moving target. While these folks are good friends, the equation won't balance at the end. I've tried adding in 4% so far. We'll see how it fits with the quote. Thanks
nail.... i hear "reasonable " and i think "expensive hobby"
i used to price my work at what i thought was "reasonable".. but at the end of the job.. it never covered costs.... i could pay my suppliers... i could pay my men... but i could never pay myself.. and a lot of times i couldn't met the withholding taxes i was s upposed to send to Uncle Sam
there is no such animal as "reasonable" ... either you are pricing to pay yourself a wage or you are pricing to take a loss
after you pay all your bills, and you pay for all your overhead, and you either save for the tools you need and the vehicle you need... and you pay your self as much, or more than you can make working for someone else...
i think you will find that you have to mark everything up in the range of 1.5 to 1.67
this is probably the hardest thing for people starting out to realize..... it costs a lot of money to run a business and deliver a quality product following all the rulesMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
I agree with the 1.67 markup. If the costs are correctly estimated and the job comes in perfect at the costs, the 1.67 markup will yield a 40% gross profit. If you split that gross profit up, it will be allocated this way: 25% of it will go to sales, 15% will be overhead and 10% will be profit.I haven't figured how a 1.5 markup will work but one of those categories will suffer. I'm sure everyone would bullrush the sales guy and not want to pay them but then....sales diminish and the lifeblood of a business is sales. So, the next category to take a hit would be profit and a 10% profit is already slim. The overhead can't be reduced unless owners's salary takes a hit. Just mark EVERYTHING up 1.67 and I'll guarantee there still won't be enough money to make anyone rich!
the design fee is the time you think it will take you to do the design...
you ask for the design fee before you start
at this point you can go back and ask for a fee to finish the design and present your proposal
in this type of work..... stoeppleworth says figure your costs... including labor and burden and use a 1.67 multiplier
don't compare favorably with 2x materials plus 10% , does it ?
"in this type of work..... stoeppleworth says figure your costs... including labor and burden and use a 1.67 multiplier"Mike I've seen you mention Walt Stoeppleworth before and the 1.67% markup.I've tried to find more about him and the way he figures markup. Is there a link to him for more info?My markups have gone from 35% above job costs to as close to 50% as I can sell the job. But I'm striving for 67%.thanks,silver
i think he affiliated with Home Tech estimating.... but he's retired now and Home Tech has neen bought by US Home Inspect
Mike Hussein Smith Rhode Island : Design / Build / Repair / Restore
http://www.hometech.com/Hometech is his home stomping grounds.Also it was from him I got this link, and take the email newsletter
http://www.markupandprofit.com/
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
HMMM
Good topic
What is fair materials X 2 =10%
case 1 need 100 board feet of x Birch for a base board.
buy rough stock at $1.00 brd foot and joint and plane + $220 Shape, sand finish install $ 500. $720.00 Did you get paid to mill the lumber?Case 2 need 100 BF of x Birch go to home centre buy for $6.00 brd ft $ 1,320,sand finish install $ 500. $1,020.00 You saved time and made 600 off mark up.
So matching materials to finished costs is flawed at best.
case 3 need 100 board feet of x Birch for a base board.
buy rough stock at $1.00 brd foot and joint and plane, but charge 12.00 a foot = to store price. get paid well and have free garden mulch. So how is the customer to know/understand the cost of goods landed on site?Charging for design and or build. Two thoughts
ask for a fee up front, Friends/relatives tough call
Think of it as figuring out how you are going to make it! pain in the rear or easy build and plan for the unexpected ie other trades not showing up, moving utilities, permits inspections, insurance Yes friends relatives sue.now I try to work for a flat hourly rate, customers buy and get product delivered to site and I get paid if the plumber doesn't show (to a point my conscious won't take it)
Paid every 2 weeks. Less grey hair.
Okay now Mike regarding:
"stoeppleworth says figure your costs... including labor and burden and use a 1.67 multiplier"
No where do Walt Stoeppelwerth ever categorically say to use a "1.67 multiplier" for a markup. What he does say (and I will first quote then paraphrase his message) is:
And now for my paraphrasing his message:
That's a pretty big range. There is almost no way that our original poster here, nailnhamr, has overhead costs that would dictate or justify a 1.67 markup multiplier and I think he knows that.
By the way I am finishing up another one of my articles that illustrates how an Estimated Total Volume Based Markup methodology like Stoeppelwerth, Michael Stone and other recommend using fails and we should instead all be using a Capacity Based Markup strategy like Gerstel, Chassen, Rohr and others recommend. I post a link to it here when I finish 'proofing' it (hah! get the iron there?) which should be sometime tomorrow or the next day.
