Just one quick question. When printing out an estimate for a customer, do you show the percentage you charge for overhead and profit, or do you just adjust your rates throughout. Reason for asking is when I print out an estimate using National Repair and Remodeling Estimator program ( I know, I know, I’m supposed to use my own rates, not theirs, but I’ve got to start somewhere until I figure out my costs for business), it prints out that I am charging 15% overhead and 10% profit. Do you think customers want to see that? Do you give an itemized estimate, or just give them a number? Project working on is a 15 X 20 sunroom and then a 15 X 20 deck onto that. Also, living in Western, Me.. Appreciate any info, I’ve got to get to work now. Thanks.
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I do new houses, and only a few, so I am not really in the game. But I think it is important to spell out clearly what your quote includes in terms of scope.
No detail about the cost, though.
As to price and terms, a single lump-sum number is best, IMHO, and a statement about payment. Payment examples might be 10 percent down at contract time, additional 40 percent at job start, balance when complete, etc.
By itemizing dollars for line items, then showing rates, OH %, profit %, you are just giving too much information, and in fact, a whole lotta little clubs they can use with which to beat you over the head.
Remember, they don't look at it the same as going to the quick mart to buy a sixpack. Bud is at $4.99, and Miller Lite is at $4.59. They cannot argue with the clerk and try to negotiate every item they bring to the register.
But as far as your pricing is concerned, they think everything is negotiable. Better to deal with one number, only.
Great analogy Gene... "hundred little bats to beat you with later"-it is bang on.
I've been in business many years also. Clients that want everything broken out are typically master negotiators. Clients that want to negotiate your profit are to be avoided. Non jobs are non jobs. No profit means working for free so the job simply isn't worth doing.
Play the game in your court-not theirs. Set your terms and when they are negotiating before they have paid you a dime-save yourself the trouble and walk away. Those that would negotiate that hard up front do it out of sheer enjoyment. They know that for a few minutes of discomfort they could take you for thousands. They will negotiate during the job, when it comes time to get paid, then in small claims court afterwards where you know typically you will get 50% of the final payment. Save yourself the trouble and walk away. Let the rookies play with the negotiators.
JIM... is once again showing us why he will be famous some day... "Lighting a single candle". A master with literary tools, and a genius of a businessman. Hurry up and write a book Jim... I'll buy it and reccomend it to everyone.
Show your price, detailed scope of work and services to be performed. Where you will show your prowess and trump card your competitors is by giving the home-owner a list of things to confront the competition with. If they can't do a proper proposal you are separating yourself from the competition.
Have 5 or 10 options listed separately ways the client can save money. Changing the scope changes the price--that is different than asking you to work for free.
Make sense?
L
GardenStructure.com~Build for the Art of it!
I got clobbered here for saying I was showing overhead on my bids.
I disagree wholeheartedly with Gene.
Break it all down....all of it.
Including overhead and profit.
I`ve been asked, sometimes in rather unpleasent terms, "what the heck is overhead and profit?". I use it as an opportunity to make the client understand that this truly is a business, not some hobby they`re being generous enough to pay me for. Your tools, truck, phones,computer, etc. didn`t magically appear one day. You need them, and you need to maintain and upgrade them over time.
I also let them know that my disclosure shows my honesty. Everyone charges for overhead and profit......most don`t have the honesty to admit it.
Customers you want to work for will understand this.....those that don`t, you`re better off not working for.
Where I do agree with Gene.....you can`t negotiate with guy at the checkout counter for the cost of beer. You shouldn`t be willing to have your costs negotiated either. Laying them all out in black and white should make it perfectly clear that your numbers weren`t picked out of the clear blue. They represent exactly what it will cost to complete the project.
ATTENTION FELLOW BREAKTIME MEMBERS:
If you`d like to discuss topics other than home building, come on down to the Woodshed Tavern. Great bunch of guys and gals letting off a little steam about everything and anything. Its not a special club, but.....as of Monday, March 14, the Tavern folder will go behind an access wall. Only those who request access to this folder by contacting [email protected] will be able to view and participate in discussions there.
jay.. the only time you break out P & P is on a Time & Materials job..
first of all. the 15 & 10 is woefully inadequate unless you have a labor rate that is carrying your O & P
second.. on a fixed price bid .. it is no one's business but yours what your O & P is
it only confuses the issue..
if you buy a car , you will never know what the O & P is... you may think you know , or they may state something in writing , but it will not include the true numbers that go into the bottom line Mike Smith Rhode Island : Design / Build / Repair / Restore
JAYBIRD - "
I disagree wholeheartedly with Gene."
Well I'm certainly with Gene on this one.
"Break it all down....all of it.
Including overhead and profit.
I`ve been asked, sometimes in rather unpleasent terms, "what the heck is overhead and profit?"."
Why were you asked:"what the heck is overhead and profit? Probably because you had it there listed in the estimate you prepared! I think your anecdote precisely makes the point for not breaking it out separate line item. They saw it and had to ask you about it. It was unfamiliar to them. No other service they deal with prices services that way so. You brought up the question, not them.
Their Day Care providers don't breakout O&P profit for them. The Phone company doesn't breakout O&P. The guy who plows their driveway in winter didn't breakout O&P. It's unfamiliar to them!
"....I use it as an opportunity to make the client understand that this truly is a business, not some hobby they`re being generous enough to pay me for. Your tools, truck, phones,computer, etc. didn`t magically appear one day. You need them, and you need to maintain and upgrade them over time."
Big deal. I mean really as a consumer I don't care about all of that. I just want to know what it's going to cost me. Period. They don't want our sad sob stories they just want to know what is our service going to cost them and what are the benefits they are going to get from it.
"Where I do agree with Gene.....you can`t negotiate with guy at the checkout counter for the cost of beer. You shouldn`t be willing to have your costs negotiated either. Laying them all out in black and white should make it perfectly clear that your numbers weren`t picked out of the clear blue. They represent exactly what it will cost to complete the project."
Yeah black and white is great but by sticking in you Overhead and Profit you are introducing a gray subjective area into the decision making process that is only going to obfuscate things.
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Part of the problem is we've been using those same "15% overhead and 10% profit" so long they've become accepted norms. The truth is, you're running a VERY efficient carpentry business if your overhead is that low. Mine is closer to 35%.
As for quoting those numbers to customers, if the subject comes up, I'm honest about my numbers and do my best to explain what my overhead really is, and why I have to recover it to stay in business. I'd rather light one candle than curse the darkness.
I find it ironic that the same people who raise an eyebrow at paying overhead find it perfectly reasonable to pay 20% profit. There's just something lacking in the average person's knowledge of how business works - or maybe there's some deep seeded dissatisfaction or confusion about capitalism in general.
Free speech leads to a free society.
I used to include a line item for each - O & P. Everyone told me I was nuts and shouldn't devulge that info to my prospective clients. I felt that it was my way of being up front and honest with them. "This is what the sub job costs me so I therefore charge you that" kind of mentality.
The result was Everyone, yes Everyone, used those numbers as targets for how much they could knock off the price of the job. Some of their remarks included
"Your car isn't worth enough to not be paid off."
"X% Profit? Are you kinding? That's way too high. Everyone knows the standard is..."
"What overhead do you have? You work out of your apt and you don't have a secretary."
"Overhead includes tool purchases? Don't you already own the tools for this job? I thought you had done this before."
On occassion they tried to renegotiate the terms of the final payment, at the time of final payment, statingng that the project went faster/ slower than expected and therefore I did not deserve the %P portion. Basically it gave them a number to arbitrarily grab onto.
Now, O & P are included within the price for each portion of the Agreement rather than itemized. Since this modification, only one client has asked what % these actually were. I told them that's proprietary info and left it at that.
F
All my work is direct client referral. For them I estimate the cost, charge time/material plus o/p. All are shown on the invoice. No one questions anything after the sticker shock of the estimate/cost study.Remodeling Contractor just outside the Glass City.
Quittin' Time
The client should be interested in two things only, one- what they are going to get from you and two- what they are going to have to pay you.
I would not dream of providing a breakdown of my charges
John
I used to break everthing down but after attending seminars and reading here, I never break anything down. Give one nice number and if they pester you ,refuse and walk away, or charge them for the estimate. The best customers understand. We are looking for customers with some perspective just like they are looking for contractors with perspective.
I wrote my overhead and profit for the first time on an estimate about a month ago. The people seemed a bit upset when they saw it. I calmly explained that my overhead costs me money and I must make a profit if I'm to stay in business and retire someday. I did not back down on my price, and "left the ball in their court". Given that experience, I will probably never list my overhead and profit unless legally required to.
BTW, the customers awarded me the job.
Just remember, when you go to the table to negotiate, be prepared to walk away. If you're not willing to walk away, then you are begging.
Thanks alot everyone. I really appreciate your thoughts. I'll probably only use my estimate program for my own use and not present it to the client. Probably better to just include a detailed job description, the overall price, and be very clear what the price includes. I've only gotten screwed once by not giving an itemized estimate, client added alot of things and then wonderes why the price was much higher than the one I told her over the phone (I know, that was very dumb). I'm really coming to the realization I need to make a profit, not just a wage. Figured that out when my wife did our taxes. She came home from the tax office and told me my carpentry work grossed 12,000, (only do part time, but want to be able to support family w/ it; getting better and busier every year), but after my expenses and what I'm allowed for mileage, my expenses were 11,000 (Doh!). I really enjoy this forum and check in every few days, even if I don't post that much. When I do, I really appreciate the responses. Well, must help get kids to bed. Later
Pity the guy I bill on tax prep day.
Really pity the guy I bill on the day I write the check for tax appreciation day.Remodeling Contractor just outside the Glass City.
Quittin' Time
Carpentero-is that after you paid yourself? Better push prices a bit, and see a lawyer to get a contract that protects you-not just the home owner.
Who owns extra materials, who gets the permits, what happens if your client dies during the job, what if they don't pay you... what's your recourse? Small claims...?
Don't go full time until your contract protects you in this situation, and you take care of your mis-pricing issues.
(The above post is meant in an entirely benevolant-non-condecending way). I grew up in an italian area, so people often take me as blunt.
Good Luck Mr CarpinProgress.
Take care of those kids...
L
GardenStructure.com~Build for the Art of it!
me .. I think it's easier to sell one big number than a bunch of little numbers.
It's none of my customers business how much or how little P and O I wanna carry.
I could mark their job up 1000% if I wanted ... as long as I give one price and stick to it ....
none of their business.
I don't break down anything.
Jeff
Buck Construction
Artistry in Carpentry
Pgh, PA
Some one was asking about the National Remodeling Estimator the other day.
About once evert 10 years we get a leveling tornado. Then on the off 5 we get some that blow roofs off just to keep our mind on them.
Every time the big bad ones comes to town we all do tornado repair and of course we work for insurance companies.
Years ago I had negatives about estimates to them. They require a broken down estimate in detail. I figgured then they were trying to put a handle on us like auto body repair. Give us so many hours to do different things.
Thats the only place that could have originated from.
I dont like telling any one how I arrived at their estimate . For one thing they have not only not given me anything like a job at submittal, Ive got years of hard experience I dont want to give away to homeowners or someone else that may do the job. We were just hearing someone gripe here the other day the guy let out his detailed quote for another contractor to bid. Sheesh, how many times do people have to post about that ?
compliments to Jocobe
All you guys who say you don't ever break out p+o, how do you deal with extras or small changes? You never get into a situation where you bill for a couple extra hours or a day or something?Free speech leads to a free society.
jim blodgett - "
All you guys who say you don't ever break out p+o, how do you deal with extras or small changes? You never get into a situation where you bill for a couple extra hours or a day or something?"
Maybe I'm not understanding your question. Why would billing for a couple of extra hours make it difficult?
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"Maybe I'm not understanding your question. Why would billing for a couple of extra hours make it difficult?"
It's not difficult, but explaining p+o beforehand helps avoid a lot of hard feelings in the end.
For example - say I have a contract for a kitchen remodel for $22,576.08 including sales tax. Inevitably there are changes that the customer requests as the job unfolds. For small stuff, I try to bill changes t&m at a rate specified in the original contract.
Now, let's say a customer believes 35.00/hour is a reasonable labor rate for a professional carpenter. But then there's that pesky 35% overhead (17.50/hr) so you have to add that to the 35/hr and you're up to 52.00/hr.
But wait. That's the contractor's cost, right? And why should the contractor conduct any business that doesn't produce a profit? So tack on 20% for profit and you're up to 64.50/hr on the bill.
Now. We all know none of these numbers are unreasonable. But the very same customer who thinks of paying a carpenter 35/hr might write a check to cover the 64.50/hr, but they might not like it like it unless it's all explained to them before they start the job.
