Howdy, I am starting my own remodel business, starting small, hoping to grow slowly. I have heard in the past that marking up materials is standard practice. Is this true and if so what is acceptable? What is the reasoning behind the markup? I want to remain competitive and honest whilst also supporting my family.
Also, any suggestions on “to collect or not to collect” deposits or down payments for materials? I have a lady that insists it is her policy not to pay anything up front because she was burned in the past but she is good for the payment at completion of work. I want her business but I don’t want to be stuck with a $600.00 door slab if something happens.
Thank you all in advance for your wisdom and insight.
Edited 8/4/2008 8:42 am ET by gunterremodeling
Replies
Everything gets marked up. The reasoning? You are a business - and you plan to stay in business. Unless your customers will pay your bills for you, you mark up, and pay the bills yourself.
The answer to the second question is Progress Payments - keep them in line with the percentage of completion, i.e., 25% complete, 25% paid, 50% complete, collect the next 25%, etc. They are allowed to keep 10% retention for a brief period after completion. Charge interest for late payment (put it in the contract - not likely you'll ever use it).
CaliforniaRemodelingContractor.com
gunter-
I see you are new to the forum- welcome to BT. There is a huge amount of information here from a diverse and knowledgeable group of people.
May I suggest that you use the advanced search function in the upper left hand corner of your screen and type in the words, "capacity based markup" This will lead you to several threads regarding the topic of markup.
Happy reading!
My $.02-
Starting out, it is tempting to worry about remaining "competitive" with the other guys, but this line of thinking will get you into trouble really fast. Forget about what all the other guys charge. Find out what it will cost for you to be in business and make a profit and then charge accordingly.
If you are really going to run a business, it must be based on the cold hard facts about your costs to be in business, not based on the fact that Charlie the carpenter will do the job for $xx less than you can.
As for your customer that won't pay anything up front, Ask yourself how are you going to handle the risk that you will get stuck with that $600 door slab? If you can't afford or don't want that risk, you need to find a way to assign that risk to the buyer (ie- deposit to cover that cost). Use a written contract to outline what you will be providing and how much those services cost. Explain that the door slab is unique to their project and cannot be returned and therefore you need to have a deposit to cover the cost of that material.
If they still refuse to pay anything, it indicates a lack of trust and the rest of the business relationship is not going to go well.
I would think worse than getting stuck with the $600 door slab, would be installing it then having the client find some little imprefection and refuse to pay.
Family.....They're always there when they need you.
Marking up materials is necessary because someone has to do the shopping, selecting, ordering, pickup, delivery, storing, and protecting of the materials. That same someone is also responsible for dealing with defective materials, incomplete or incorrect orders, etc, etc.
If this is you, your markup has to at least include your time to do these things. When/If the customer insists on buying their own materials, I make sure that the contract includes an hourly charge for any delays, or other problems, relating to the materials.
For me, deposits are a necessity (unless it's a small job for a good customer) and I won't begin work without one. I structure my contracts on either a weekly or bi-weekly payment schedule with the deposit and payments covering my expected costs for the next time period. Final payment is due upon job completion and "completion" includes clearing customer punchlists.
Customers who were "burned by someone else" get my sympathy and an explanation that I don't burn customers. I'm also not a bank and can't afford to finance their project. If they still refuse to make a deposit, I wish them well and move on.
"starting small"..."hoping to grow slowly"..."I want to remain competitive".
Those are scary words.
We are currently marking everything up 67% and I don't think it's enough.
Bob's next test date: 12/10/07
Reasoning is primarily profit, but also to cover risk.
If there is a 50/50 chance that you will not get paid for a custom door slab across the broad spectrum of customers ( extreme case for making an example) then you need 100% markup just to cover the risk, or a deposit showing good faith committment on the part of the customer.
Other risks are weather on roofing, possibility of product failure that requires your attention after the sale - more common on 2windows and appliances, IMO.
Or with cabinets the risk that one will get scratched and need a new door, or will come in late and throw off schedule ( efficiency of labor) on countertops...
different jobs and different products have different risks so varying degree of risk markup. Some customer you recognize right up fronmt are going to be a problem, wasting gads of time, so you add a large PITA factor markup because when they are taking your time away from other money making jobs, you are losing money on them....
Markup also helps cover your overhead. Insurance and truck/tools that you use to install that door...
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Taunton University of Knowledge FHB Campus at Breaktime.
where ...
Excellence is its own reward!
As for this particular customer, use your instincts. some things you just have to learn driving by the seat of your pants.
Welcome to the
Taunton University of Knowledge FHB Campus at Breaktime.
where ...
Excellence is its own reward!
We mark up materials and subs 25-33%. You need to mark up the materials for a variety of reasons, you'll be short on your estimate at times and the mark up help protects you, that's the least of it. On top of that you are in business and your business needs to make a profit to grow and substain itself. Part of that comes from the materials you sell the customer. Name one other business besides government contracts where material is not marked up at the point of sale? You also warranty your work too right? Do you want to warranty something you made no money on?
As for a down-payment, absolutely. The most important part of running your business is cash-flow. You are not a bank and should not be expected to finance your customers projects for them. If that lady does not want to make a down-payment wish her luck and move on. You're state laws may dictate what you can ask for as a down-payment. Our state does not regulate it.
We at a minimumn get 10% down on large projects and it's usually in the 25-33% range. Real small projects are 50% down 50% complete.
So a 55,000.00 basement or kitchen will have five payments.
12,500.00 At contract signing, At start of work, Prior to sheetrock install, Substantial Completion, and then $5000.00 at final completion.
Make your progress payments due "Prior to the Start of ......." Rather then "Completion of ....."
We shoot for being ahead of the customer in money at all parts of the project so we lessen our exposure.
Even a very small handyman T&M job that is going to be around 500, I'll get half of it down.
Protect your cash flow at all costs.
Yes I am new to the forum. I have enjoyed and learned from the many topics discussed. Every response has been very helpful. One of the many things I am excited about as far as starting a business is learning by experience the things that will make me a better business owner. I look forward to seeking out your advice in the future.