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jerrald..... good info as always...
my goal is to help others see that first , they are trying to run a business... and it involves more than a truck, a dog, and a skill saw....
or they are in for a long, long, long struggle against overwhelming odds
if i bandy the term "1.67" markup around.... it helps to lift their sights to what is possible
i have very accurate labor burden figures for OUR operation
i'm pretty good at estimating labor hours
i know how to solicit subcontracts that deliver the quality we need
i know how to arrive at accurate material takeoffs
i've studied PROOF... and found it very informative
we use all of those things to arrive at our price
we take [( labor x burden) +matls+subs+equip] x our markup = job price
our markup is more than 1.25 and less than 1.67
we never get it right... we always make more or less than we estimated... it's the nature of never doing the same thing twice... but we cover all our overhead... we pay ourselves and our employees a good annual wage.... we work 52 weeks a year
and some years the CORPORATION makes a profit
so that's where we areMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
I first went to one of Walt's seminars back in the mid 80'sI figure using the 1.67 helped me in my bidding till I learned all the stuff I wasn't figuring into my overhead. I also hadn't learned about slippage at the time.Once I convinced myself to try, it saved me until I was able to figure out true overhead and learned more of O&PNot the best way to go about it, but I have an excuse..hadn't found the net yet
Barry E-Remodeler
good point... if you are going to err
i'd rather err with 1.67 than 1.10....
but knowing your true numbers is the best Mike Hussein Smith Rhode Island : Design / Build / Repair / Restore
yep
Barry E-Remodeler
Your Dad's method never did work except for occasionally by luck.
On a whole house, my design work often comes out to about 5-6% of the build price, but can do cheaper depending.
On a special item like this with detailed working drawings, That cost is likely to be even a higher percentage. There are several of us who believe in getting paid up front for the design and specifications portion of the work, to produce specs and cost estimate.
Welcome to the
Taunton University of Knowledge FHB Campus at Breaktime.
where ...
Excellence is its own reward!
Architectural fees for residential work varies, but 8% - 10% of construction cost is often a norm. It's why many either specialize in residential, or avoid it altogether. All the details add up.
i wish someone would post this question. I am building a _____.How much should I make per day, I live in ___, ____ USA. I have __kids, ____ex wives,____child support, ___house payment, _____car payment,_____credit card payments,____addictions.
go for it... fill in the blanks...
i'm sure someone will be glad to straighten you out
Mike Hussein Smith Rhode Island : Design / Build / Repair / Restore
I've taken plenty of drawings from architects and translated them for my former employer. I've taken napkin chicken scratchin's and built office partitions. But I've never had to come up with working drawings myself. I've been building things since I was ten, but always for the man. Finally had enough of the man pushing my life around and got out on my own. Great timing, I know but poking around in the dark isn't efficient. So I thought the BT'ers might get me in the right direction. I work alone, no xwives, no addictions, no payments of any kind, low overhead. Some day I'll be asking 1.67x, but for now I'll be working my way up to that. Thanks for the real answers, to those who gave 'em.
well, it's hard to tell how much you know about the cost of doing business....
so far you've only said two things
the old rule of thumb : matls x2 + 10 %
and
you're reluctant to charge 1.67
there's a lot of ground in between those two
do you agree about the concept of "an expensive hobby" ?
what would you list as the overhead items you should be recovering in your pricing ?Mike Hussein Smith Rhode Island : Design / Build / Repair / Restore
I'm trying to figure out how to answer your questions without feeling like I'm being taken to task. I think it has evolved past an expensive hobby and its below 1.67. There has been a lot of downtime, most of it a medical family situation, and I've had to climb on and off the horse a few times this year. I'm aware of the things that need to be recovered, but also trying to develop a reputation as reliable, economical, and high quality. If each customer and other subs understand this commitment, the network should work. I can't compete with the well oiled machines with several employees and lots of equipment, but I've been able to slip in below that to get this off the ground. Its at the bottom of the pyramid right now. You're, I'm going to guess, at the top. You've given me something to drive towards, right now I need the work.
nail.....
reliable, economical, and high quality..... which of the three does not belong ?
if you are really getting to price jobs with no one else bidding... then you are bidding against yourself.... you really have no idea wether they will pay a higher price AND STILL SING YOUR PRAISES
pull out your 1040 and look at Schedule C.... that is the MINIMUM for anyone in business to use as a checklist of OVERHEAD
and yes.... i'm taking you to task......
i wish someone had taken me to task about 10 years sooner before the lightbulb went on
i'm not denigrating you... i'm trying to let you see that this is where the money is, and the success... you have to price for a profitMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
Mostly it seems I'm bidding against whether the HO will do the job/proj or not. They had an idea that they'd like to do ___. They might have some figure they are willing to go to. Can I dangle that bait just right so they can take it. Its not shop for another price, its go/no go. And then there's always "while you're heres" and "might as wells" when its landed.