So, bottom line is, if you break it all out in the beginning, and explain it all in clear language, and they agree to it, you have just prequalified that customer who understands what it takes to stay in business from the one who will grumble for years to their neighbors about you "ripping them off".
And those who find your rates unreasonable? Who don't think that's fair recompense for your time and expertise? You didn't want to work with them in the first place, did you? At the very least, you've paved the way for contractors in the future who need to charge p+o and don't want to "hide" it.
Honesty pays. It's not always easy, but it pays.
Free speech leads to a free society.
Edited 3/19/2005 1:56 pm ET by jim blodgett
jim blodgett - "It's not difficult, but explaining p+o beforehand helps avoid a lot of hard feelings in the end. "
This is exactly the reasoning I don't get and just doesn't make any sense to me. Why in God's name do we (contractors) need to explain Overhead & Profit? Wallmart doesn't explain Overhead & Profit on the price tags in there store or on their receipts. The barber where I got my haircut doesn't explain or detail Overhead & Profit. The sign on the wall says Haircuts $20 and I make up my mind if that's worth it or not (must be since I gotten my haircut in the same place for some 48 years now). As I'm shopping for a new laptop I can't find anything on the Apple web site that tells me how much of the computer is labor and parts and how much is Apple's Overhead & Profit. The birch ply I bought the other day was $44 a sheet. I have no idea how much of that was the lumber yards Overhead & Profit. The bicycling jacket I saw in the store was $155 nah I ain't paying that for a lightweight windbreaker but I didn't ask the store how much of that is the jacket's cost and how much is Overhead & Profit.
No hard feelings on anybody's part and I just made up my mind based on the prices they gave me.
"For example - say I have a contract for a kitchen remodel for $22,576.08 including sales tax. Inevitably there are changes that the customer requests as the job unfolds. For small stuff, I try to bill changes t&m at a rate specified in the original contract."
I have no problem with that idea at all and that's what we do too. (Although here in NY what we do is pay the sales tax on the building materials at the time they are purchased and since there is no sales tax on the labor for capital improvements, only repairs, the end customer typically isn't charged any tax). Our contract give the specifications, total contract price and specifications but it also contains language pertaining to changes in the scope of work. Customers at their option can request lump sum change orders where we will quote them a flat number for the change they are requesting or they can have the change done on a Time & Material basis. The T&M part of the clause clearly spells out what personnel costs what per hour and it says that Materials and Subs are charged at Cost plus 10%.
"Now, let's say a customer believes 35.00/hour is a reasonable labor rate for a professional carpenter. But then there's that pesky 35% overhead (17.50/hr) so you have to add that to the 35/hr and you're up to 52.00/hr."
I have a couple of problems with what you saying in this paragraph.
First of all just how in blazes does a customer know what a "reasonable" rate for a professional carpenter is? How could they possibly know?
Why didn't you just say $52.00 per hour? That's your rate period. If your burdened cost was $35 and your overhead works out to $17.50 per hour just say $52.50 or round it up to $53 or $55. Why do they need to know the breakdown on how you computed the price. No matter how many ways you or they look at it it still going to cost $52.50.
"But wait. That's the contractor's cost, right? And why should the contractor conduct any business that doesn't produce a profit? So tack on 20% for profit and you're up to 64.50/hr on the bill."
(Pretending I'm the customer..) What are you talking about now! Your tacking on another 20%. What the heck is that? This is BS. Your rate keeps on creeping up. You're trying to rip me off.
Now I think I can figure out what you were really doing but my perspective is coming from someone who is both inside the trades and knows a lot about contractor's costs.
I think the $35 you were talking about was a labor WAGE not a RATE. That "pesky 35% overhead (17.50/hr)" you mentioned wasn't really Overhead, it was probably the Burden on that labor. Then that 20% you then added on was really your Overhead & Profit.
Your explanation of your charges wasn't even clear. That's only going to cause problems. $63.00 per hour on the other hand is very clear. $52.50 times 1.2 (the multiplier to get that 20%) gives you $63.00 not $64.50 so if I was you client I'd be picking apart you bad math too. $64.50 per hour however is a clear consise number, so is $65 if you choose to round it up. All you mathematical gyrations are clouding up and obfuscating my choices as your customer.
"Now. We all know none of these numbers are unreasonable. But the very same customer who thinks of paying a carpenter 35/hr might write a check to cover the 64.50/hr, but they might not like it like it unless it's all explained to them before they start the job."
BALONEY! That very same client pays a lot more more than per hour to have their car fixed and that mechanic doesn't need to breakdown his or her costs. I have never ever had a client ever ask me for a breakdown on how I came up with a labor rate. They may love it or hate it but they have never ever asked me to break it down for them to show them how much my carpenters are making as a wage, how much my phone service costs, or how much I pay myself as the owner.
BUT, many moons ago when I was just starting out I remember giving a quote to a client for some shelves and trim in their garage where I broke out my Overhead & Profit and they questioned it! And they questioned it hard. I had to jump through hoops to explain what they saw as just a surplus charge. To this day I am 1000% sure if I had just given them the total price for the job they would have been fine with that and there never would have been any kind of argument.
Here's another way you can look at it. How many of you contracting peers still don't understand the mechanics of overhead and profit. The are discussions here online on the topic, books to read and seminars all over the place and still many of them just don't get it. What makes us think we can explain Markup Overhead and Profit to a client in 15 minutes to half an hour while we are trying to make a sale?
"So, bottom line is, if you break it all out in the beginning, and explain it all in clear language, and they agree to it, you have just prequalified that customer who understands what it takes to stay in business from the one who will grumble for years to their neighbors about you "ripping them off"."
No, the customers don't care about that and as I think I just illustrated giving them that information will only confuse the issue. If customers really do all want that information broken out for them in the beginning could you them please explain to me why they don't insist on seeing that information from Wallmart, Apple, Dell, Exxon, Verizon, Earthlink, and the guy who plows the driveway? Why are they only asking for that from us?
"Honesty pays. It's not always easy, but it pays."
How is ($35 + 17.50) X 1.2 = $64.50 (which it doesn't!) any more sincere and honest than just saying $64.50.
P.S. If you figure your overhead is 20% of you yearly volume multiplying you costs by 1.20 will not achieve your goal of getting that 20% you need for O&P. You may be confusing Markup and Margin they are not the same thing. If I take $100 and mark it up 20% to get $120 that $20 Ive added on only represents 16.6667% of the $120! To get a return of 20% for O&P we need to multiply costs by 1.25. And 52.50 X 1.25 = $65 which is still not the $64.50 you mentioned.
And ya know what this brings up another potential problem point. Suppose your client sucks at math and can see or understand why you need to multiply by 1.25 to get your 20% overhead.
I think breaking out Overhead & Profit is just opening Pandora's Box. I love Gene's analogy too that you are then giving them "a whole lotta little clubs they can use with which to beat you over the head."
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Every single word is 1000% correct, beginning with " Why in God's name do we (contractors) need to explain Overhead & Profit?"Thirty five years in busines, 63 years old, and I still can't answer the above question.
I'm on the don't tell side.
I don't see any reason why I should start explaining how I've arrived at my pricing structure...in a fixed bid.
If it's a cost plus offer, then certainly a profit and overhead factor needs to be discussed, unless it's a labor only bid and you both agree on labor rates.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Here's another way you can look at it. How many of you contracting peers still don't understand the mechanics of overhead and profit. The are discussions here online on the topic, books to read and seminars all over the place and still many of them just don't get it. What makes us think we can explain Markup Overhead and Profit to a client in 15 minutes to half an hour while we are trying to make a sale?
Jees Jerrald, you gotta lighten up a bit!!!
JUST KIDDING!!!!!
How are you on that softball team? You sure know how to hit a home run here!
Damn, that was out of the park!
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
Eric Paulson - "Jees Jerrald, you gotta lighten up a bit!!!
JUST KIDDING!!!!!"
Ehh ya know what I say may come off as blunt and harsh when people read it but it's never written in anger. I do however think I say things as I see them. And I'm serious about what I write. I am really amazed at how screwed up so many of us are with our understandings regarding Markup, Overhead, Profit, and Pricing. Just the other day I was talking to a contractor who didn't understand the difference between Gross Profit and Net Profit and I was stunned. The guy probably does like $700,000 a year and is leaving money on the table all over the place. He survives and even prospers probably thanks to this economy where building and remodeling are just on a tear.
Makes me wonder.
"How are you on that softball team? You sure know how to hit a home run here!" I just wish I was still playing softball and I was just thinking about that today. The bike ride I take takes me past a field where I did hit my longest home run ever and whenever I go by that field I wonder how on earth I ever hit it as far as I did that day. But that was twenty years ago. The team I was on disbanded a few years ago, we were all too old and injured I guess but I feel like I still ain't done yet. Bummer. Hitting a home run here's okay but it ain't the same thing.
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Jerrald, that's funny! I still occasionally think about the longest home run I hit too. There's a wicked over the head behind my back snag on a long foul out that sticks in my memory too...it helped a last place team (us) beat the unbeatable first place team (almost)! Actually we tied....Charley One-nuts (he had a zipper accident) dropped the final out...it was an easy pop-up to second base, but I think the shortstop crowded him cause the error.
Little league baseball....I still have fond memories...
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
blue_eyed_devil - "Jerrald, that's funny! I still occasionally think about the longest home run I hit too...."
Well if you think that's funny on that same field maybe a year or two later I made a sensational catch in right field where I climbed a chain link fence and pulled on that was out of here back in for a long out but then when I made the throw back in to get that guy who went halfway to third from first I threw my shoulder out and that was the essentially last throw I even made. I ended up having shoulder surgery that winter after injuring the shoulder again while ski racing but I never got my the arm I once had back again. I didn't even think of that as I rode by that field today. I forgot completely about that until just now.
The moral of the story,...when we look back we tend to remember our victories and triumphs and delete the memories of the things gone wrong??? Maybe,.. huh? Well to a degree I guess that's true because I obviously still remember that incident too.
PS I also now recall pitching a game on that field to where we lost by the ten run knockout rule too. Wow all these bad memories are just coming back now.
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Edited 3/19/2005 10:29 pm ET by Jerrald Hayes
Bad memories. I got one. I walked in the winning run in pre-season tryouts. The coach put me at second base after that!
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
oh man, let's diverge a bit again.
Coaching womens softball team in the early 70's. We were playing the 1st place team,of which some of the members were with the Professional Womens Football Team.
Light drizzle starts, coaching first and the umpire asks if we should call the game. I suggest he complete the inning. We hadn't started this one yet, first batter....no pitches. "if you're smart, you'll at least wait until this batter is done".
Sure enough she slaps the ball to deep short, runs like hell and doesn't quite beat the throw.
"Safe", he makes the call.
We played the rest of the game in that light drizzle and won. Can you figure what compelled him to continue play?
and it wasn't overhead nor profit.Remodeling Contractor just outside the Glass City.
Quittin' Time
Im' diverging, but confused.
Pokies?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
pokies? Now I'm diverged. What's a pokie other than the hoozegow?
remember, 70's, babes (our team), light rain.
Remodeling Contractor just outside the Glass City.
Quittin' Time
Cal, I think we're on the same page...hot babes, light rain...pokies...they appear out of nowhere!
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
ok blue, we do have the same page.
You'd have loved the angle I had on that play. No ####, the ump never saw the ball.
We tied them, lost in a playoff..........but the girls had that moment of glory over the more athletic team.
Ah the years of no bra..........Remodeling Contractor just outside the Glass City.
Quittin' Time
Change orders signed in advance of the work being done. Hourly rate defined clearly (certainly with different rates for different grades of craftsmen).
Or
Change order with quoted charge for the change to be instituted.
Clients are never upset when you let them know that a change will affect the budget certainly when it is clearly defined (the amount). I find that even if it is hourly, giving them a range of expectation helps cushion them for the sticker shock at the end.
Clients hate surprises as much as we do. Think of your insurance agent pulling out 3x what you expected on automatic withdrawl. It's all the same.
LGardenStructure.com~Build for the Art of it!
The next time someone here is tempted to show overhead and net profit, ask you self it that customer is knowledgeable about operating a remodeling company, or any business for that matter.
To obtain a 33.33% gross profit (overhead an net profit) you must use a markup of 50%. Do you really thing the public understand that? They don't and only care about the bottom line.
Time after time after time, it's been proven by contractor after contractor that baring your azz is used as a weapon against you to get your price down.
Besides, "Branded" companies not only don't have to do that, the price is way down the list of priorities, and you don't have to sell yourself. They want YOU 1st, schedule 2nd and price nearly last.
Think I'm wrong. Ask those people who buy Jaguars, Porches, Mercedes, etc. They want the best - in their "perception".