You might check your state laws on sales tax too. In NC labor/service is not sales taxable while markup on materials is. Unless you have a tax number you will pay the appropriate sales tax at your supplier. If you are big enough you should have a tax # anyway. In my case I do materials at cost and charge all time associated with selection/pickup/etc.For those who have fought for it Freedom has a flavor the protected will never know.
Better to learn those things from someone elses experience, it's cheaper that way.
You didn't ask, but I'll throw this in..........
The paperwork can make you or break you.
A shoebox full of receipts is not bookkeeping.
Taxes require accurate records.
If you don't know what the job cost you, you can't know if you're making money or not.
Making a living is not the goal of being in business, you have to plan for the day you stop working.
Just cuz there's money in the bank doesn't mean you can buy toys.
Joe H
For a small contractor, all direct costs (your labor rate included) are billed at 167%. Even figure non T&M jobs that way. ESPECIALLY those.
Really.
http://www.remodeling.hw.net/industry-news.asp?sectionID=295&articleID=63792
Otherwise it's gonna' be tough.
I did that for almost a decade, and it works.
Forrest
I always get a deposit. Its the only way to get locked in my schedule.
I also NEVER PAY FOR PARTS myself. NEVER, NEVER, NEVER!!!
I got burned once and only once on that.
I tell my clients that I keep a running spread sheet and when your money runs out, I need more or work stops.
If I lose on labor, thats partially my fault for misjudging a client but I wont buy their kitchen for them and get screwed.
If its a small job (under $500) I may forgo the deposit rule but only for that.
If her policy is no deposit, wish her well and walk away.
You are licensed and insured arent you? If so, you can give her your lic info and that should allay her concerns. If that still isnt enough, forget her.
Family.....They're always there when they need you.
keep it simple then make her buy the material why get stuck for both
If the cust is unwilling to give a deposit, then walk away. If you are willing to take a chance then take the chance with the labor only. The cust wants the door, right? Then tell them to buy it, approve of it's condition, transport it, and finish it. You do the install for X to be paid upon completion.
"It is what it is."
I explain the reasoning behind mark-up to my new clients, unless they have a business background many people simply don't understand it until you educate them. I also explain to my clients that I stopped working for "just a paycheck" when I started my own business, I now work for a profit as any viable business should. And if they want me around to provide warranty service or to tackle other projects for them in the future then I need to be profitable.
I always include a copy of my Certificate of Insurance and contractor license with my proposal. I bet 99% of the "other guys" in my area don't do it, it immediately sets me apart - especially from the rusty truck brigade who couldn't produce these documents if the job depended on it.
-Norm
Does it strike anyone as strange that lawyers typically work on a retainer system, whereby they will not front you 5 minutes of their time without first having your money in their account?
Why should we be any different?
If your client is that insistent on having you finance their project, why not ask them to fill out a credit application and authorize you to do a credit check on them?
When a prospective client talks about how they've been burned in the past, this is a red flag for me. At a minimum I would want them to elaborate on their past experiences and concerns.
Trust has to be a 2 way street. If I don't feel that the trust is there, then that client and I are not a good fit, and it's not worth the risk. Period. I'll politely decline the job.
I understand that there are a lot of people, esp elderly ladies, who have made deposits in the past and been burnt. There are volumns of articles in newpapers and magazines telling them NOT to give a deposit, or to limit the size to no more than 10% of the job.for me personally, It is too much work to track a deposit on such a small job as a door replacement.But here is how I would present to this customer"I can understand your concerns madam. There are a lot of shysters in this business. I am trying to earn a good reputation though and I do have some references of other customers you could call. I do find it necessary to have a deposit before I can begin though, because once I acquire the door, I have made an investment in your home here. Perhaps we can split this bill up so that you pay for the door and other materials when i show up with it, and then pay for the installation work when I finish the job to your satisfaction. You can't get burned again that way, now can you?"The probelm is getting that reputation in the first place.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
I'm with you trimguy. I'm not fronting a penny for anybody. If they want me to special order something, they are fronting the money. If they back out of the deal because a tree falls on them, I'll deliver their special order and release them from their contract. If they can't front that penny, I don't want them for a client anyways. If it's more than a penny, then we are talking serious money so they better get their finances in line to do the job...the first money is the money to sign the contract...and the special order items. Bob's next test date: 12/10/07
I want to remain competitive
Another way to look at this idea: Statistically 90% of fresh construction businesses fail by year #5. Why the heck would you want to remain competitive with that???
I can recall a company that lasted around here for about 2 years. their name? "Competitive Construction"
Bowz
Good point Bowz. If he's going to remain competitive, that means he'll have to survive. If he's going to survive, he better start thinking about how the survivors do it. Bob's next test date: 12/10/07
"Competitive" meaning his pricing will be about low middle. So he will compete with low end, middle, and some high end all at once. Then complain about all the competition. BTDT!!!!
But here is one to inspire: I am finishing up a bathroom where the HO was going to have (Big Box Store) do the tile work. At the second meeting I explained how I would like a contact number for a person at the store so I could co-ordinate with them, as they may do things a little different from me. She asked if I could do the work, and my reply was: "Yes I can, but I will be a lot more than their price. However the person standing before you is the same one who will do the work, and I show up on time, and I show up sober."
She stared at me for a few seconds, then said, "Why don't you just count on doing it all."
Bowz
I like that, good thinking. Well said.
Statistically 90% of fresh construction businesses fail by year #5. Why the heck would you want to remain competitive with that???