Hey nail, I'm not giving you grief either, but....DO NOT let the homeowner price the job for you...what kind of experience in estimating do THEY have? I'm guessing a lot less than even you do as a fairly new guy.Letting them price the job, so to speak, is going to be a recipe for disaster. I realize you need the work, but you HAVE to make a decent profit (real profit). What will be the point of being known as the quality guy with low prices. It becomes impossible to get profitable work from your circle of clients at anything other than wages because that's what you're now known for.If anything, start high and work your way down, the other way around is like paying the minimum on your credit cards, you'll get nowhere.Good luck.J
One of the magnifiers in this project is that 95% of the materials are cedar which are 3x treated, at least at the supplier I'd use. Some of the details normally store bought have to be crafted from cedar stock. I'm understanding the direction y'all are pointing me in and will adjust up. You are probably going to save me from kicking myself at tax time.
I Think what Mike is trying to say is that you need to know your costs. Your lumber take off is easy. How much is your licence and bond, how much is your health insurance (do employers pay insurance for good employees? Why shouldn't that be part of your overhead?) I include all my auto costs, accounting, book keeping (you do your own, pay yourself something) etc.
The point is, at the end of the day you're either going broke or making money. I'm sure you consider a "good wage" enough reimbursement. I did through two failed business until I caught one of Gerrard's lively discussions. Why should I make profit after paying myself a good wage? Because no corporation is matching my IRA deposit, I'm not going to have a pension to help, I have to create the life I want for me and my family. You mentioned your wives's were friends (maybe misread?) I hated working my 8ss off and always squeaking by and never feeling like I was successful providing for my family.
And worst of all, is finding out at the end of the year that you barely did squeak by and yet you now owe the feds, the state, the local B&O's, yadda yadda yadda.
Whether your client/friend thinks your cost is too high is almost secondary-at the end of the job will you have money in the personal account after paying all your work related bills? Will a bit be left in your company account for growing it? Or to offset some future on fore seen hit? Will a bit be put into your nest egg?
I find that most clients understand this with a little explanation. Also, the more it costs, the less they expect you to do for free. You do one thing with out charging, they just expect a lot more of the same.
It's better to work for someone else than to take work just because you want or need it regardless of the cost. At least your not creating a hole for your self. I'm digging myself out of my third, ain't fun, too set in my ways to want to work for some one else, but trying to do it right this time...lol, not that I was trying to do it wrong the others, but also never had this forum to learn from others.
Good Luck
Edited 11/9/2008 5:57 am ET by ryder
That was kind of my point. My OH is low. I'm by myself. No employees, no WC, no bond, books by me, health ins. by wife, no debt. I have seen the light, thanks to Mike, that the markup should be more than what I was comfortable with. However what might be a good wage in this area might not work in more prosperous areas of the country. The RE market was barely nicked by this last expand/contract action. It really never is here. Its always way behind. In '90 I bought the home for 77k and would struggle to get 89k. On the otherhand the cost of living is much lower than the East Coast.
Hello nailnhamr,
I late to the game in commenting on your question here but given that I both agree and disagree with some of the replies you've gotten here I'll throw in my 2¢ for the record.
"...I'm working on a materials list and had to go over designs from pictures and books with HO to focus down the style and details. From there I made scale drawings to be able to get my list and remember how I was going to build it all later. The total for materials is getting up there and I'm wondering what the design/drawings part of the job is worth in %? I've spent a fair amount of time on this already and ..."
With this I am in agreement with maverick and others like him who say "the time to negotiate your design fee has already passed" but ya live and you learn. The only thing you can do at this stage is work the time you've spent on design and planning in to your overall price for the project and hope it all works out with them accepting the whole ball of wax.
As for your question in a subsequent post:
"That's what I'm trying to ask. What is it worth? 4%...5%.. "
You have a better handle on how time you have spent or are going to spend on designing and planning this project out than any of us will. You should know or at the very least have and idea of how many more hours you've spent so far and you should I think be able to figure out how much time you still have to spend on design and planning so the formula for what that is is pretty simple. Its:
Design & Planning Fee = Planning Hours X Your Loaded Hourly Labor Rate *
(*Loaded Labor Rate)
I have a strong hunch though you don't have a properly designed loaded Labor Rate in place so I'll get to that in a little bit.
