This is my first year in buisness for myself. I’ve got 10 full years and 3 high school summers of on the job experiance for some one else , 5 of which I was a foreman. Now business wise I fell like a baby, lots of new things that I can’t keep up with. My biggest concern is my estimating skills and how much I’am charging. My estimates are typicaly lower than my final price which is frustrating for my customers and me. I’ve been making about 25-30 % profit for each job. Am I charging to much , should I raise my estimate’s ? If I raise my estimates will I get enough work ?
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what do you mean by profit?
is that over and above your cost of materials, salaries (including your own), and other overhead costs?
bobl Volo, non valeo
Baloney detecter
yes, that is after all expenses and wages for myself
why did you call this thread "ethics" ?
do you think you're screwing the public ?
risk = reward... 25 - 30 % profit is nice work if you can get it.... why do you want to mess up a profitable operation ?Mike Smith Rhode Island : Design / Build / Repair / Restore
Thanks for the feedback everyone. I'am in this buisness first cause I love the work and second cause it helps me feed & shelter my family. After that I just want it to be a business that my customer respect as well as my banker.
Do nothing out of selfish ambition or vain conceit. Rather, in humility value others above yourself. Each of you should look not only to your own interests, but also to the interests of others (Philippians 2 : 3,4 )
heartcarp, not sure if this is on the right track but like everyone else, I noticed the use of 'ethics' in your title. So I just want to say that doing what you love is great but there's no shame in getting paid well for it too. If you're going to do this for the long haul it has to be sustainable and that means charging for wages, overhead AND a net profit for your business. Nothing wrong with making a healthy profit, and in fact, it's required if you're going to survive: it covers both the risks you take for going out on your own and the opportunity you've created for yourself. If you don't charge for profit over your wages and overhead then what will you do when a) your tools get stolen, b) you make a mistake with a bid and it takes more time and materials that the client won't eat c) something breaks. All of these risks *will* happen, profit is what covers these losses and more than that, it's the bonus you give yourself for taking on the risk in the first place. Once again with feeling: you *must* charge for for more than just wages and overhead. Gerstel, nails this issue and also talks about needing to talk people into charging for profit; if you read him I think you'll come away thinking that he is a man with great integrity.
Mike Smith - "risk = reward... 25 - 30 % profit is nice work if you can get it.... why do you want to mess up a profitable operation ?"
I don't know Mike but I read "25 - 30 % profit" and I though of it as Gross Profit not Net and while a 25-35% Gross Profit might very well be okay he might not be generating any Net Profit at all.
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This thread reminds me of a joke.
New guy in jail. First day, in the lunchroom, he sits down at a table with his grub. All is quiet, everyone eating. Suddenly, a con at the next table over shouts out "348". There's a huge surge of laughter in the room, then it grows quiet again. Another guy, across the room yells "210!" and again there's laughter. So, the new con says to the old guy next to him, "What's with the numbers?". The old guy says "Most of us have been here so long we stopped telling jokes, we just numbered them and now we call out the numbers, it's a lot easier".
So, the new guy thinks for a minute, waits until it's quiet, and blurts out "185!". A few guys chuckle but it's mostly dead. He turns to the old guy and says, "Why didn't I get a laugh?" to which the old con says "You didn't tell it right."
Jerrald, Mike, that would be my take on it too, gross vs. net and I assume he means gross. Maybe we should have discussion # 5428, gross v. net.
"If I raise my estimates will I get enough work ? "
yes you will. more, in fact.
you can get by for a few jobs lowballing estimates, but especially if you're in any kind of word-of-mouth market, you're shooting yourself in the foot in the long run and setting yourself up for bad relationships with other tradespeople.
estimate a bit higher which will allow you to come in at a final figure at or just below estimate which will send your referral rating through the roof if you do good work. it also weeds out tire kickers. it also keeps you on good terms with your colleagues/competitors. it also keeps your stress level way down.
better to have a bit of sticker shock up front than at payday time. i wouldn't count on this happening again, but i recently had a client throw in a "bonus" on check-writing day because I was in below estimate and on schedule. no complaints from me :)
i'm also interested in what you mean by "profit". I wish I was making 30% over actual expenses.
run, don't walk, and go get this book: 'Running a Successful Construction Company' by David Gerstel. Most quality hardware stores in my area seem to have it. But here's a link to it at Amazon: http://tinyurl.com/98j5x
Another book that gets recommended a lot is 'Markup and Profit' by Stone. I didn't like it as much but YMMV
Another resource is JLC's research section. They allow you to download all the articles that they've published over the years, neatly organized and searchable. I found Gerstel to be better but JLC's stuff is more varied. Main JLC site: http://www.jlconline.com/ and their research section: http://tinyurl.com/dwvja
You'll need to pay to read some of the articles but I found it was a good value. I paid for a one year subscription ($60 I think) for unlimited downloads. Lots of good stuff, in depth articles on tools, etc. it was more than I wanted to pay but in the end I found it worthwhile and $60 is not a lot if it helps you stop underbidding.