Wow, what a profound statement. That should be engraved on a silver platter and hung on the wall of fame!View Image “Good work costs much more than poor imitation or factory product†– Charles GreeneCaliforniaRemodelingContractor.com
Huck,
I don't know about profound, just kind-of pointing out that learning the right way of doing things is a lot easier if you haven't crippled yourself by having to unlearn the wrong ways first!!! (Got that T-shirt too)
Bowz
Bowz-- you are right on the moneyfirst thing i thought when i read the O.P.'s post is WHY on earth would you want to be competitive ????-- that's letting guys who don't know their OWN numbers set YOUR numbersadditionally--- the O.p's customer has a policy----to bad for her-- because her policy is irelevant to the new business owner----HIS policy is the important one---and HIS policy should be to require the appropriate deposit.
stephen
While I agree with everyone's posts on taking deposits and marking up materials and labor to reflect the true costs and profit, I can see why a new business needs to be competitive. At the outset a new business needs work and the experience that comes along with it. It is paramount that the work be of high quality and that the service be excellent even if that comes at a cost to profits.
As you have a reputation established and you have some backlog, then you raise your prices. Is there anyone here who didn't do this at first? It took painful lessons to learn the business but those lessons are part of the experience that made for a successful business.
One lesson that I have learned that might benefit the OP is that the first check is the easiest one to get. If you have a hard time getting a deposit, you may never see the final check, at least in the full amount.
"At the outset a new business needs work and the experience that comes along with it."I would state it differently. I would say "at the outset, a new business needs to be properly capitalized so that it will be able to survive the inevitable slow sales period that will occur as it starts it's advertising campaign and fills it's pipeline with leads, proposals and closed sales". The experience (I'm assuming that you are talking about the construction experience) is a given. Without the experience, there should be no business started. Once the shingle is hung, it has a much more likihood of surviving if it prices all it's products and services correctly to execute the business plan. I don't think anyone would suggest that the business plan should include pricing services and products at a loss. Bob's next test date: 12/10/07
I think that what he is getting at and what could be the issue in this case, is that since I have been doing this work here with great rep for near twenty years, nobody would have a problem with giving me a deposit ona job. There is no reason to fear I would run off to the liquor store or to Mexico with the money and fail to perform.but a brand new guy in the business has no track record to point to. He may be doing business out of the PU truck. The customer may not knowhim well, so he is just a facce in the crowd. She has no way of knowing that he will be responsible.So he has three choices. He can work to gain her trust
or
He can work on her terms with no deposite
or
Hew can walk away
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
I understand the dilema. Remember, I landed here in MI with no referrals, no network of trades and no reputation. Essentially, I'm a nobody. But...business is business and if you go about the business in the right way, you create your reputation and sell like you know what you are doing. It doesn't happen fast and I wasn't hesitant to list my first Austin client as a referral...a $250 framing furr down. Perception is reality and if a professionally looking salesperson shows up for an appointment and conducts themselves in a professional manner, and gets back promptly with a professional proposal, that is detailed and meets the demands of the client, then the chances for a successive sale skyrocket....even if it is priced properly.The key to the sale isn't price. We all know that. It's everything else. Quality clients don't choose their GC becasue of bottom feeder pricing. In fact, they often REJECT those bids because they've been trained to think "if it looks too good to be true..." That is what they see when a remodelor shows up, tells them how good they are, then offers pricing below par. Bob's next test date: 12/10/07
The experience that I am talking about is business experience. There are plenty of young guys around that have good construction experience and can handle (or at least learn quickly) most construction problems.
Few of these guys are going to be able to sell themselves or their product with the confidence that you or any of the other contractors with 20+ years of business experience have. I am not saying that this isn't something that they should strive for. It is, and they can learn a lot by reading the business posts.
What I am saying is that when you are starting out, you may need to be a little more flexible in your prices and in your business conditions. What you should not compromise on is your integrity. This will be the basis of your reputation and any lapses will continue to haunt you.
I understand exactly what you are saying. But I don't retract anything I say. The new guy on the block can act like a new guy or act like he's been there done that. The potential clients don't really know. Most don't check. Most don't look at past work. Most don't call references. Most buy or reject because of many different reasons. Price objections sometimes cannot be overcome. Other times, it doesn't matter. Sales is always a numbers game. You win some, lose some and sometimes you don't even play. The biggest mistake a new guy can make is to let his inexperience steer his pricing. Instead of selling, he gives it away. My suggestion: if you aren't a professional salesperson, hire one. Then, price things right, put on a professional show and your closings will reflect that. Some people will check your references and figure out that you are a new guy in business but even then, it's not a deal breaker. When I first started, I didn't hesitate to tell the clients that I had worked for another man for 7 years running his jobs. My jobsite experience was what they were paying for, not my business acumen. Bob's next test date: 12/10/07
What I am saying is that when you are starting out, you may need to be a little more flexible in your prices and in your business conditions.
Your point is perhaps valid for someone who understands this and is making a business decision with a business mindset.
Unfortunately when I started I did the same thing, only my decisions were made from a blue collar employee mindset. And that is where it stayed. Draining my savings, and opportunities. I was lucky, in that I had a few people watching out for me, and fed me enough work to keep going, until I started to get a grip on it.
My comments to the original poster were meant to get him to step back and take a larger view as to what he is doing, and why he is doing it. One bad decision starting out may not be fatal, but a flawed decision making process is.
Bowz
Ya know schelling--- i am pretty sure 20 years ago I started out way under pricing guys who were in the position i am in today but even then-- i knew if i couldn't get 50% up front------ i had little hope of getting 100% upon completion.
up front i have juice---after the fact and upon completion i have ZERO juice funny how things turn full circle,
stephen
Do you supply a material's lien waiver with the deposit?
.
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
I've only been asked for waivers once so far this year. I collect them from everyone, so if needed, I'll produce them. Bob's next test date: 12/10/07
bill---going on 21 years---it's never come upso--NO I do not.
stephen
Years ago, on anohter forum, a poster was complaining about California lien laws which he was saying favored contractors. BTW, all of the contractors that I have seen post claim the oposite.Anyway it turns out that he had his roof replaced. And the payment was made out jointing to the roofer and tthe supplier. Since CA only allow for a min downpayment this was propably the final payment. But that could have been violated also.I don't know why that was done.But the roofer was behind in payments to the supply house. So the supply house applied to payment to the oldest balances. And put a lien on his house. When they recieved enough payment to reach his then the released the lien.But if he had complained to the authorities that supply house would have been in deep trouble..