Lawrence mentioned that those wanted to knock your price down are master negotiators, he was 100% right. They are not really potential customers. They are master negotiators and their 1st goal is to suck you into THEIR game. And once you enter that slippery slope of trying to defend your price, you have lost. It's just a matter of if they are going to use a sharp knife of a dull blade to cut your cahones off.
Decide if you're a business owner, or a tradesman playing the business owner game, in which case you'll lose every time.
Finally, make your contract so the final payment is never, never, more than 5%of the total price. And if it's a big job, say $100K, it should only be about 2% - just enough to cover punch out list times. That way, if they are going to play the BS game to stall you by nitpicking you to death, they will only be tying up that 2% of your (and it it yours) money. Think "cash flow."
I use the term "Substantial Completion" which legally i our industry, means that the remodeled area is usable for it's intended purpose; granted a few punch items may remain, but it's still usable. Then when the punch out items are done, that 2% - 5% is due because I make a "Declaration of Completion", meaning I have "totally" fulfilled our contract.
Excellent post Sonny. I've always used the "substantial completion" clause too and I tack on some high interest numbers (12 to 18% per annum) on moneys owed but not payed.
Hey, I think I'll be entering the retail market soon. I'm going to need some better contracts. I know you operated in Michigan. I'd love to grab a sample of yours if you don't mind.
I'm going after the SCA market with a vengeance. If they won't buy a SCA, I won't give a minute more of my time. I'll be using the SCA process to further screen my clients. If we don't get along in a friendly manner, or I get a hint of and adverse personality conflict, or if they don't like the program I'll offer...I'm outa there! Just pay up the 2500 or so for the SCA and find a better contractor!
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Hey Blue, what type of "retail market?"Email me again and I'll send you all three of my contracts, addendum, Additional Work Order, and Change Order. And now that you mentioned The Process, I forgot I had started on another version of The Process - maybe a 2 pager - for smaller jobs , but forgot to get beyond the original draft of it. Glad you jogged my mind.
Sonny, I'd be thrilled to receive those documents; I'll promptly email you
Thanks for offering those concrete documents. You musta skipped over the "home and garden show" thread 'cause in there I mentioned that I was considering selling retail additions, remodeling and specifically and especially decorative concrete.
Since we definitly decided to move into the retail market and deal directly with homeowners/buyers, instead of builders, we naturally are considering all options. We have about 15 leads on additions and buildups ranging from 5,000 bay window buildouts to 150k basement remodels. I plan on bringing a sales trainee on my first call and turning everything over from there.The sales agent I'm considering can already sell ice cubes to Eskimos. I also plan on using the lead carpenter method of getting the jobs done. We'll use our framing guys to build the bigger stuff and let the lead carpenter finish everything. We have an architect on board, but will do simple design stuff our selves...or maybe not.
Thanks again. I might have your original "The Process" in hard copy and somewhere in my computer files, but I'll be thankful for your updated version. I think I already have my sales presentation for the entire process in mind, but I'll welcome any input anyways.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
I'm thrilled for you. Wish I was about 10 years younger. I used to be a retail store manager (appliances, furniture, carpeting, etc.) and I really miss it. If you don't mind, I'll email you with a couple or few ideas/suggestions for that retail end. Also, if you have not yet decided upon renumeration for the salesman, you might want to email son Tom [email protected]., or thru his web site http://www.lykosgroup.com, since he has two salesmen who are doing a gangbusters job, with one guy already selling about 1.6 million in sales so far in less than 3 months this year.Just got your email so I'll respond later.
Thanks Sonny for that generous offer. I already sent Tom an email request. I'll be grateful for any help in structuring an offer to a salesagent.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Sonny, I just finished reading Tom's wonderful article (actually byline Patrick O'Toole, E-I-Chief) in Qualified Remodeler.
I had not heard of your loss, would like to pass on deepest sympathy. I have enjoyed/learned from your posts here and other places. Looks like "ya done good" in many ways.
Sorry for minor hijack.
Bob
I read Remodeling, a Hanley Wood publication.
Is QR still around? I thought that it morphed into Remodeling.
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
Cygnus Business Media
http://www.qualifiedremodeler.com
Professional Remodeler and Professional Builder: http://www.housingzone.com
http://www.Remodelingmagazine.com
All these freebies have mostly ads but a great way to learn about new products and find an occasional good article.
Edited 3/19/2005 9:55 pm ET by RASCONC
Thank you, Bob. It was a shame, and especially since Pete was one of those people who helped everyone, considerate, and just an overall terrific and extremely wel lliked person. I learned that life is really a roll of the dice. As my barber said, all any of us have is the "moment" as we talk to each other cause the next one could be "our calling."Sounds terrible to say, but since he was not only my son and since we were also good "buds", I can't wait to see him again - hopefully. I can only hope to be half the person he was.
Sonny Lykos - "
The next time someone here is tempted to show overhead and net profit, ask you self it that customer is knowledgeable about operating a remodeling company, or any business for that matter.
To obtain a 33.33% gross profit (overhead an net profit) you must use a markup of 50%. Do you really thing the public understand that? They don't and only care about the bottom line."
And there's another one. Who is to say 33.33% is an acceptable level of gross profit Margin? That another dangerous but more recent artifact that we can trace back probably to Walt Stoeppelwerth's rise to prominence. But then again he never really says 33.33% or any number is okay. He tells you to figure it out for yourself. But because he's used and talked about 33.33% so often it has become sort of a de facto comparison standard.
I think both that number 33.33% and the method (the Traditional Total Volume Based Markup) he advocates using that number within are a dangerous curse that's haunting and harming us. (The Potential Problem Using Total Volume Based Markup).
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I agree. When I was naive and didn't understand my own "numbers" I used it, but soon found I HAD to use my own numbers. For example, when I owned The Lykos Group, Inc. w/13 field staff, our OH was about 34%. I used a markup of 75% or more depending on the job. However, since selling the business, I've returned to the Proof system, and now put all of my OH "and" net profit on my labor, yet still marking up materials and subs for that extra net profit.I used to say that for newbies, the 50% markup was a good starter for them but that's not really true either. Any newbie should create his individual anticipated and known OH expenses, include a generous net profit, realize he will not do any more productive work annually than about 1800 man hours (or less) realistically, and only then calculate his basic markup, but still adjust that based upon various variables.
We never breakout our Overhead and Profit. In our operation our Overhead and Profit is either distributed and accounted for as a part of our labor rate or it's worked into our estimates based on the total company hours a projects takes us. Well almost, while we do recover O&P with our labor we do also tack on a percentage to our material costs and subcontracting costs but those percentages are pure Net Profit (not Gross Profit which includes Overhead).
"Reason for asking is when I print out an estimate using National Repair and Remodeling Estimator program ( I know, I know, I'm supposed to use my own rates, not theirs, but I've got to start somewhere until I figure out my costs for business), it prints out that I am charging 15% overhead and 10% profit."
That's an unfortunate quirk of their software, but hey the software comes free or virtually free when you buy one of their books so I guess you can't to picky.
"Do you think customers want to see that?"
I say they don't and no one has ever presented me with a logical argument as to why seeing O&P would help a customer in their decision making processes. What matters as far as decision making is concerned is what the bottom cost or costs are. When I buy a computer I want to know and make my decision on what is the computer going cost me not how much overhead and profit the manufacturer has. When I get my car or truck repaired I want to know what it's going to cost me not what my mechanic is charging me for overhead and profit.
How in a million years can I as a consumer make a rational and valid decision as to how much O&P is correct for any product or service. How could I possibly know? Why on earth would you want to give customers any data they can't really use in their decision making?
"Do you give an itemized estimate, or just give them a number?"
Well yes we often do but the O&P are distributed on a line by line basis then and not as their own separate line item. That way a potential customer can see that the stair we are doing has one price and perhaps Railing Design ABC costs $102 per LF for 36' of rail coming to a total of $3672 and make their decision on whether that railing design is worth that money to them. They can ten ask if are the less expensive alternatives to that railing or decide the railing is not nearly as expensive as they imagined it would be, could they also use railing design to replace the railing on their back stairs too.
Give the customer information they can use. Don't give them them information that going to cloud and confuse their judgment.
If you give them O&P as separate line items then in addition to figuring out what the changes in the railing designs will cost they then also have to figure out how those changes are going to change what you are charging them for Overhead & Profit too. Remember Keep Things Simple.
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This thread got you so excited you had to post twice?? lol!
I wasn't going near this subject. Certainley one of the more ridiculous suggestions I have heard in a while, and many of you know by now, I have my OWN issues to deal with!
I was waiting for you, Sonny and Mike to chime in on this.
I have to wonder where this idea originated?
Eric
I Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
Eric Paulson - "This thread got you so excited you had to post twice?? lol!"
I think I generally try to respond to posts on an individual post by post basis but your correct this topic does get me riled up I guess. Breaking out the O&P just seems so illogical,
"I have to wonder where this idea originated?"
I just took a walk down the hill to get the mail and I was wondering the same thing. I'm thinking it can possibly be attributed to a couple of things but number one on my list is it's probably a leftover artifact from the pre-computer days of paper spreadsheets. A builder or remodeler would list all his costs as costs and then at the bottom of the page add in his or hers Overhead & Profit. Rather than rewriting and re-computing the spreadsheet all over again just for the consumer the contractor would just use that sheet and then explain all the items individually.
In today's day and age where we have computers that give us an incredible number of options for displaying data it just doesn't make any sense anymore and can even be put in the category of "too much information".
I also think the practice of breaking out O& P comes from the use of Cost Plus Fixed Fee contracts where the Fixed Fee is essentially just another composite term for Overhead and Profit.
And it's also an artifact from the insurance industry. Insurance adjusters figure their estimates by using a bunch of average standard costs and then adding 10% Plus 10% for Overhead and Profit.
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I read about showing O&P on bids and bills in a couple of "Run Your Own Contracting Business" books before I adopted the practice. I can't remember the titles or authors, but a few "biz gurus" seem to advocate this idea (though it is vigorously opposed by most here).As Eric Paulson said on some other topic, "putting on flame-suit now"...
...I still have not deleted overhead from my bids yet (though I am considering it). I often err on the side of over-disclosure which I consider a form of honesty. I now have a backlog of 15 projects and have five more to look at. So the practice doesn't seem to scare many people off. I get about 80% of the work I bid and don't want most of the jobs I don't get. I have seldom been questioned about charging for overhead. My customers must trust me based on referrals, references and reputation enough to ignore or put up with this disclosure of overhead. It may still be a bad idea to show these numbers, as many here insist. I agree that the bottom line is what matters on bids, but I have far more customers that say they like how I show where the numbers come from when compared to the occasional person questioning the details.The way these things are viewed may have some regional component. My market is "small town/Mid-west," and efforts at transparency and honesty in business are probably accepted at face value and appreciated, rather than viewed with suspicion.
a detailed Proposal is as honest as it gets.. and (fixed fee, lump sum ) it doesn't make you "more honest " by disclosing O& P..
which by the way.. are terms of unreality anyways
they are projections of what you are hoping they will be... but really they are just an amount that will be applied to the general catch-all of " contribution to overhead"
in other words... unless you hit all your numbers, those percentages ain't going to mean squat..
suppose you underestimate you labor by 50%.. what happens to your 15 & 10 then ?
it disappears down the black hole..
i'd be much more concerned with hiring a contractor who can give me references to happy customers than someone who is going to break out his mark-up percentages for meMike Smith Rhode Island : Design / Build / Repair / Restore
I agree that references are far more important than breaking out mark-up on bids. Actually I am not sure showing O&P is a good idea at all. Of course it may not be such a horrible idea either. It may be that for some contractors (who have developed a solid reputation and whose services are in demand) the details of bidding are relatively unimportant. I also agree that disclosing these percentages does not make one more honest, just more transparent. I am willing to consider the disclosure, of such details as O&P in proposals, as possibly right, wrong or indifferent. It may depend on the contractor, customer and regional culture. I just haven't seen any negative feedback from my use of such details (except in this forum). I am now questioning my use of these numbers and will be sensitive to how they are recieved by future customers. I had already planned to do customer satisfaction suveys and I will be asking customers to evaluate the bidding process among other things. I will be curious to find out what my customers have been thinking.As always, thank you for your feedback.
Ya know I don't really mean to beat this horse to death but I'm thinking if a contractor is going to show customers Overhead & Profit why not just give them the full breakdown. If were going to give them this information why not go all the way an give them a completed worksheet like my PILAO Worksheet with all the breakdown of Overhead costs? Why not give them the full skinny that way there can't be any subjective argument as to your Overhead being too high if you show them all your costs, right?