Good luck, I'm in the same boat. I just dropped off an $18k proposal with what I thought were very generous markups and the first words out of my client's mouth were: "Oh, that's not so bad!" Damn!
Are you saying that you are giving "estimates" of final cost and then working time and materials? If so, you're definitely setting yourself up. My advice is not to work T&M, but if you do, try not to give estimates, especially not dollar amounts. If you have to, say something like "this will take a couple of days".
There have been 7,253,814 threads on this topic. A lot of people recommend working T&M and a lot recommend working fixed price. I do the latter.
heartcarp, I guess I too have a couple of questions for to help clarify things. When you write "My estimates are typicaly lower than my final price which is frustrating for my customers and me." That sounds like you could be saying that you give your clients an estimate for a project and then you bill them based on the actual time and materials you put into the job? The problem being that you tell your client something like "I estimate it'll be $1850 to install that skylight" and it then actually works out to be $1980? Is that what happens?
I think David Meiland's post that advises you to quote a Fixed Price for your projects and to forget about giving estimates then working T&M is real good advice.
"My biggest concern is my estimating skills and how much I'am charging." Your problem could lie in either one of those areas or both for than matter. In fact I have a pretty good hunch it might be in both.
"I've been making about 25-30 % profit for each job." For the purpose of any discussion regarding profit you need to define what kind of profit you're talking about. There are two kinds; Gross Profit and Net Profit. From what I read here I think you're talking about Gross Profit not about your Net.
Storme mentioned Markup & Profit: A Contractor's Guide by Stone which which I have said I think is generally a good book EXCEPT for ironically what he writes writes and suggests regarding Markup.
I think what Gerstel writes about a "Capacity Based Markup" in Chapter 5, pgs 167 through 168 of his book The Builders Guide to Running a Successful Construction Company is a simple overview of a better method.for dealing with how to price your work. For a thorough look at Markup you should read Ellen Rohr's book How Much Should I Charge?: Pricing Basics for Making Money Doing What You Love. It's a quick and even enjoyable read as she does a great job and simplifying explaining what you need to understand and know.
And just the other day I created a post here that refered to a short online Irv Chassen article on Markup that you might want to read too. Science, not art, and certainly not guessing. The article discusses the same problem I've written about in Markup: Comparing the Traditional Volume Based Markup vs. the PROOF/Indexed/Labor Allocated method.
You may also want to check out the freeware Excel spreadsheet I set up called can be found at:
Capacity Based Markup Spreadsheet
PILAO_Wksht.xls
A Microsoft Excel Spreadsheet (Windows & Macintosh)
(PILAO which is an acronym for PROOF/Indexed/Labor Allocated Overhead that I tagged it with when I was developing it)
Plug your numbers into it and see how the billing rate you get compares with what you are actually charging now. If you have any questions regarding it's use feel free to ask them here.
One last thing I think it's interesting an perhaps revealing how you decided to name this discussion topic "Ethics". I don't know should we as contractors feel bad about making money?
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Jerrald, i think you make a good point here.
One last thing I think it's interesting an perhaps revealing how you decided to name this discussion topic "Ethics". I don't know should we as contractors feel bad about making money?
Somewhere I recall reading how difficult it would be for automobile assembly line workers to actually sell the cars they build, at the prices that the automakers charge.
Those of us who have come up through the trades often run into the same problem.
One job that helped me "see the light" a few years ago, was a wheelchair ramp for an older gentleman who had a stroke. I had quoted a price, but then the inspector required some other things. When I gave the wife the total bill I was somewhat apprehensive. She happily wrote out the check, while I sort-of blubbered about the cost. She stopped me and pointed out that because of the ramp, she would now be able to take care of her husband at home, rather than him being in a nursing home.
They were paying the cost of the nursing home out of pocket, and in less than 3 months they would be money ahead. I never would have thought of it that way. In reality the cost was not that significant when compared with the savings overall.
People are spending the money for their own reasons, not the contractor's reasons.
I think a good JLC article for the original poster to read would be "A Simple System For Turning A Profit" from March of 1998. And I'll toss in a second recomendation for Ellen Rohr's books.
Bowz
If you are consistently finding yourself upside down by, say, 15% then why not just keep what you are doing, but before opening your mouth or handing over a piece of paper adjust it by that same 15%?
If there isn't consistency then I would think there is a different problem, which may in in the way you estimate some projects vs. other projects, how you handle variations in materials, and given headroom in what appears to be easy or complex jobs (the unknowns).