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Bill,
1)i am not in california
2) I am not really following the gist of this
3) ordinarily, my customers wouldn't have the slightest idea who my supplier is on any given projecti DO know that in 20 plus years no one has asked for a lien waiver--even in the rare cases that banks have been involved.stephen
For the last twenty years, my clients have been builders, who have to have waivers for every phase of the house. So, I've always signed waivers as I got paid. There were some builders who were lax about collecting these waivers but they did pay me. My guess is that they forged them when they realized that they didn't collect them. The forgery will remain untested because since I've been paid, I'll never have a reason to file a lien. Bob's next test date: 12/10/07
Quote of the day: "...can't be done, it will take too long, not enough pipeline capacity, yada yada but yet they don't apply the same skepticism to their own "solutions" such as wind and biofuels"
"n 20 plus years no one has asked for a lien waiver";)The only time I was ever asked for that was a builder who ended up not paying all his subs and materials bills and folded up.
I had advance warning and instincts and bailed ahead of the curve with all my money.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
We like our final payment to be 5% or less. Sometimes, it's $500. I've got one situation now where they owe 10% and they are giving me trouble. That one slipped by me. Never again. The easiest time to negotiate the payment schedule is before the contract is signed. At that time, they are sold and anxious to get on the schedule and get it done. There will never be a better opportunity to protect the work we are going to do. Bob's next test date: 12/10/07
blue,-our average project is 2-3 days--so it's tough to schedule in more payments to that time line than 50% deposit/balance upon completion.If we did many longer projects----- i would certainley have a different pay schedule.
stephen
LOL, when I was roofing, I requiored for a long time, a 50% deposit just to get in line on the schedule, then balance on completion. I had one guy who signed the proposal, and wrote me the check, then a week later, his lawyer sent me a letter informing me that it was illegal in that state to require a deposit that large ( I forget now what the limit was - in CA it is now 10% I hear) and demanding some sort of adjustment.So I wrote that 'customer' a letter back, sidestepping his legal beagle saying that it has come to my attention....making this contract void in the eyes of the state...returning your deposit...have a good life!"After that I adjusted my terms so the max allowed was the deposit upon acceptance of the proposal, then another 'progress payment' when we delivered the materials, and a final upon completion.All that did was make book-keeping a bigger pita and the total of the two payments was larger than my previous 50%as to arguing up front payments - the only customer I can recal having real trouble with on final did argue the up front money also.I don't always do this stuff by the book tho - I still think instinct is a good guide for me
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
On a 2 day job the pay schedule would look like this: 5% deposit to get on schedule
90% deposit upon commencement
5% upon substantial completion Bob's next test date: 12/10/07
Good luck getting signatures for that schedule!
We always do. If there is a squawk, we do this:5% down
45% when materials are dropped
45% when work commences
5% upon successful completion.We only leave 5% at risk. If they don't trust us, we don't trust them. I just went through a negotiation with a lawyer who didn't like our pay schedule. I offered to break it into as many parts as necessary to make BOTH of us comfortable. So, if need be, I'd break the 2 day payment into ten payment anniverseries if necessary. I won't leave 50% on the table and do the work. When they decide not to pay, I lose no matter what I have written in the schedule. I'll risk 5% and no more.
Bob's next test date: 12/10/07
I could not find the quote I was looking for in the previous threads, but I just thought of this one for my business that I have had a hard time figuring HOW to charge for overhead:Overhead $18k per year
=to $1500 per month
=to $50 per dayI am thinking I will determine labor, materials, and $50 per day for everyday I am on the job. That does not include profit....but that is another story.
Be careful. You have to allocate those overhead demands to actual work days, not days in the calender. If you think you are going to work 300 days, you probably will work 250. YOu would need to get 72 per working day. I'd be more realistic unless you already have a track record and know you will have 250 billable days. Bob's next test date: 12/10/07
Quote of the day: "...can't be done, it will take too long, not enough pipeline capacity, yada yada but yet they don't apply the same skepticism to their own "solutions" such as wind and biofuels"
I see....good point.I have never thought of how many days I have actually worked in a year-maybe I should start! Then, as you said I can have a better idea how to divide my yearly overhead into days worked~In this case I would determine labor and material, add 10% on subs, labor and material and then add on what I think I should make for profit on each job. What do you think?
That sounds too simple and too low to me. I'm probably not the right guy to ask that. I get brain block when I try to analyze stuff like that. Bob's next test date: 12/10/07
Quote of the day: "...can't be done, it will take too long, not enough pipeline capacity, yada yada but yet they don't apply the same skepticism to their own "solutions" such as wind and biofuels"
bo jes... start like this
50 weeks times 5 days = 250
then subtract about 10 holidays
240
then figure down time ( weather... no work ... etc... )
say another 10 days
230
then there are days when you are paying for 8 ... but only gettin 5 hours billable
anyways... i use 200 days to allocate overhead & profit
also i should be marking everything up about 67%... but i only use 50% ( 30 ovhed & 20 profit )
on T&M i use $50/hr/man + (subs, equip & matl x 25% )
insurance companies will accept 25% ( some only 20% ) so it is an easy standard
anyways ... your makrups will not sustain your business
with this hyper-inflation we have recently experienced, i am going to have to adjust my pricing upwardMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
I like that way of thinking...easy to process and explain if I must. I need to get to work but would like to ask more questions if I may...Thanks~
Mike
bo jes... start like this
50 weeks times 5 days = 250
then subtract about 10 holidays
240
then figure down time ( weather... no work ... etc... )
say another 10 days
230
then there are days when you are paying for 8 ... but only gettin 5 hours billable
anyways... i use 200 days to allocate overhead & profit
Good Post Mike. Helps to keep things in perspective.