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bass... jerrald raises a good point...
it seems to me that anyone who wants to divulge their breakdown should not be doing Bid Work
they should be doing T&M with open book invoicing.. ie : either be transparent or not.. one of the worst things in this situation would be existing in limbo
( i think the concept is similar to "purgatory".. an olde roman catholic belief since abandoned by the church.. which is kinda too bad... cause my dad was always convinced that he was going to spend a lot of time there and wanted us kids to pray for his early release .... but alas.. purgatory & st. christopher both got the axe )
Mike Smith Rhode Island : Design / Build / Repair / Restore
The 35.00/hr is what it costs a contractor around here to have a carpenter on the books, wages plus FICA, L&I, SS, matching unemployment...whatever else we have to contribute. I call that "labor rate"
The 35% (give or take 1%) is what it has consistantly over the past 4 years cost me to hang my shingle. I call that "overhead".
The 20% that I apparently miscalculated is what I have decided I want to earn as profit.
I don't get into any of this when submitting a bid, but I do explain all of this before signing a contract that has the potential for changes that will require billing time and materials, like I said, to avoid any surprises when I present the bill. Why is any of the customer's business? Because they are writing the check.
I'm sorry to have confused you with the words I use. If they are different from the ones you're more accustomed to, maybe you can overlook the semantics and think about the content. Maybe you can even concede that billing practices that work just fine here in a rural community would get laughed right out of Westchester County, and visa versa.
Bottom line is, there is no single right or wrong way to operate a business. There are many variations. What works for you, might not for me, or the fledgling contractor trying to figure out how to make enough to stay in buisness in Albequerque. Some businesses sell a product. Some sell a service. Most carpentry companies sell a combination - so it gets pretty complicated.
Free speech leads to a free society.
Edited 3/20/2005 1:01 am ET by jim blodgett
Mike just touched on what I was thinking .
Let me guess a little here from all that posting and pasting .
You dont think the customer will pay per hour the top figgure . Im a little confused with out going back but Ill use 73.00 per hour. Dont shoot me if I dont remember correctly , it doesnt matter. I had the same problem you do. I actually agree with all three of them now , so Im a converted soul.[ Mike, Jerald& Sonny] They seem to approach it a little differnet but they all are driving to the same spot. Id like to share my take on it. Yoou can use Mikes or Jeralds for which Jerald is getting the nut off labor in my eys , but hell it doesnt matter again. As long as we know the figgures.
Theres no way to break all that to the client and I personally dont see ever working by the hour again cause its not gonna fly. As Mike said either put it out front in the beginning or keep it hid in a bid. Mike dont say a lot but he gets a lot said to me .
So that extra will be 294.00 , just like a jacket in the store. Thats all they will hear. Actually its 4 hours.
or
Its 73.00 an hour from start to finish.
Im right where you are and I had a problem charging so much too, but dang it they are right. I dont believe my customer here would pay 76.00 per hour , but I think I can sell it four 294.00 or I walk. I tried it tonight and I didnt get the job. They were a little pizzed too. But I didnt lose anything but some estimate time they would have charged for I guess. I lost that time maybe. I was told no. I got home and they called me eating supper. Hmm. I stood like a rock and Im not gonna come off it . Thats what he was trying to do was jew me . He actually got upset , but I didnt with him. I dont feel good about it . That was his intention, to get me down by making me feel bad. I dont have any idea if he will call again , but now I would rather he didnt . As bad as I feel right now , I still believe I can sell 294.00, but not 73.00 per hour.
I talked to a friend that works for a remodeling company. He sells the job and prices it out , gets a contract signed in this companies name . He doubles his price and that means the company gets half. Hes supplied the leads, they pay job insurance on him and comp I think. They pay him his half on completion whether the company gets paid or not. All Im saying is that hes bidding what he thinks hes worth and doubleing it . I can hire a carp for what hes getting paid, but thiose customers are paying double nearly. He works every day. So I guess Im worth that double amount too I didnt think I could get. BTW, that friend lives here in elcheapo Arkansas. That alone proved me wrong with these guys. They are right , but I dont see hourly working here.
Edit; I didnt see your last post of course because it beat me to posting, but I agree with what you said here too. I would be laughed at too if I broke it into hourly.
Timothy
Edited 3/20/2005 1:33 am ET by TIMMOONEY52
I do everything fixed price. Everything.
I once told a long time and top end landscaper my hourly, figguring he would understand the mechanics of what made up an hourly rate. He freaked. Once I explained the make up of that number he was OK with it.
After that NOBODY gets told my hourly.
The 'public' in my experience so far dont even have a good grasp of overhead. Profit is almost a dirty word. Tell them I make $20 an hour and they would be happy as a clam. Tell them for example.....$73 an hour no way it going to fly.
Work out the job at $73 an hour for 4 hours, $292.........no problem.
I dont break down price at all, ever. If they say it is too much or more than they expected, fine. They reduce their wish list and the cost comes down. I dont back up a cent.
Extra work gets a number for the completed extra. They dont like, it doesnt get done.
I get asked things like, "While your here, we were thinking of moving this over here, and making this thingy bigger"
My response might be "That would work well, lots of extra space etc. The last one of those I did worked out at $1100"
Like Sonny said, branding.
All my work is referrals and repeat business. I dont get every job by any stretch, but if they want 'me' it costs 'X'. Want cheap........find someone else. Sounds harsh, but bottom line is, its business not charity.
Everything, 100% of it, depends on how you look at it.
DW
Aj, I like your approach.
What clause do you use to charge for extras or change orders?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Blue,
The 'clause' is really no more than a line in the quote that effectively says that any work in addition to that listed in the quote will incur a charge. Also a change order will need to be filled out and signed before it starts.
I use a version of the document Sonny worked up called the "process". works well.
I am getting good enough with rough estimates to be able to give people an idea before wasting time working it all out. If they make the right noises I will quote it, then once they accept it gets done. If they choke or backpeddle.......I forget it.
I did a quote recently for someone who reckoned she 'had the money'. Odd I thought, as she has no idea what it will cost.
Did the quote, she asked questions and it became very clear that she expected her bathroom could be rearranged in a day for a thousand or so. When I said the floor had to be ripped out, 1/2 the wall linings etc.............."Oh, I had no idea...."
I should have known better and given a ballpark right off. She was an aquaintance of my wife so I skipped that step. Dumb.
I called in to look at a small flooring job on the way home. Will take 1/2 a day maybe, certainly no more than a whole day. A year ago I was told the going rate for this stuff was $22 to $27 per square meter to lay.
I make very little on the small ones, so I have been charging more for those. The last one I worked it based on $35. The guy never blinked.
This one I worked it out on $40..........'when can you start?'
I had worked out that I was losing money on the small ones. Then decided that wasnt very bright so upped the rate. Now I think why the hell should I do non profitable work? So I upped it again.
Be interesting to see at what point this thing will max out. :-)
I think Jerry said that 99% of businesses dont divulge their O+P.
Damn right. Imagine going to the supermarket and asking what the profit margin was on a can of beans?
I also agree with Sonny and others about this free quotes thing. Who the hell started that? Now it is entrenched and somehow and unwritten 'law' with many. Like they have a right to it.
Another 'law' is the 'get 3 quotes to compare'. I have noticed round here in the last couple of years though that it doesnt happen a whole lot any more. If someone can find a live carp that comes with a recommendation, they dont tend to mess around in case he gets booked up on someone elses job first.
I admit to doing free quotes, will work on changing that later. Still dont like it though.
Everything, 100% of it, depends on how you look at it.
DW
The way I look at it is this...
If I go get my truck fixed the GM dealer has the rate posted right there... $80/hr. Who in their right mind would pay a mechanic $80 per hour? Well just about everyone who every gets their car worked on. So, if asked, I compare it to the mechanic. I don't mind telling people that I have a lot of capitol tied up in tools, just like the mechanic. I also have spent years in specialty training in my field. I will do the job correctly and the way it should be done. Pay a handyman half the rate and it might take twice as long with less quality. Notice how the bottom line is the same. That is the same way the mechanic gets paid... flat rate. That means if the transmission job pays 7 hours thats how much he gets no matter if it takes him actually 5 or 9 hours. My golden rule is to be as clear as possible with the change orders. Make sure the customer is 100% clear and repeats it back to you. The husband or wife must be clear also. We know how that works.. one OK's then the other gets the bill!!Personally I think I'm worth more than a mechanic. Oh, by the way, I've never actually paid a mechanic in my life... do all the work myself or just help my mechanic buddy who I helped build his 3 car garage/workshop.I have not even started comparing my rate to a lawyer!!!!!
Jim,
I'm gooing to sypathize with you a bit, concerning acknowledging some of the advice tossed around here.
I've banged my head against the wall more than once after repitiously reading the advice of Jerrald, or Mike, or Sonny, or who ever.
I agree with what you suggest that what works for me may not be right for you, etc.
Do yourself a favor though. Keep an open mind and just consider what is being set before you.
I still argue with these guys on occassion, mostly to myself and not on the board. One reason being, is that the more I have opened my mind to new ideas, I realize more often then not, that after having the argument with myself, I realize that they are offering quality sound advise.
I have posted some threads here recently, you may have seen them.
I just turned 47, I've been at this for 25 years and I basically don't have a lot to show for it. But my customers do! All that nice work I've done for them has increased their wealth significantly, while I walked away leaving money on the table, almost every single time.
I know I need change, I have to, it's a must at this point. So maybe I have more incentive to open my ears and my mind.
It's hard too, sometimes to put together the bits and peices of information available here in a cohesive fashion.
Keep at it. Always look for ways to better yourself or your systems.
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
"I have posted some threads here recently, you may have seen them.
I just turned 47, I've been at this for 25 years and I basically don't have a lot to show for it. But my customers do! All that nice work I've done for them has increased their wealth significantly, while I walked away leaving money on the table, almost every single time.
I know I need change, I have to, it's a must at this point. So maybe I have more incentive to open my ears and my mind."
You seem like someone looking for business advice and what these guys say rings true for you. Great. Good luck with it. Every one of us benefits from mentors, in many different aspects of our lives. They say the first step in problem solving is recognizing the problem - sounds like you've done that.
But don't assume that we are all in the same boat as you.
Some of us have made a good living plying our craft over the years, through lean times and fat. Maybe we aren't as voiciferous about our opinions as others, or maybe we don't use catchy language or sophisticated technology to advance our ideas, but that doesn't mean our methods are unsound.
If what you are after is more money, these guys MIGHT be able to help you. But they might not. Ask yourself this - if they are so confidant in their approach(s) why do they get so defensive whenever someone, anyone, raises a differing opinion? I'm sure you've heard the expression "still water runs deep"? They remind me of the reformed smoker who runs around trying to convince everyone else to quit, or the born again Christian who...well, you know.
Good luck Eric, sincerely. Just be careful what kool-aid you drink. Free speech leads to a free society.
jim blodgett - ".... If what you are after is more money, these guys MIGHT be able to help you. But they might not. Ask yourself this - if they are so confidant in their approach(s) why do they get so defensive whenever someone, anyone, raises a differing opinion? I'm sure you've heard the expression "still water runs deep"? They remind me of the reformed smoker who runs around trying to convince everyone else to quit, or the born again Christian who...well, you know."
While your comment was to Eric you're really sort of passively aggressively directing that toward me and what I've been saying am I correct? Clever. Don't worry I'm not offended. I think the logical arguments against showing Overhead & Profit stand on their own logical merits not due to my evangelizing about them.
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"While your comment was to Eric you're really sort of passively aggressively directing that toward me and what I've been saying am I correct? Clever. Don't worry I'm not offended."
No Jerrald, not correct. I simply wanted to explain to Eric why I didn't need the same advice he says he needs, why yours and Sonny's same old arguments fall on deaf ears. Heard it before. Didn't ring true the first time and never has since.
I am glad you're not offended though. Free speech leads to a free society.
One of the problems with the public's perception of contractors is that although we may use a company name, we really don't own a company. We work for ourselves and as such only work for "a wage", and in their mind, aer only entitled to a wage."Profit? Don't you pay yourself?" I've heard more than a few times."Overhead" What overhead. You work out of your house."So on my back pocket Daytimer is a folded up piece of paper entitled "Operating Expenses". People believe what they read - not what they hear, unless of course, what they hear is gossip.And when people occasionally ask me what I charge per hour, I confuse them by saying:I don't charge by the hour. I take the wage I pay myself, add labor burden to it, which is vacations holidays, workers comp, liability insurance, etc., than also add a percentage for my company's operating expenses and profit." I might even through in something like: "My truck, it's depreciation, insurance, repairs, gas and oil changes cost me and my 'company' about $8000 per year. That 'cost' is par of my operating expenses."I usually get a: "Oh" knowing that they don't know what I'm talking about, but the conversation then changes to the work to be done.In absolutely no case will I bare my expenses. My company is NOT a publicly traded company. I've also told people that a detailed Proposal is not an "entitlement." I am not our federal government, but a private enterprise.One time when a guy asked me what my expenses were, I shot back: "What are YOUR expenses. After all, I want to be assured that you have the financial capacity to pay me. Maybe we should each run a credit check on each other. I'll agree." To which he got the message and laughed.Maybe I'm getting too old, or just plain arrogant, but "This is your price." has worked well for me for nearly 35 years, and from a $100 repair to a $1.1M remodel.That being said, if baring your azz works for any of you here, I'm happy for you. Just remember, don't manipulate the numbers you're showing on paper because if a problem occurs, what you're doing constitutes fraud.