"...haven't even calculated labor yet. Years ago when I started as a helper to my dad he used this old rule of thumb.... double the materials and add 10%, that should be your price. Does that even work anymore?..."
I don't really want to insult your fathers business skills but a "double the materials and add 10%" formula has never worked and if your father did use it successfully he only did so because he was lucky. There is absolutely no solid logic or reasoning behind it at all. I did a chart a couple of years ago where I looked at costs for 115 types of typical remodeling projects and found the ratio of materials to labor costs ranged from .21:1 to 10.67: 1 so throw the idea out. You need to break the project down into tasks you can handle thinking about and estimate how many hours the specific individual tasks will take and the total those hours up multiply them by your Loaded Labor Rate and that's your price to your client for the projects labor. As for the Materials part of the bill you total up those costs and then apply a markup percentage to that sum to generate a Net Profit for you on the materials and then that's your Materials Price to your client. (I mention here now that a 1.11 markup will return you a 10% Net Profit on the Materials and that's what I often recommend as a basic/starter Net Profit target to shoot for.
"...Is there a % for design/draw? Can anyone help me here?"
Well I am a little hesitant to tell you this but in planning what we might expect from a architect or designer to charge us for design on a small project like this (under $100,000) we figure anywhere from 12% to 16% of the project price but that said as I've just said you should have a decent idea of how many hours your spent or expect to spend on design so don't use those percentages, use your own real world, real life empirical data.
As for Mike Smith saying: "stoeppleworth says figure your costs... including labor and burden and use a 1.67 multiplier" since we're friends I'll argue that with him more directly since I think how he is presenting that idea it's dangerously too simplistic. So pay I attention to that discussion as soon as I can get to it.
Okay one last thing....regarding setting your own properly designed Loaded Labor Rate I have two recommendations. Rush out and order Ellen Rohr's book How Much Should I Charge?: Pricing Basics for Making Money Doing What You Love and jump in and read it right away. It shouldn't take more than a few hours . While she never uses the phrase 'Capacity Based Markup' in plain simple language that anyone can understand she lays out and explains the mechanics of setting a price for your work using the 'Capacity Based Markup' methodology.
Step two if you have Excel or Apples Numbers go here and download the shareware workbook Capacity Based Markup Worksheet (aka The PILAO Worksheet) and fill it out with your numbers to come up with a rate. If you have trouble with it call me (my phone number is on the bottom of the web page) and I'll be glad to talk you through it.
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hah, hah, hah...<<<<As for Mike Smith saying: "stoeppleworth says figure your costs... including labor and burden and use a 1.67 multiplier" since we're friends I'll argue that with him more directly since I think how he is presenting that idea it's dangerously too simplistic. So pay I attention to that discussion as soon as I can get to it.>>>i'm a skairt to go to the next post now... before i get there... i know 1.67 is simplistic..
but it is a lot more realistic than what the average contractor thinks they shold be cargingi bet.... BET.... that if you could poll a hundred builders who had been in business more than 2 years and less than 10... and you asked them what they thought of 1.67... i bet the majority would say that it was "ripping off the customer".. that's the level of business kowledge that is out there... NOW... i'll read your posthey... old man... is this the year you finally show up at JLC-Live in Providence ?Mike Hussein Smith Rhode Island : Design / Build / Repair / Restore
Thanks for the help and resources. Ellen's book was the first book I read. It skairt the #### mushrooms outta me in the first weeks of being on my own. Now that its a few months out it makes more sense. Materials have been marked up all along at 1.1 or more. And without realizing it, been using a market based labor markup. I'll try plugging into that formula to see what it comes out to. It might not be enough and might have to grow into it. BT was the first place I came to (stumbled upon) and turns out it is very reliable. Someday I'll have enough under the belt to be able to mentor others along.
I've been a little busy of late, but as a pergola builder it has more to do with the complexity of the task.
When it comes to the design we sell stock plans for 20$ and can usually quote off the top of our heads for altered sizes... or within minutes with a calculator.
4 post basic pt pergola can be $2500 though we don't do many of those.
Clad post Cedar Pergolas can run upwards of $35k
Materials to price ratios can range from 1:2.5 all the say up to 1:5
Labour has to be closely measured.
Hey... why are you charging your buddy to do design work? Use it as an excuse to practice!
LGardenStructure.com~Build for the Art of it! Decks Blog
I did enjoy the drawing part. Haven't used some of the gadgets since college. He started by requesting all red cedar. After I gave him a price he balked, switched to treated, and wants to scale the project way back. His dreams were way bigger than his wallet. It was fun, but Iam not a "professional" draftsperson. We will be using some of the sketches and now that there is snow the whole thing will push into spring. I will not be turning over all the drawings, as advised.