Rich
walter....... on a two day job ... i could get that payment schedule in a NY minute..... 9 times out of ten...
but i don't ...... it's usually similar to piffens.... 10% to get on the schedule
60% with the permit in hand and commencement
and balance on SUBSTANTIAL completion
btw... substantial completion is a legal termMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
Statistically 90% of fresh construction businesses fail by year #5
Well Put!
In other words, make it happen with salesmanship and try to keep your price in the top 10% or perish with the huddled masses.
Winging it just won't make it happen in this economy.
LGardenStructure.com~Build for the Art of it! Decks Blog
Never let yourself get beat for labor and material, labor maybe, material NEVER.
What you need to do is to refine your business model. Mark-up and deposits are integral to the way you wish to operate.
There actually is very little out there as "standard practice." A lot depends on the market you serve, and the services you provide. Deposits, etc., are also often addressed by specific laws.
A major part of business is risk ... specifically, how you will handle it. Taking a deposit is but one means of reducing your risk.
Likewise, how you handle your billings is another part of the business plan. There is a lot to be said for 'flat rate' quotes and invoices ... ie: no breakdown, at all, of parts, labor, etc. Here;s the job, I did it, now pay ... that's all an invoice need say.
Nor is pricing a job strictly about parts and labor. Remember, you WILL have some warranty call-backs - if nothing else, to ascertain that the problem isn't your doing - and that time can't be directly billed.
Mark up materials.
You will make ordering mistakes and eat doors/windows/etc. so you gotta cover for that.
You will have cull material that you throw out, scraps of material that you throw out, etc.
It is a business.
Figure out Materials+Labor. Then add overhead (cell phone, truck, tools, etc), then markup for a fair profit. Markup of the job might vary from job to job.
Notice that you are marking up your labor. Why? Someone gets paid to do the job and the company needs to make money. Just cause you are not General Motors, you still are a business that needs to profit. Set the profits aside (dont mix with your labor payments) and use the money to upgrade equipment, pay salaries in slow times, etc.
Re. deposits, I wont do a job unless client gives me a non-refundable deposit on any ordered materials. I explain that I need to order and that is a committment. I need to give my committment on the purchase and so does the client.
Your concern is valid over eating the door. Be straight with the client unless the door is being purchased at the big box store and you can return it.
I have eaten a couple of items in the school of hard knocks.
Great thread! I'm struggling with the same issues! These threads really are the most valuable ones on this forum!
Make money or die! Fair enough!
dave
What you call markup is really your contract price. For a simple example, a painting contractor agrees to obtain paint for $10.00 per gallon. The cost to the property owner is $10.00 plus the cost of the paint. Suppose the paint is $20.00 per gallon. The cost to the property owner is $30.00 ; $20.00 per gallon plus $10.00 markup (contract price). If your customer is hesitant, have them make out a check payable to the paint vendor with the price to be filled in by you at point of purchase. Bring them an invoice and receipt to prove the cost on the check matches the receipt and invoice. This way you do not fund their project.
Edited 8/16/2008 7:59 pm ET by 5150
OK guys I am going to be the devil's advocate and light a bit of a fire. But before I do let me be clear:
1. Everyone deserves fair payment for their work
2. Nothing should be done or expected to be done for free
3. Deposits - for sure, who wouldn'tBut I continue to be perplexed by the time and materials strategy. Around here it is called cost plus and we are workng with a contractor now on part one of our job. To his credit, his estimates have been spot on, we have done our homework, and we are underbudget. It may be good luck but I have a fair notion that it is because he knows that I'm willing to do the background work (find the going rate for foundation work, hydro service etc) and I'm willing to ask for the nethodology for his quotes. And the big carrot is . . . . phase 2 of the build is 5 times the cost of phase1.Now - coming to T&M - what is there to stop someone from running up the cost of a project, knowling that in doing so that their "cut" of the project continues to increase. How do you ensure that the guy is not going to his buddy to do the well drilling rather than make 3 calls to find out other prices? How do you know that the contractor - given my 3 statements above - will work with you to give you the product you want for the value that it deserves? So if the steel for the trusses is quoted at 130 K by one contractor and 80 K by another - how does the HO have any idea to know that the real figure is 90 K, C1 is pocketing 40 or splitting it with his buddy, and C2 doesn't know how to quoteHaving worked on the inside when I was in university and now being on the other end, I have some knowledge - probably enough. I have a great deal of respect for all of you but I speak for the HO who seems to me to be the one most likely to get screwed in the process - no knowledge and no experience. And just really wants to the the right job and feel like he/she was treated well and received value for their dollar (if it's a 600$ door or a 1.2 M house it doesn't matter). Please, please don't see this as a rantJust so you know, in our project (3 phases, big one in the middle) we worked with the archtect for 18 months. We then solicited for builders, not for bids. We did alot of asking - and asked specifically some trades who we knew and trusted (a beauty of living in a small town where everyone knows everyone). We started with 11 builders and interveiwed every one with standard questions. We asked for references from them all and after the interviews narrowed down to 3. These 3 submitted estimates on the project. We interveiwed the references for all of them and went to see the projects. We asked about time, budget, callbacks, cleanliness, subs - and the list went on. We narrowed to 2 and then agonizingly to 1. Who knows if we got the right guy? We will after phase 1 - and if the finish cost is more than 10% out of the estimate, who knows what will happen. I do know that there won't be one change order - I know these plans inside and out and helped draft much of them - down to the light socket and electrical outlet. In summary, I think we have done everything I know to do to minimize the unexpected, and with all of this, I still feel like I could wake up one day and tell myself that this was the stupidest thing I've ever done. Do any of you know what I mean?
OK guys I am going to be the devil's advocate and light a bit of a fire.
Well, Daniel Webster I'm not, but I'll do my best to respond
1. Everyone deserves fair payment for their work
When paying a business (contractor) you are not paying for their work. You are paying for their work, their experience, their knowledge, their goodwill with other subcontractors, their rent, their secretary, their phone bill, their advertising, their vehicle maintenance, their accountant, their medical insurance, etc. In short, the same basic things you pay for when doing business with any legitimate company.