Sonny Lykos - "In absolutely no case will I bare my expenses. My company is NOT a publicly traded company. I've also told people that a detailed Proposal is not an "entitlement." I am not our federal government, but a private enterprise.
One time when a guy asked me what my expenses were, I shot back: "What are YOUR expenses. After all, I want to be assured that you have the financial capacity to pay me. Maybe we should each run a credit check on each other. I'll agree." To which he got the message and laughed."
To the best of my recollection no one has ever asked me what my costs are as they pertain to Overhead & Profit (except of course other contractors as we discussed and compared our costs and methods).
But I thinking that if anyone ever did ask, even though its really none of their damn business as your illustrating, I don't think I would mind showing them. I run an Open Book company and wouldn't mind at all showing the numbers I have because as I was hinting at in my post #55725.49 where I was sort of facetiously recommending just showing an excel worksheet like my PILAO Worksheet I feel I can explain and justify every single cost and expense we have.
But still that's really none of their business and it diverts the customers attention away from what matters which is the real number that they can have effect and control over. The costs of their project.
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Let's turn it around.I provide credit to a customer, which is exactly what I do, since I don't get paid every hour as every hour I work for thim is being expended.As such, I'm no different than any other "creditor."And as such, if he's entitled (in his mind) to see my itemized expenses, then as any other creditor extending credit to him, and regardless of the duration, while I may not be entitled to see his assets, I'm certainly entitled to run a credit check on him.Then both the goose and the gander will be on a level playing field.
Jim, I don't think Jerrald or anyone is being defensive. Jerrald is simply replying in as many ways as possible.
I think the discussion is stalemated because no one can offer a good reason to Jerrald as to why he should offer up an O and P breakout. The closest anyone has come to answering that question is that they "feel" like they are being more honest.
I think the honesty thing is the root of the OandP dispute and I think most tradesmen "feel" like they are earning too much if they ask for more than carpenters wages. Theres a certain mindset that it takes to be a carpenter and quite often, carpenters feel like they are leaving their soul behind if they pursue a proper business direction. Indeed, it's not uncommon for carpenters to vocally assert that they don't intend to get rich. Deep inside, they sabotage their own efforts at succeeding in business, simply so they can stay tuned to their chosen craft.
The only other reason that offering the Oand P numbers is because it is sometimes done in cost plus deals. Unsophisticated businessmen mistakenly think that if you do it in one type of contractural agreement, then is must be good in all types of contracturaly agreements.
One more reason is possible. Carpenters know that they must raise their hourly rates, but are embarrassed to just flat out demand such a high rate. So, in their own "beat around the bush" way, they "prove" that they are working for "normal" rates, then start adding numbers till it gets real high...high enough to survive.
The smart ones eventually get the rate high enough to survive...even if they do break a lot of common sense rules along the way.
Interesting discussion.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
blue_eyed_devil - "Jim, I don't think Jerrald or anyone is being defensive. Jerrald is simply replying in as many ways as possible."
I didn't think I was being defensive either. If anything I thought I was maybe being offensive. A young woman who once worked for me once said "When you first meet Jerry he comes off as pretty intense but once you get to know him... he really starts to pile it on". Intense, yeah I think that's a real good description.
"I think the honesty thing is the root of the OandP dispute and I think most tradesmen "feel" like they are earning too much if they ask for more than carpenters wages. Theres a certain mindset that it takes to be a carpenter and quite often, carpenters feel like they are leaving their soul behind if they pursue a proper business direction."
I agree 100% on that and I think that contributes to why some contractors feel they have to or want to show their Overhead & Profit. I psychologically helps them justify to themselves what they themselves even think are outrageous rates.
"One more reason is possible. Carpenters know that they must raise their hourly rates, but are embarrassed to just flat out demand such a high rate. So, in their own "beat around the bush" way, they "prove" that they are working for "normal" rates, then start adding numbers till it gets real high...high enough to survive."
Good point there too.
I do think that Maryland Mike presents a good valid reason in support of splitting out O&P but then again as I said in post #55725.77 that problem doesn't ever really pop up for contractors using a Capacity Based Markup based markup strategy. Still if a contractor is wedded to using Traditional Estimated Total Volume Based Markup method then splitting our O&P begins to make sense under the scenario that Maryland Mike describes. I still think the cons far outweigh the pros but I can see his point.
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Jerrald, I'm in agreement with you, as well as MarylanMike. I'm about to enter the world of retail marketing for the first time in a decade and there will not be any discussion about o and p except in broad general terms. I can whine about high costs of Worker Comp and liability with the best of them...
I will be offering fixed fee building though. I like the idea of setting a fixed build fee, then digging in and helping to value engineer a building. The custom builder that has agreed to work with us has done this for many years. I think it makes sense, especially for large customs. We like the idea of selling large customs and letting Rob handle them...I've been thinking of my marketing approach. I'm probably going to build a presentation book of Rob's work featuring his most prominent build, a 10,000sf custom for Curtis Joseph....one of your tratorios former Maple Leafs!
blue
Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
"I think the honesty thing is the root of the O andP dispute and I think most tradesmen "feel" like they are earning too much if they ask for more than carpenters wages. Theres a certain mindset that it takes to be a carpenter and quite often, carpenters feel like they are leaving their soul behind if they pursue a proper business direction. Indeed, it's not uncommon for carpenters to vocally assert that they don't intend to get rich. Deep inside, they sabotage their own efforts at succeeding in business, simply so they can stay tuned to their chosen craft."Great truism!It seems many of us feel we have to justify our prices to ourself before presenting it to the customer. I remember way back when I used to come up with a final number and say to myseal: "Whoa! I can't give them that price"so I'd go over my estimate sheet line by line and say: "OK, I've got this at 6 hours. If I work quickly I can do it in 5. And this at 4 I can probably do in 3. "Of course the orignal 6 ended up taking 7 and the original 4 came in at 5 so I lost 4 hours of money in a day and a half. Business conflicts with trade work - for tradesmen. For "businessmen" business is business and the numbers don't lie. Can you imagine a car saleman being embarrased to tell a customr: "This car will cost you $28,765.00 plus tax and title transer." He'd be fired in a week! And he didn't even make the car.And that's why hired sales people can sell jobs at prices we, as "tradesmen owners" would not ever imagine. And that's why we have to acknowledge that as business owners, we are in fact, sales people 1st - and then act like it.
so I'd go over my estimate sheet line by line and say: "OK, I've got this at 6 hours. If I work quickly I can do it in 5. And this at 4 I can probably do in 3.
Sonny, that is so funny...but sadly it's true! I still do the same thing. I'm the worst. I'm so bad that I make Frank do all the bidding now. Probably the worst thing is that I actually USED TO DO THOSE THINGS THAT FAST, but no more. I can't even comprehend getting something done like a set of stairs built in a half hour or an hour at the slowest, but I know I've done it. So, when the price looks too high, I start cutting, knowing that it really could be done in my optimistic timeframe. The problem is, that we don't have anyone that can actually do it anymore! I've got to learn to price things in the reality that really exists, not in my fantasy land or my past.
I'll also admit that I'm not really comfortable talking about money at all with clients. It's one of my most damaging weaknesses and over the years I have left a lot of money on the table. I've researched to find ways for me to overcome my fear of money and fear of making proposals, but haven't found anything to date to help me. I attended a lot of sales trainings and still couldn't overcome this personality trait.
I did finally come up with a solution. I had a sitdown with a very competent sales professional today. I layed out all the products that I've been discussing since the show. All totaled, I believe I have the ability to produce 3 million dollars worth of retail product with the setup I have now and when you factor in a 10% sales commission and 5% marketing budget, we aren't really talking small potatos. I'm pretty sure my selling to the sales agent was well received. He's rearranging his scedule to accompany me next week on my first foray into the wild world of retail sales. I'll be soliciting a SCA at that time. At that time, I'll have to talk about the money, but I may have already primed them about the $2500 design and plan fee. I can't remember...
Like I said...good topic.
blue
Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Blue, I wonder how many others have done, or still do that same "cut the hours" thing, but just wouldn't admit it. Believe me, after 35 years doing this for a living, I still occasionally find myself fighting the urge to do it again. Old habits die slowly - very slowly.I think it's because we are basically trades people at heart adn hate th emoney and paperwork aspect. Pete was like that. Tom on the other hand is jsut the opposite. To him it's money first, and everything else is conversation. I sometimes refer to hm as the Naples Donald Trump of remodeling. He'll bend over backwards to service a customer/sub/employee/vendor but when it comes to basic business, he's a hard azz - and good for him. I guess that's why he makes the big bucks.
I think I'm more like Pete and Frank is like Tom. Frank gets really fired up when we talk about money. He also draw a hard line in the sand and is willing to drop someone if they cross it!
LoL... maybe we do have a marriage made in heaven.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
You guys nailed me badly with this shaving the hours off thing. A builder I worked for told me that before he totaled up his bids, he thought about his family and the other families that would be supported by his enterprise. This helps me buck up a little when I'm delivering a price for someones project.
When I read this thread, and other similar threads, I realize that I'm getting the benefit of years of hard earned experience at no cost to myself. So for what its worth Thank You to all who post here. You wont pay for the drinks if we ever meet
Tom
They say our types make perfect partners. A compassionate one and a hard azz. Or one very easy going & laid back and a "businessman." We relinquish to each other's strengths, yet also cover each others short comings.
Theres a certain mindset that it takes to be a carpenter and quite often, carpenters feel like they are leaving their soul behind if they pursue a proper business direction. Indeed, it's not uncommon for carpenters to vocally assert that they don't intend to get rich. Deep inside, they sabotage their own efforts at succeeding in business, simply so they can stay tuned to their chosen craft.
Damn Blue,
You must be doing a lot of thinking lately!
I'm pasting that one to the inside of my eyelids!!
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
That is a good one isn't it. Poetic too.
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Jim, from what I know you are in an area where the general attitude of the people there is stuck on paying a carpenter 25-35$ hour right?
What I believe you are saying (and I have experience with this on two fronts), is that in an area where there is a pre-conceived value to your hourly rate (as a carpenter), you need a tool to rationalize what you know you need for profit and prosperity.
When I started I was 19 years old and looked 15. Noone trusted me because I looked too young, so I had to develop ways of appeasing people and rationalizing my pay. Agaiin, when I moved out of the city I hit an area where preconceived value was roughly half what I was getting paid.
I get the distinct impression from talking you you and reading your mass of material on this forum that your sales style is more based on trust and organic salesmanship, than just selling on price.
Different personalities lend themselves to different styles-and different places (cultures) are drawn to various selling styles. As you may be a fish out of water in Texas or New York... what you do and how you do it may be optimal in your area.
BTW... interesting calls from the web site yet?
L
GardenStructure.com~Build for the Art of it!
Yeah, something like that, Lawrence.
Website? Several people have commented to me about it, but I don't remember anyone calling out of the blue sayiong "we found you on the web". I tried to set it up as an online portfolio of sorts, so that potential customers could look at it in the comfort of their own home, when time allowed, with no sense of pressure that often comes with a sit down meeting. So far it has worked beautifully for that, leading to jobs with people who know me but might have hed misconceptions about what type work I do.
Sales? I seldom think about sales but I guess you're right. The way I live my life, run my business, write contracts (when I DO write them) probably wouldn't work for anyone else, the same way no one else would be as happy married to the same woman as me or living the same way. That's the beauty of life (and business). We all get a chance to invent our own reality. Free speech leads to a free society.
I think you are going to have a pleasant surprize with that site... It's really an insight into your personality. People will be drawn to your company because of it. Nothing on line happens instantly-takes a few months and getting the URL out there in some advertising and on vehicles etc for it to develop business in a consistent way.
Likely most of your work is word of mouth anyhow, so as a portfolio it should work very well.
Good Luck with it Jim...
LGardenStructure.com~Build for the Art of it!
jim blodgett - "I don't get into any of this when submitting a bid, but I do explain all of this before signing a contract that has the potential for changes that will require billing time and materials, like I said, to avoid any surprises when I present the bill. Why is any of the customer's business? Because they are writing the check."