2. Nothing should be done or expected to be done for free.
Really, you believe that? That's refreshing to hear. How much did you pay the 11 builders for their references and interviews? How much did you pay for the three written estimates?
To his credit, his estimates have been spot on...but I have a fair notion that it is because he knows that I'm willing to do the background work (find the going rate for foundation work, hydro service etc) and I'm willing to ask for the nethodology for his quotes.
"to his credit", and of course, as you pointed out, most likely to your credit.
Now - coming to T&M - what is there to stop someone from running up the cost of a project, knowling that in doing so that their "cut" of the project continues to increase... How do you know that the contractor will work with you to give you the product you want for the value that it deserves?
Well, how do you know when you give your credit card to the restaurant waiter he isn't going to steal your identity, how do you know that when you buy a gallon of gas it isn't diluted with something else, how do you know that your mate isn't cheating on you? There has to be a measure of trust in any successful relationship, and you have to work to build that trust, and the contractor has to do likewise.
How do you ensure that the guy is not going to his buddy to do the well drilling rather than make 3 calls to find out other prices?
I'm not sure why that would be wrong, if he knows his buddy does quality work at a fair price, and three random bids from unknowns might not be worth the paper they're printed on, or at least might be rolling the dice on a gamble with someone else's money?
So if the steel for the trusses is quoted at 130 K by one contractor and 80 K by another - how does the HO have any idea to know that the real figure is 90 K, C1 is pocketing 40 or splitting it with his buddy, and C2 doesn't know how to quote
If the steel truss company isn't "pocketing" something after hard costs, they won't be in business long. How do you know your grocery store isn't pocketing some of your grocery money every week?
Having worked on the inside when I was in university and now being on the other end, I have some knowledge - probably enough.
Sounds like you've already got it all figured out.
I have a great deal of respect for all of you but I speak for the HO who seems to me to be the one most likely to get screwed in the process - no knowledge and no experience.
It might seem that way...unless you were a contractor who had been screwed by more than one client, but had never screwed anyone in a business transaction.
there won't be one change order
If true, that's the one endearing comment you've made so far.
In summary, I think we have done everything I know to do to minimize the unexpected
Thats called due diligence, and its all anyone could ask of you.
I still feel like I could wake up one day and tell myself that this was the stupidest thing I've ever done. Do any of you know what I mean?
After the way my first marriage ended, I have to say I do know what you mean!View Image “Good work costs much more than poor imitation or factory product†– Charles GreeneCaliforniaRemodelingContractor.com
Huck:I think I pissed you off and it wasn't my intent - at all. So some clarificationThe builders were asked if they wanted to charge for their estimates/in terviews/references - and none did. I run a business just like you do, it's not an elaborate one and largely I don't make money unless my feet are moving. My fees also reflect time, experience, judgement, expertise, AND overhead - and my medical/dental - whatever you pay, I expect I do, and I have to make a profit after that. So when I say "work" it is a simple word to represent all that is entailed in running a business and providing a profit to the owner, whoever it may be.I don't have it figured it out - that is the point, and I think that I have done as much home work as I know to do, and how to do. And I don't mind paying for the value in the project - I can't make that any more clear. And more than anything in your comments I resent the tone that "daddy knows best and the honeowner/builder is just an idiot schmuck". And again, I ask only that payment represent a fair value . . . . and I think that most homeowner/builders are the same. There are undoubtedly idiots who want to pay 30 c on the dollar and there are those, just as stupid, who will pay twice what a project is worth just to jprove that their manhood really is that small. But there are alot of people in between who ask only for fair - and have almost nothing to rate their experience again except word of mouth.I don't have an answer. Your comment about trust is a good one - and it is the hardest thing to cultivate and to quantify. I can tell you after phase I if I trust the contractor based on my experience, not just someone's report - and we have the luxury of a plan that has the big part second rather than first. But right now, and like most homebuilders, I'm entering into the most expensive journey of my life, and I have a pretty rudimentary map. The contractor is clearly the person who has sailed these waters betore; I'm relying on him to get me to the endThe divide between the builder and HO HB is a wide one. I don't think it need be so polarized.Oh and BTW - the change order remark was uncalled for - you're better and smarter than that
I guess your post exemplifies the pitfalls of internet posting - no matter what the intent, it can and often will be taken wrong.
I think I pissed you off
Not at all. You posted as "devil's advocate" (a person who advocates an opposing or unpopular cause for the sake of argument or to expose it to a thorough examination. ), indicating a desire for a response, and I gave you the best I could offer, from my perspective.
I don't have it figured it out - that is the point
Well, OK, fine. My comments were only made in response to your statement "Having worked on the inside when I was in university and now being on the other end, I have some knowledge - probably enough"
I resent the tone that "daddy knows best and the honeowner/builder is just an idiot schmuck"
Not sure where that is coming from. But then again, when a professional takes the time to address some issues and offer some insights to a questioning homeowner, sometimes that's the thanks we get!
Your comment about trust is a good one - and it is the hardest thing to cultivate and to quantify
Thank you, its good to know you don't resent everything I wrote! Its what makes a good contractor worth his weight in gold, and a good client as well.
The divide between the builder and HO HB is a wide one. I don't think it need be so polarized.
No, not if everyone will recognize that contractors are just business people, like the rest of the business world. There are crooks, and there are good, honest people. Not all contractors are "pocketing" huge unmerited profits every chance they get, not all contractors are looking to screw the unsuspecting homeowner, setting the homeowner up to pay inflated prices to their "buddy", and not every contractor will inflate his time on a T&M job without a "carrot" and someone looking over his shoulder, questioning the methodology of his pricing.
the change order remark was uncalled for - you're better and smarter than that
Again, not sure where that is coming from. I still stand by that remark - a job without customer-generated change orders is a true blessing, and such a customer endears himself to the contractor. A job is bid per mutual understanding of what is desired by the client - when the client repeatedly changes his desires or expectations in mid-job, it can cost in ways even the contractor can't fully realize until the end.
like most homebuilders, I'm entering into the most expensive journey of my life, and I have a pretty rudimentary map. The contractor is clearly the person who has sailed these waters betore; I'm relying on him to get me to the end
Which is why myself and a lot of other professionals offer free help and advice to anyone who takes the time to post their questions here, professional or not. Believe it or not, we do it because we care about quality work and quality homes and quality business relationships.