Okay but I still don't get why we need to explain O&P at all? Why not just say it's 64.50 per hour?
Like I've said 99% of all the other businesses these consumers deal with don't explain or breakout their Overhead & Profit for their products and services. What is so special about contracting that we are the only ones that need to this?
I'm still waiting for someone to offer an explanation as to how or why the O&P breakout is helpful and/or essential to the customers decision making process.
"I'm sorry to have confused you with the words I use. If they are different from the ones you're more accustomed to, maybe you can overlook the semantics and think about the content...."
I was trying to focus on the content but you are missing the point I was making then too. If I found your explanation confusing so will your customers.
"...Maybe you can even concede that billing practices that work just fine here in a rural community would get laughed right out of Westchester County, and visa versa."
I don't see why that would be the case at all. Best practices are best practices no matter what section of the country you are talking about.
"Bottom line is, there is no single right or wrong way to operate a business. There are many variations..."
But it does seem, at least to me, that there are some truths that hold true for all businesses regardless of what kind of business they are or where they are located.
Still if showing Overhead & Profit works and is useful someone needs to show me just why it is. But even then I would think if it really helps out when making a sale a lot more businesses and industries would be taking up the practice everyday. If it works for you (and I using You in it's plural context so anyone who breaks out Overhead & Profit can chime in) there has to be an explanation of how it could possibly work for me or even in other businesses and industries.
I still don't see just how the Overhead & Profit information helps the customer.
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"If it works for you (and I using You in it's plural context so anyone who breaks out Overhead & Profit can chime in) there has to be an explanation of how it could possibly work for me or even in other businesses and industries."
Well, I've done my best to answer your questions, Jerrald. If all I've done is confuse you so far, I don't see what more I can do with a keyboard. Maybe we'll get the opportunity to discuss this further face to face sometime. Seems like I communicate a lot better in person.
Then again, maybe it wouldn't help you at all to spell this out for your customers. I can't remember ever saying what you should or shouldn't do. It's up to you to accept the idea or reject it - no skin off my nose either way. "To each his own".
Free speech leads to a free society.
I'm sorry Jim but I just don't think "Because they are writing the check" is valid or logical reasoning for showing Overhead & Profit.
My argument is that showing Overhead & Profit is both unnecessary and potentially confusing to the customer so why do it?
I just went down down to get coffee and say a bunch of people I know from the coffee shop sitting there talking so I put the question to them as to what goes into their decision in evaluating an estimate and making a decision regarding hiring a contractor. I heard a whole bunch of things but none of them, and it was a group of seven, said anything about the contractor showing Overhead & Profit. I didn't bring it up because I don't want to influence or coach any replies to the question but none of them said anything about wanting to see or understand Overhead & Profit.
As I drove back home I began to think about what I've read in all the consumer magazines or seen on TV on channels like HGTV about selecting a contractor and to the very best of my recollection I don't recall anything about knowing and understanding what your contractors Overhead & Profit are.
For some reason a lot of us as contractors think showing Overhead & Profit is what customers want and need and the evidence just doesn't support it. Maybe we are not really listening to our customers and instead displaying Overhead & Profit as some way subconsciously justifying ourselves.
I think showing Overhead & Profit is just a useless artifact that contractors think is necessary when it really isn't that causes more problems that it solves. Listen Jim I realize I'm not going to convince you of anything that is going to get you to change your approach (or Jay or anybody else who are locked in to their way of doing things for that matter) but I am here telling people like carpenter in progress who are asking what to do not to do it. And I'm presenting my reasoning as to why it's a poor practice.
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"I'm sorry Jim but I just don't think "Because they are writing the check" is valid or logical reasoning for showing Overhead & Profit."
Then don't do it. I don't think I ever said you (or anyone else) should. Free speech leads to a free society.
Jim,I'll reply to you, 'cause I agree with you.Most of my work is design-build, focusing on additions, or larger whole house remodeling. Occasionally, there are similar scope projects where I am working with an outside architect. The market area that I work in is primarily higher end, with educated, professional, upper middle class clients. I say all this because I can't make a blanket statement as to whether or not someone should show their O&P. I only know that, for this group of folks, with these types of projects, I have not had a problem.Since I am generally involved in the project early on, as the design is being developed, and since I am being paid for these planning services (either under my design-build contract, or as a planning contract for architect referred projects), it is very helpful (and expected, really) to be able to show the clients where the money is going, as the project is fleshed out.Most people have no real idea what things should cost, but when shown a spreadsheet with a hundred or so items broken out, they can see clearly what goes into pricing a project. In the past, before I was comfortable with what I needed to charge above and beyond costs for O&P (and before I was comfortable telling that to a client), I tended to build these markups into those various items. This caused problems occasionally because, when listing a refrigerator on one line for example, the client saw a cost far more than what they saw in the local appliance store's ad that weekend. Even when it was explained to them, some were reluctant to accept that I was justified in marking something up that much. Mentally, they had a hard time dealing with it. As well, it was difficult, looking at that breakdown sheet with my clients, to do a good job of value engineering while having to account for O&P on every line. Without that in way, it's much easier to show them the vendor/ sub quotes with all the helpful specs & detail on them (and without prices whited out), and have intelligent discussions as to the merits of one style, type, system......whatever.Eventually, after going out of business due to not knowing my true costs of being in business (sound familiar?), I tried again. This time I knew what I needed to charge, and with that knowledge came the confidence to lay that out for anyone that cared to look. I started listing the O&P at the end of the breakdown sheet.I have been questioned about it only a few times, and in all cases I have explained things and continued with the planning work.In a nutshell, I feel that if you are comfortable with your numbers, you have no reason to hide or apologize for them. If a client asks about them, I like to get that conversation out of the way, and move on to planning further. In no case do I back down on them.Once that is dealt with (if it needs to be dealt with at all), I can get on with planning and building trust with my clients, instead of always running around like a squirrel, wondering where all my O&P acorns have been hidden.Sorry if I am long winded, but I just don't have a problem with showing things. It works for me.
Maryland Mike - "In the past, before I was comfortable with what I needed to charge above and beyond costs for O&P (and before I was comfortable telling that to a client), I tended to build these markups into those various items. This caused problems occasionally because, when listing a refrigerator on one line for example, the client saw a cost far more than what they saw in the local appliance store's ad that weekend. Even when it was explained to them, some were reluctant to accept that I was justified in marking something up that much. Mentally, they had a hard time dealing with it."
Interesting, excellent, finally,...I think that may be the first in real valid logical reasoning that I have heard for showing your Overhead and Profit as a seperate line item. That's a real good issue and point to bring up.
I never even considerd that as a possiblity but in defense of my not ever considering that being an issue that's only an issue for contractors that use the Traditional Estimated Total Volume Based Markup such as Michael Stone and Walt Stoeppewerth teach. Contractors using a Capacity Based Markup type of system (also know as PROOF, Indexed or Labor Allocated) don't experience that problem and along with Irv Chassen, Ellen Rohr, and David Gerstel that's what I advocate and use in our operation as well as many other contractors here.
In the Traditional Estimated Total Volume Based Markup system since the responsiblity of overhead and profit recovery is a function of the sum of a companys own Internal Labor, its Subcontrating, and it Material Costs there is one common markup that is applied to each one of those items. Contractor's using that system typically have markups ranging from a low of 1.33 to around 1.67. So when a contractor applies that markup to a $1700 refrigerator it shows up anywhere from $2261 to $2839 and the customer balks.
However a contractor using Capacity Based Markup Overhead and Profit are recovered solely (or at least primarily) as a function of Labor. In theory under that method you don't need to markup Materials at all to cover you Overhead. But contractors will often 9and I think should) markup Materials for some king f Net Profit. So for a contractor using that method that $1700 refrigerator shows up on as costing $1700 to $1900 (marked up 12%) which is much more palatable.
But Maryland Mike this brings up another question which probably should reallt be looked at as it own seperate topic. If you list that $1700 refrigerator as $1700 in you estimate what do you do if the client then says they want the $2680 deluxe frig? do you adjust your Overhead & Profit figure or just let it stay the same?
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Jerrald,Most of my clients don't necessarily care to go into every line on my estimates. Like most, they just want to know what the bottom line is. For those that are interested in drilling deeper into things to fine tune the budget, not having O&P in the way is really helpful. I need to clarify though. The only things in my estimates that are in any sense "negotiable" are primarily fit and finish items (what kind of cabinets, tile, appliances....which rooms to paint etc.)Things like how long it will take to frame the 2nd floor, or how much lumber or block are being used are never questioned. Nor would I let them be. They are paying me to be the "expert" after all!All that said, I would agree that the PROOF way of doing things makes a "cleaner" calculation. If your estimating skills are good, then, on every job, you know you have things covered. I haven't read Chassen's or Rohr's books, but I have read what Gerstel has to say about it, and I mostly agree.Truth be told, I'm probably headed that way in my thinking. Although, really, as long as you know what your numbers need to be and stick to that, either process seems to work fine.About the only problem I would anticipate in PROOF type system, would be in situations where you are outside the scope of projects you normally build. For example, your project niche (mine is larger remodels) might well support the kind of bottom line numbers that you arrive at via PROOF, but on different projects (labor heavy projects, such as repairs for example), your hourly figure would be well beyond what is normally paid for that type of work in your particular market. That might keep you from being competitive in those areas (if you want to be!)If you are committed to doing only certain types of work, this might not be an issue too often, but I could see where it might if your project mix was more varied.Finally, regarding the fridge.........I try not to run into that situation because I try hard to get all those selections made prior to going to final pricing. When I can't do this, I use allowances. For allowances, I try to give a real number that reflects what I honestly think the client is going to spend, or even a little higher. It seems like good psychology to me when I can explain to my client that "yes, Ms. Jones, I do have $3,000 in here for a refrigerator, because that is the type of refrigerator I believe you wanted. You might well spend less than that, and that's be fine with me." It certainly works better than doing things the other way around- lowballing someone and then dinging them with an upcharge.As for what I do with that same fridge, regarding O&P? My contract says that allowances are dealt with on an actual cost basis, meaning that if they go over or under, I am only compensated (or issuing credits) based on the actual cost of the item, including taxes, delivery charges and any other outside costs related to that particular product. My O&P does not change on allowances.I am sure that someone, somewhere, will, one day blow over my allowance by a hefty amount, but it hasn't happened too many times for me to worry about taking a serious hit to my O&P. I just let that issue be.Mike
Maryland Mike - "I need to clarify though. The only things in my estimates that are in any sense "negotiable" are primarily fit and finish items (what kind of cabinets, tile, appliances....which rooms to paint etc.)Things like how long it will take to frame the 2nd floor, or how much lumber or block are being used are never questioned. Nor would I let them be. They are paying me to be the "expert" after all!"
Good policy. That's essentially what we do too. The only things that are negotiable (and flex priced is probably a better description) are what we offer as contract alternates and what we have tagged as allowance items. The fridge in our case would be listed on an allowance sheet and in the contract agreement it's stated that all allowances are subject to a 10% fee so the owner is either charged or credited according to that schedule.
"About the only problem I would anticipate in PROOF type system, would be in situations where you are outside the scope of projects you normally build. For example, your project niche (mine is larger remodels) might well support the kind of bottom line numbers that you arrive at via PROOF, but on different projects (labor heavy projects, such as repairs for example), your hourly figure would be well beyond what is normally paid for that type of work in your particular market. That might keep you from being competitive in those areas (if you want to be!)"
That's true but the is a big but attached to that. If you compare the labor only hourly rate that a Traditional Estimated Total Volume Based Markup contractor charges you versus the hourly rate that a Capacity Based PROOF Type Markup contractor charges you the Capacity Based PROOF contractors rate is going to be dramatically higher.
The big BUT is if you loose a labor only or labor intensive job to the Traditional Markup contractor because of that hourly rate you can rest assured the other guy is loosing money on the job because they don't have any material or subcontracted sales contributing to overhead. Yeah the Capacity Based PROOF method yield a higher labor rate but it's the only method that scaleable and provides a consistent return to cover your overhead.
The paper I wrote on the potential problem in using a Traditional Estimated Total Volume Based Markup while fictional was based on my own real life experience getting caught in that trap myself (Markup: Comparing the Traditional Volume Based Markup vs. the PROOF/Indexed/Labor Allocated method).
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Jerrald,
I agree completely that your labor rate is going to be higher using PROOF, and that someone who doesn't account for that is potentially going to leave a wad o' cash on the table. Been there, done that. Not fun at all after it happens a few times (and you're too inexperienced to know why you're losing your shirt!).
It points up another good reason why finding your niche is important. It's much easier to quantify how efficiently you do things, if you do the same sorts of projects all the time.
Right now, my wheel's not broken, so I probably won't fix anything. The best I can say in either the traditional or PROOF method is to know your numbers and don't back down on them.
I think Blue mentioned that habit of looking at your estimate and saying "nah! It can't take that long. I'll shave that down a little so it looks more reasonable". I think a lot of folks do that with the numbers too. They think "hell, there's a nice hunk of gross profit in this one. I can afford to not be so anal about the financials." This is especially true for guys (or girls) that do primarily smaller projects and then get "the big one". That attitude is what starts the wheel of doom spinning.
mike.. my experience is that General remodeling / additions is inherently inefficient
and if you are "competing" against someone else.. they pretty much have to be just as inefficient as you...
OR.. they have to have a staff that can remove the inefficiencies.. which of course means that their overhead is going to be much larger
IE: if you are selling service and a remodeling experience to your (our ) customers.. you need to get a price high enough to deliver on your reputation
a one -man band is pretty efficient... but a small company will always have the fog of war syndrome..
now.. i'm NOT talking about specialty trades.. i'm talking about full service remodeling companies
Mike Smith Rhode Island : Design / Build / Repair / Restore
Edited 3/21/2005 6:32 pm ET by Mike Smith
MikeI agree that trying to do all things for all people is not efficient. You never get to do enough things enough times to get some speed going. You might do many things really well, but not make any money in the process.......kinda' like me building cabinets. I love the work, but I'd go broke doing it. I'm far better off using talented subs, and making some money off their good efforts than my own.As a one man band, I do find I'm fairly efficient. The chain of communication is a pretty short one...between the lobes of my brain! The downside of that is that if the lead carpenter says the salesman f***ed up, and the salesman wants the CEO to sort it all out, that whole conversation takes place with one mouth and I end up looking like "Sybil"!Finall, I'm not sure what you mean by the "fog of war syndrome". Care to riff on that a little?Mike
"fog of war".... in the heat of combat, nothing goes as planned...
in any given remodeling job, you start out with a plan but wind up modifying it on a daily basis to fit the new reality... and it all seems very inefficient
i used to think i was really unskilled, inefficient, unproductive..
but it is always in the context of "compared to what "...
it also comes into play when i'm evaluating my guys... hmm .. could i have done that better than them .. maybe.. but if i were doing that... who was going to do my job?
in any organization we have resources and we can use those resources to the best of the ability of the organization and the systems we evolve.. ( i think this is part of the "theory of constraints" discussed in "The Goal")... so..
the relative efficiency of one competent contractor to another ( a General Contractor in remodeling.. not a specialty contractor ) is pretty even... and what i have come to realise is.. my price is not high.. it is what it has to be in order to deliver the product..
if my customer wants the satisfaction .. he has to pay the price.. there is no free lunch....
all of this assumes a certain plateau of experience and competency.. but once you have those, then your price should follow..
stating ......or not stating .......one's O&P seperately, has nothing to do with itMike Smith Rhode Island : Design / Build / Repair / Restore
Good posts.
Timothy
Mike,Mike Smith- " if my customer wants the satisfaction .. he has to pay the price.. there is no free lunch....all of this assumes a certain plateau of experience and competency.. but once you have those, then your price should follow..stating ......or not stating .......one's O&P seperately, has nothing to do with it." I agree completely with that.For me, breaking O&P out is just a means to an end. I feel it helps my planning process go smoother. I'm not at all tied up in whether I "deserve" the money or not. I've been down that road before and i won't do that again. Mike
55725.99 and 55725.101. Thanks, you've put down in these what's been rolling around inside this noggin for quite a while. Remodeling Contractor just outside the Glass City.
Quittin' Time
I think the honesty thing is the root of the OandP dispute and I think most tradesmen "feel" like they are earning too much if they ask for more than carpenters wages. Theres a certain mindset that it takes to be a carpenter and quite often, carpenters feel like they are leaving their soul behind if they pursue a proper business direction. Indeed, it's not uncommon for carpenters to vocally assert that they don't intend to get rich. Deep inside, they sabotage their own efforts at succeeding in business, simply so they can stay tuned to their chosen craft.
Blue this may be single most important and relevant observation I have read here. Believe me when I say that by no means does it denigrate or diminish any of the great suggestions and observations available.
Thanks yet again.
Tim
Edited 3/22/2005 7:46 am ET by TMO
Tim, your words humble me. Thank you.
Please understand that it's okay for Carpenters and Business men to co-exist peacefully. The two concepts compliment themselves if they will let it. Each component is important and equally critical to the overall operation but most Carpenters run away from their business duties, or look down upon them as something that they should try to steer clear of.
My grandfather was an excellent cabinet builder. He did on site custom cabinetry for the Ford family. He was a lousy business man and wouldn't delegate that task.
He died poor. If he would have understood that there is more to the business of carpentry, than just carpentry, he could have spread his skills over a much wider area. It's sad, he cheated himself and a lot of possible clients that would have loved his craftsmanship.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
"He died poor. If he would have understood that there is more to the business of carpentry, than just carpentry, he could have spread his skills over a much wider area. It's sad, he cheated himself and a lot of possible clients that would have loved his craftsmanship."
Were there long periods of inactivity in his working schedule? Would you say his business was steady, or up and down?Free speech leads to a free society.
Jim, I wouldn't be able to specifically know of his steadiness, but I do know that my Mom talks of times of no money. They lived through the depression. Work was scarce. Gramps grew his food on city plots.
In his old age, he lived in a ramshackle house up in Norther Michigan, in a little town called Frederic. I went there once. The house looked like a disaster from the road. Gramps had a sign out front advertising his services. I was only a young teen but I remember laughing out loud wondering who would ever call a guy to work on their house when the house was such a wreck!
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Well, if your Mom says they were poor, then they probably were. I agree with you, then, that IS sad.
The thing that I keep reading here in the business section, though, at least the impression I get, is that most people equate business success with how much money they earn. That a person who works at something they enjoy but doesn't have "a lot to show for it" or doesn't leave a lot behind for their heirs has somehow been less than "successful".
Of course, since most of us are carpenters, we tend to use that example, but the same line of thought extends through virtually every vocation in our society.
Do you agree that is a common line of thought in these discussions? How to make more money?Free speech leads to a free society.
Jim, I agree, yes it is a common discussion...earning more money!
I think that pretty much sums it up, most tradesmen dont earn enough, most don't earn their fair share.
I think it's incorrect to assume that happiness in the trade cannot co-exist with wise business principles that will deliver enough wealth. I know I used to think I was happy just doing my thing, but when I look back I realize that I could have been just as happy while I made significantly more, simply by working smart and marketing properly. I spent the first 15 years driving a junk truck simply because I didn't care. I used to jump out of old betsy and laugh because it made it another day!
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Yeah, I agree. I don't see any conflict between making a profit and enjoying your work either.
But the money people make, doing work they don't enjoy, in the long run won't be enough to compensate them for all the hours, days, weeks, months, years they spend trying to earn MORE money instead of finding work that fulfills them, makes them happy.
Lots of examples of that everywhere you look. Like in the trades. Guy starts out building, does it for a while and gets into a specialty niche. Makes what at the time seems like good money because he can lay formica like nobody's business. Figures out billing and bidding practices. Achieves "success".
But after a while he gets bored, the work isn't enough to fulfill him anymore. So he starts trying to make more money at the same work thinking the money will satisfy the longing for meaningful work.
But it won't. And by the time he realises he's miserable it's getting kind of late, he's only ever done that one thing because he was chasing the almighty dollar instead of finding a fulfilling career that can hold him throughout his life.
That's sad, too.
Free speech leads to a free society.
Jim, I agree with the point you are making....sometimes money isn't the fullfillment that it promises to be.
But after a while he gets bored, the work isn't enough to fulfill him anymore
I've known quite a few tradesmen that reached that plateau, myself included. When I analyze my life I realize that I was intrigued by the idea of standing up homes, especially large custom homes. At some point however, I got to the point that it wasn't a challenge anymore to just do the rough carpentry. As I started thinking about what challenge I wanted next, it wasn't about anything related to the trades. I don't want to become the worlds greatest trim carpenter, or a stair builder. There was a time that I wanted to be the best framer in Michigan, but I don't carry those desires anymore.
Myself, I'm not confused. I've switched my building goals from sticks and bricks to financial accumulation. Basically, I'm chasing the dollar, not for the dollar itself, but because I see the challenge of properly building a business as challenging and exciting as the act of rough framing a monster house.
I do have one minor goal, inside the major goal of building this business. The minor goal is a hard one, but I can finally see the end of the tunnel. I'm a stubborn man, as bad as anyone and it's been killing me for 25 years that I couldn't build my rough frame business into something worth selling. Every time I try to switch gears and steer my ship in another direction, something deep within keeps speaking to me and telling me to finish my first endeavor. I swear, this thought drives me nuts and I just want to stop and shout...."IT CANT HAPPEN!.....LET'S JUST END THIS QUEST". Then, the next thing I know, I'm back thinking of ways to fix it.
I swear, this last ditch attempt at marketing the rough frames to homeowners is my last attempt (I've said this before). This time it's true. If I can't create a rough frame system that will operate independently without my full time involvement, I'm trashing all my tools and shredding all my records.
It's a huge challenge.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
If I might comment, it's not an issue of "making more money."It's the issue of "getting what your worth" It's called "valuing yourself."Or not shorting yourself just because you don't like the aspect of "business."I don't necessarily dislike or like selling. But I sure am not going to sell a $5000 car for $4000 just becuse I may not like the process of "selling," and that's exactly what too many of us do, and I used to do.
"It's the issue of "getting what your worth"
It's called "valuing yourself.""
Sonny - how does a person come up with a monetary value for their time? Their life?
Free speech leads to a free society.
Sonny - how does a person come up with a monetary value for their time? Their life?
I'll anser that! It's actually very easy.
You create your own value in your mind. You are the only one that can determine your self worth. You put the price on your time, your body, soul and spirit. You can ask for whatever you want, but you will always have to justify your request.
Be careful of what you ask for. Ask for too little and you will certainly get it.
Please understand, that everything you ask for might not be destined to stay in your pockets. Some of the wealthiest people in the world give as much as they receive. Sometimes you are just a vessel to help others. When you cheat yourself, you might also be cheating those that count on you. Not everyone possesses your abilities and they might need you to assist them. If you have squandered your abilities, you might be sentencing others to a less than desireable existence.
Like I said, be careful of what you ask for.
blue
Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
"I'll anser that! It's actually very easy.
You create your own value in your mind. You are the only one that can determine your self worth. You put the price on your time, your body, soul and spirit. You can ask for whatever you want, but you will always have to justify your request."
Now hold on there, blue. I'm not even sure I HAVE a soul. But if I do, I'm not gonna sell it. :)
Seriously though, I agree that each of us determines what we are willing to give in exchange for what we get back in the deal. Let me ask for a little clarification on something you said, okay?
Who will "you always have to justify your request." to? Yourself? The customer? The community that holds and circulates your reputation and standing? Free speech leads to a free society.
Jim,
First, to go back to a post I made to you a ways back..........I hope you don't take what I say the wrong way.
You sound a lot like me sometimes, very idealistic, holding out hope for the perfect world.
I've never liked money, I think the whole idea of creating something in exchange for a tangible currency only to turn around and exchange it again is ridiculous.
Unfortunately we don't live in a commune, or a perfect world where we can trade our sevices with one another.
We need money plain and simple.
No one is saying that one needs to sell their soul, or comprimise their values or morals to achieve financial success.
We need to eat and provide ourselves with certain neccestities, and we also need to earn enough so that we do not have to work when we are old and worn out.
So there is nothing wrong with going after the all mighty buck with some passion, as long as the correct amount of integrity is sprinkled in.
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
"First, to go back to a post I made to you a ways back..........I hope you don't take what I say the wrong way."
I thought you were saying that you had benefitted from the business advice of many people here, maybe after a lot of reflection and self talk about what you had read. Specifcally Jerrald, who I was in a discussion with about the merrits of revealing overhead to customers. You seemed to be saying that you thought if I opened my mind I too could benefit the same way you had.
I responded that I thought it was great that you got help for what you saw as a problem with your business practices but that I didn't believe all the advice given here applied to everyone who read it. Specifically, me.
If I did in fact take what you said the wrong way, please feel free to tell me. This method of communicating complex ideas is really difficult for me, the lack of spontenaiety, body language, non verbal ques, etc.
I do agree that "...there is nothing wrong with going after the all mighty buck with some passion..." if that's what's important to you. We're all different and you have every right to live any way you want.
As for the rest, hopefully we can sit down over a cup of coffee or a cold one someday and discuss our shared ideals. Speaking of which, didn't we meet at Rhodefest? Or do I have you confused with someone else? Free speech leads to a free society.