And while the contractor may have experience in his field, each job presents special issues and challenges unique to that job. He is just as dependant upon the client for a pleasant business transaction as the client is upon him. Like any relationship, both parties have to be committed to making it work, in order for it to be a success.View Image “Good work costs much more than poor imitation or factory product†– Charles GreeneCaliforniaRemodelingContractor.com
mark...... i don't like doing t&m...... the markups are not sufficient in most cases
and no matter what.... the owner will usually question some aspect of the accounting ( your men were too slow...... you charged me for going to get materials...... you put on 3 coats but could have done it in 2..... blah, blah, blah )
I'D RATHER WORK FIXED FEE, LUMP SUMMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
MARK...... hope it went well....
but <<<<we worked with the archtect for 18 months. We then solicited for builders, not for bids. We did alot of asking - and asked specifically some trades who we knew and trusted (a beauty of living in a small town where everyone knows everyone). We started with 11 builders and interveiwed every one with standard questions. We asked for references from them all and after the interviews narrowed down to 3. These 3 submitted estimates on the project. We interveiwed the references for all of them and went to see the projects. We asked about time, budget, callbacks, cleanliness, subs - and the list went on. We narrowed to 2 and then agonizingly to 1.>>>>>
maybe i'm not your guy...... but life is too short for me to go thru your screening process.... you would have lost me as soon as i knew what you were up toMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
MikeThe process for us is as important as the end result. And the project is unique - very unique - in form, construction, and idea. We can only do this once and I am already committed to freedom 65 bc of the project , not freedom 55 as I had hoped. But it is really important to my partner and I - it represents a different way of doing things. It was the reason for choosing the architect we did choose.The area where we are building is an interesting one - there has been lots of development and there are no shortage of 2 to 4 M homes. Those builds have driven up the rate in the area as some people will simply write the check. Our circumstances are different - we do have a budget - and we also have a dream.So we had to find someone who got us and got our project and can work with us and our architect. I know that I am a challenge to work with. My work demands that I be exactly that and I can't simply shut that off outside of my workplace. Something is either right or it isn''t. So we needed a sense that the builder could work with that . . . and someone who is willing to answer questions, no matter what that question is.We knew not every builder would want this project. We wanted someone who did. The one who we finally chose did his homework, was in the upper range of preliminary quotes, knows the significance of the project to us, and has been open and forthright with us. It's all we can ask for
Well Mark, honestly, what do you care how much the contractor makes? As long as she delivers on time, on budget, the quality you expect, it shouldn't matter to you if she make 4k/day. It's irrelevant.
to be honest - I don't and I said as much. It was a way to generate the cost per build based on time. That's all.I guess that no one really cares how much anyone makes - do we - we allow hockey players to be payed millions of dollars because we are stupid enough to pay for tickets and yet begrudge every cent to a doctor, lawyer, architect, or builder (and yes,, I do believe they are the same).. As a society, we are pretty messed up - value nothing, pay for nothing,, credit for everything, throw it all awaySo then the question - what should a contractor make annually? I don't know and won't guess.
re: owner/builder; Start with this thread - it has links to some others that may interest you - 107047.1View Image “Good work costs much more than poor imitation or factory product†– Charles GreeneCaliforniaRemodelingContractor.com
Congrats Mark, you've done your homework and your chances of having a sucessful outcome will be significantly higher than if you had chosen a builder based on price.
One question though. Why didn't you request a fixed price proposal?
Simple - no one - and I mean no one would entertain it seriously. When we asked the answer was always something like this . . . . . the fixed price will be the maximum quote - it seemed like a lose - lose scenario.
So if the steel for the trusses is quoted at 130 K by one contractor and 80 K by another - how does the HO have any idea to know that the real figure is 90 K, C1 is pocketing 40 or splitting it with his buddy
In many ways, this post represents the crux of our differences. You cite an example of a quote of 130K, where 90K is the "real figure", and 40K is going into the contractor's pocket.
So let's say I figure a job's costs at 90K. I add 25% for overhead and profit, and an additional 15% for unforeseen contingencies. My figure is now 126K - getting pretty close to your 130K - so does that make me a crook? The tone of your post indicates that, in your opinion, it does.
But in my opinion, it makes me a businessman who plans on paying his rent, his taxes, his insurance, having enough in the bank to pay for all the free estimates, interviews and advice we're expected to provide upon request, and being in business next year and the year after (it doesn't stay in the pocket for long, does it?). And it doesn't even leave me 20K to give to my "buddy"!
Just some food for thought.
View Image “Good work costs much more than poor imitation or factory product†– Charles GreeneCaliforniaRemodelingContractor.com
Edited 8/23/2008 7:28 pm by Huck
Huck, we are using the 1.67 markup so the 90k cost would sell for 150k. We'll be able to pay our sales, project management, overhead and make a small profit...maybe 10%. If its a good set of plans and specs, we won't need a big buffer of contingencies.
That sounds about right. I'm at 1.45, and barely skating by.
BTW, I don't consider 15% a big buffer, just a realistic average based on past experiences.
Even with good plans you have stuff like rising gas and materials costs, unexpected delays (anything from the weather to the city road maintenance crews to a subcontractor's unexpected sickness), extra work created by un-noticed flaws in the original work that you are remodeling or adding onto, shipping errors by suppliers, errors in manufacturer spec's, changes in code, etc, etc.View Image “Good work costs much more than poor imitation or factory product†– Charles GreeneCaliforniaRemodelingContractor.com
Yes, I agree that email loses just about everything that is significant in a conversation - apart from the words. And I'm really not here to dis a contractor or any contractor.A question. Does anybody price in anything like the following as a way to determine pricing?a house will take 6 months to build
The contractor thinks that he should be valued at 100 K per year of "salary" - and I picked that number out of the hat, I have no idea what would be correct so no offense intended to anyone.
All of the expenses for the project get passed on directly - materials, trades, and an overhead fee (I don't know what but let's say 4 K per month)
From this the fee for the project would be
All expenses direct + overhead + 50 K I am given to oversimplifying - but it seems that this would give every one what they need - the contractor makes what he needs, the overhead isn't taken out of "salary" and the HO/HB knows that the cost is the cost - and if he/she adds/changes then the addition comes as material costs, AND additional time/overhead based on a fraction of the original quoteIt may be what isn't seen in the finances of building that is the problem - the HO/HB has no idea what is really in "the number"
I believe there is such a thing as a construction management contract that could be set up similar to what you are describing - and I think there are firms that specialize in that type of arrangement. Others more knowledgeable than me could probably clarify with details.
Unfortunately, no one, even the contractor, really knows all the costs in a job until the dust has settled at the end. Its a consant struggle to try to keep a handle on job costs, and hopefully make a little money at the end. View Image “Good work costs much more than poor imitation or factory product†– Charles GreeneCaliforniaRemodelingContractor.com
yes... <<<<
a house will take 6 months to buildThe contractor thinks that he should be valued at 100 K per year of "salary" - and I picked that number out of the hat, I have no idea what would be correct so no offense intended to anyone.All of the expenses for the project get passed on directly - materials, trades, and an overhead fee (I don't know what but let's say 4 K per month)From this the fee for the project would be All expenses direct + overhead + 50 K >>>>>
that is called cost plus fixed fee
i did that once on a big victorian... based on 12 months
it took 18 months
we recovered our "costs" but basically lost out on 6 months of the fee...
that was the last time i did T&MMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
Yes, thats called cost plus a fixed fee. It is win win. Not everyy builder would do it. I would.
Mark - there is another option for someone at your level of involvement. Its called U-build, help-u-build, or U-build It, or something like that. Its a consulting business that lets you be the owner/builder, but offers advice, recommends subcontractors, and helps walk you through the process, while allegedly saving big bucks. (there are actually several companies run along these lines)
Its not for everyone - you have to be committed to putting time and energy into the project. Like a lot of things, it seems you get out of it in proportion to what you put in. But judging from your posts and your personality, it may be the right answer for you. There have been some who posted here, who enjoyed the process.
Use the advanced search function on this site, and then try google and yahoo search.
View Image “Good work costs much more than poor imitation or factory product†– Charles GreeneCaliforniaRemodelingContractor.com
If I had the time I would. A friend of mine did the general contracting work for his home, he loved the process,, met great people,, got a fantastic project in the end.For me, I wish it were practical, but to be honest I work too damn much and am on the road too much. Lastly the new hone is 2.5 hours from our current place - so it's overall just impractical. Hence our need to get the builder right
A friend of mine did the general contracting work for his home, he loved the process,, met great people,, got a fantastic project in the end. For me, I wish it were practical, but to be honest I work too damn much
OK Mark, I can see that. I seldom recommend those type of outfits, but it seemed a good fit for your personality/concerns expressed in this thread.
Your project sounds like an interesting one. Why don't you start a new photo thread chronicling the progress of your house, similar to this one 67972.1
That way you could get lots of professional imput (and other stuff, of course) from the peanut gallery, and we could all learn from your experience, as well as share in the process.
Another option would be a blog, with a link at the bottom of all your posts. You've been around here awhile (according to your profile), so you probably know the type of good advice thats available IF your pictures and text are clear enough to show exactly what you're doing.
- HuckView Image “Good work costs much more than poor imitation or factory product†– Charles GreeneCaliforniaRemodelingContractor.com
I will do that to keep people posted. My partner has started a blog that will chronicle the advneture. I've talked a bit about the project here before but in summary, we are building a series of 3 buildings on a 100 acre farm. The first phase is garage, guest quarters, and my shop. This is about 2200 square feet. The second phase is the house - about 3000 sf. The third phase is an indoor outdoor room with a large terrace/lap pool. The total time line is likely 6 years. The infrastructure begins this Friday - the laneway, buried electrical, geothermal bed, the well, and septic. The garage will begin in the spring (too late to get it enveloped before the snow here in Ontario)It is hard to know just how we got to here. I think it is a dream that we didn't know we had - and it took some very generous people to unlock it.I will post LOTS of photos as it goes up. There will undoubtedly be some questions, hopefully some laughs, and not too many frustrations. And you are right about advice - there is lots of good advice here. Our architect wanted to use an insulation product called P2000 and after alot of digging, lots of contributions here, and some argument, he has decided it really isn't proven for what he wants. So another solution.The project is at its' essence very simple. No gutters,, eaves, soffets. A complete no maintenance envelope (in my lifetime anyways). Inside no drywall,, no additional layers of labour whereever possible. Two countertop materials, 4 different light fixtures, one floor material, one tile for all of the bathrooms . . . . and no painted surfaces. (I'm tired of looking after my 1880 Victorian - I used to love it - but I have other things I want to do now with my time). So hopefully it will be interesting and there will be parts of it that will spark discussion/debateI want to thank you for your comments - and I apologize if I seemed antagonistic,, I really didn't mean to come off that way
Wow, sounds like a very unorthodox project - you've got me curious. So do we get a link to the blog? Got a sketch showing what the completed project will look like? Looking forward to learning more about it.View Image “Good work costs much more than poor imitation or factory product†– Charles GreeneCaliforniaRemodelingContractor.com
"and I apologize if I seemed antagonistic,"I didn't read any into your posts.
I also don't see anything to apologize for.
You have some interesting points and views, not all I agree with but I admire the way you respond to some answers.
I also like some of the answers you are getting.
You appear to be doing the best you can and don't mind asking questions. That says a lot about a person. Good luck.roger
By the way UbuildIt is only one of a number of those type of business.The general class of this is all "owner builder" and a google on that will get lots of resources..
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.