Just trying to make sure I'm not pissin off (too) many people!
We did perhaps meet, briefly if that.
I came out Sat. morning and left around dark.
I'm the skinny guy in between Doud, Duanne ans Andy.
Where are you?
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
I thought so. I'm just to David Doud's left. My wife is right in front of him. Hey. You don't have your hand on her azz, do you?
Man, that is one motley crew there, huh?
Hope we can spend more time together at Calvin's. Seems like we'd have plenty to talk about. Free speech leads to a free society.
Yeah, what a grope, oops, I mean group!
My own wifes a$$ is all the handful I need..............
You're the photographer guy right?
I doubt I'll get to Calvins, just too much and too little going on right now.
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
eric... just make it part of your business plan to get to calvin's...
you know.... file your taxes..
complete your projects...
work on your business plan..
go to calvin's
like night follows dayMike Smith Rhode Island : Design / Build / Repair / Restore
Jim, I determine my value. My customers "validate" what "I have determined" by calliing me to do their projects..Part ot the way I determine my value is to compare my prices to my so called competitors, adn som eof my compettiors are not competitors but in different trades.Example, I keep two invoices in my DayTiimer. Both from August of 2000: Overhead Door Company Invoice for $80/hr PLUS a $40 trip charge. Welder was $75/hr. Note 4.5 years ago. Plumbers here get from about $70 - $85 per hour. In each case above how many trades to they have to know very well? ONE! How many do I have to good professioinally? At least a dozen, and I routinely use 2-5 per job.Another aspect is that we all kow that our industry has about an 85% failure rate. Am I expected to be one of them by operating as they do and using their prices? 'Fraid not!Combine the above with how I service people. accomodate them, educate them, warranty my work, cleanliness, promptness, very clean cut wit hshort hair, shave in am and about 2-3 pm with cordless Norelco kept in my truck.So if the majority of my so called competitors provide the "value" of say a Chevy while I provide the value of a Buick. Well, Buicks cost more than Chevies.Now that doesn't mean I just throw out prices in an arrogant manner. I have to "produce" what I charge for, and hourly, if not by the minute. Corny, but I've "branded" myself in Naples in a niche where my market prefers services and expertise over price.I know what I'm worth just as I know what my wife is worth to me. t o me it's simple: Keep innovating about what else I can to to justify my pricing to my custoemrs and also keep pushing the envelop a little at a time.
Just an update. I figured out my program and by sending the estimate to JobCost Wizard and selecting the right choices, I was able to print out an estimate w/o showing O & P. I made it so it did give an itemized list of each task to be performed, but not a price w/ each task. It gave them 3 numbers at the end; materials, labor, and total cost. No need for anyone to see where my markups are and the customer called today to say she was impresses w/ my proposal. I sent a cover letter, my estimate, a computer printout of the floor plan and a computer generated picture of the completed project (just used a $40 home design program from Wal-Fart, very limited, but good enough for my needs). She said she was impressed w/ what I sent twice! Said better than what others offered. They were probably better carpenters, but I think I appeared more professional and serious about my business, or....I just bid too low...as usual.
Jim,<!----><!---->
Just some thoughts on why this O&P discussion has morphed into debate over value and ethics.... Please forgive me if I am putting words in anyone's mouth but I have found this debate to be very instructive and hope to contribute something. I am not a pro in this business but would be if I felt I had what it takes to bring in the money needed to make it work. <!---->
I understand your point of view - you have a system that works for you and keeps your business running. You also seem to feel the advice offered by the more intense business folks here MAY drive the passion for woodworking out in the quest to make more money.<!---->
I think the disagreement is based on a misunderstanding. Sonny, Jerrald, and the others are not advocating ruthless business accounting for the sake of putting ever more cash in their accounts. What they are suggesting is that ignoring fundamental business methodology can only be done at the peril of the long-term success of the business and, perhaps more significantly, the industry.<!---->
There concerns are not about whether anyone makes more or drives a nicer truck. There concerns ARE about two things:<!---->
1. If a contractor doesn’t fully account for the costs of conducting business and charge accordingly (however you itemize it on a bill) he is going to spend a few years killing himself for the privilege of going broke. This is their altruistic side coming out.<!---->
2. Their self-interest is coming out in their plea to make sure everyone in the business adopts more rigorous practices, just like they have done. Contractors who fail to properly charge to cover all their costs have the same affect on the industry as the contractors who conduct business without insurance, permits, workers comp, under-the-table, etc… This kills every other contractor by artificially driving down the market. One is unethical the other is ignorant.<!---->
I don’t think they believe you are a bad business man, but their vehemence on these persistent issues that plague the industry are coloring their responses. They simply fear the perpetuation of individual business practices that hurt every one in the industry and squander great talent.<!---->
It is not about what “you†are “worth.†It is about what it costs to be in this business and how better practices can improve your own business and the industry as a whole.<!---->
Wow – longest post I have written here by far… hope it is not off base.<!---->
Tom L<!---->
Tom, thanks for the excellent post. I have to check your profile because I asked myself: Mmmm. Tom l. Is that my son, Tom?You stated:"You also seem to feel the advice offered by the more intense business folks here MAY drive the passion for woodworking out in the quest to make more money."I wanted to reiterate the "passion." I feel it is in fact my "passion" to use the correct materials, application methods, take the time to research new developments or products or application methods in my industry or other industries that can my applied to ours (all time consuming) and accommodating and servicing my customers that is "acknowledged" by me, that hits me like a slap in the face that in deed I am worth more. "More" than whom? My so called competitors. The comparison between the Chevy and Buick is correct. When one service or product offers many more extra "benefits" to the buying public, that service or product must be sold at a higher cost otherwise why bother providing it?However, both that service or product must be marketed to a specific target, not blanket to one or another area. Chevies, Kias, Wal-Mart jeans, McDonalds hamburgers are not "marketed" the the same people who eat in nice restaurants, buy at Dillards or buy expensive cars.So since I want to get paid for those extra services I too cannot market myself t those white and blue class customers. I must market myself to those who prefer, even demand exceptional services and/or products and are more than willing to pay the prices for them.Again, great post.
I understand what you're saying there with the Chevy/Buick analogy, Sonny. And after years of reading your posts, I know you are indeed passionate about building your business. I respect people with passion for whatever it is they do.
The thing most eductional for me in these discussions is they help me define what my core values are. And identify what I might be doing that causes those restless feelings that something isn't quite right, but I can't quite identify the essence of the problem.
Can we go back to what you said yesterday about how you determine what your time is worth? When I read that I thought you were saying that you start with what other contractors doing similar work charge, identify a way that your company can provide a more valuable job, then charge more than what they charge.
You gave a few examples of what might constitute this added value and went on to say you remain ever vigilant in your quest to improve the service/product/experience you are selling so that your brand will be in demand, even as you continually raise rates.
Did I twist something or misconstrue it?Free speech leads to a free society.
Again Jim, I'm jumping in.
You are a skilled craftsman. You're value isn't just what you do, it's what you know and what you've learned over your career. Kinda like a surgeon; as you age, you gain invaluable experience. When you do an hours work, you deliver a lifetime's worth of experience.
Do you agree that the rookie just graduating from surgery school isn't as valuable as the old timer that has performed 2000 surgeries on all types of people? Each might be simply opening you up and fixing your gizzard, but who would you really want doing the work?
Each of us understand our true worth better than anyone. If we are also good facillitators of information (salesman), we can prove our worth, whatever we decide.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
blue - I agree with what you said. Doesn't make for a very lively discussion I.m afraid. But I agree.Free speech leads to a free society.
Nope, you got it right. Right now I'm repairing CBS on the walkway of a 4 story condo. The plumber had to bust thru the wall to access the 4" cast iron drain like that was leaking and change them to PVC. I go so many compliments on how I was able to blend in the stucco texture that by the time I was done, my head would not fit thru the elevator. The texture had what appeared to have larger than the size of sand, to I experimented and combined two different products to obtain the right look when day and painted. Then inside are small maybe 6' deep by 5' wide utility rooms. On the back wall is a low water heater, plywood platform over it with the AC unit. To the right is a Maytag stack washer/dryer. My instructions was to close up the back wall (removed also to change drain lines) . I suggested to the Board Pres that since not only the drain line was there, but take off lines and supply lines to the hot an cold water for the washer, I should instead create and access panel of drywall, trimmed at it's's edges."You now Sonny.' That's why we like using you so much."Anyway, I'm known there as prompt, very neat habits, innovative, etc., and a nice guy to boot. $92.50/hr for those repairs but a higher rate for duplicating that stucco texture. Now in their mind, and mine, I'm worth more than the slob, does only as he's told, looks like he has not shaven for 2 days, hair at is shoulders, sloppy clothes - you know the type. And I use "Yes" instead of "Yea."Act, speak, work and other wise present yourself as "desired" by these people. We've probably all had the appliance service man show and give your wife a heart attack by plunking his tools on your hardwood or vinyl flooriing wiht no pad. Even in weathly Naples, we still have that guy here too.
Edited 3/24/2005 5:08 pm ET by Sonny Lykos
Yeah, that's what I thought you meant. Thanks for clarifying.
It seems like you take great pains to look and act "more professional" than other contractors and that's what sets you apart from them. And that in the end, achieving your customer's approval is really important to you.
Is that fair to say?Free speech leads to a free society.
Yes, but it goes farther than just achieving my customer's approval. I have to be "consistent" in everything we've discussed. I read an article recently about that being a problem. If a product's service or a service is very good, it's expected to be that way or better with every customer "contact".And consistency is what we all want, whether it's in our spouse, car or truck, favorite restaurant, etc. or for that matter, having water come out when we turn a faucet on. Consistency - of from the very basic, to exceptional services.About this "branding. Last night while having coffee at a restaurant I go to I was reading about branding from about a one inch thick of articles I printed from various web sites. A guy siting next to me at the counter asked what I was reading. I had them in a 3-ring binder. So I showed him and we started talking about branding. He was one of two (the owner was the other guy) of a local towing company. He said that well over 80% of the cars they picked up we Jaguars, Mercedes, Lincolns, corvettes, Porches, etc. - all expensive cars. So he asked: How can we "brand ourselves.?"I said that the first thing he and the owner had to do was to realize that why they thought they were just towing "cars", their respective customers thought - no KNEW - that they were "protecting and transporting their 'babies.'"So, knowing what your "typical client" was, I'd so several things:1. Cut your hair short, and keep it impeccably neat and clean
2. Buy boxes of disposal coveralls
3. Keep a Norelco in your truck to do periodic touch ups
4. Wear, as your uniform, a pair of black cotton pants with a knife like a pleat,
a white button down collar short sleeve shirt, maybe even a bow tie, black
shoes you can see yourself in, etc. You get the idea. Slip on a pair of those coveralls when you get ready to hook up the chains to pull the car up onto your truck bed. Than take them off jsut before YOU open the passenger door ans
d assist your client into your truck.
5. Since the car's owner will ride with you, change the passenger seat to a
seat similar to what's in our of these cars. Have a small frig to offer them
a soda or juice.That's off the top of my head. And I'll bet you my $100 to your $10 that you can raise your towing fee from $45 to $100. To a wealthy person $100 is a drop in the bucket when your accepting responsibility for their "baby."And I'll bet I'd get that $100 - or more, if I owned that towing company. Then I'd market my service strictly to that market.
I agree Sonny. I'd call it "The Premier Luxury Car Towing Service" or something of that nature.
Sonny, I'm pitching my first SCA tomorrow and I don't have a simple contract if they decide to buy one. Do you have something simple. I'll be writing my own tomorrow morning if I don't hear from you.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Wow, Sonny! After reading that, a carpenter might think he should just sell all his tools and equipment, lease a towtruck, shave and get a styled haircut, a nice manicure, and get out there and start meeting some of those Jaguar owners!
Gene, if they did all that, they might succeed!
If they did that for their carpentry, they might get more money too!
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Values... You guys are making me think now.
Not sure I appreciate it this time of year, but this morph into discussion of values in business has caused me to think about how I have ended up nearly out of the woodworkiing business (banging nails daily anyhow).
I have always taken the long view, built for the future and sacrificed todays profit to build something better. I'm not some genius carpenter that can whip up a national treasure and do it 5x as fast. I have a guy like that in our network...but that's not me.
I certainly wasn't the fastest carpenter, but I worked hard-and long. Worked harder than anyone I knew. I was drawn to perfection in woodwork and pushed to the point of exhaustion cyclically. In 15 years in business I have likely put in hours that any normal carpenter would do in 30-however I have paid dearly for it.
2 crushed discs, 1 crushed wrist (which still causes daily pain-cartilage rubbing nerves and tendons-they can't do anything for it). 1 thumb cut off and a mangled finger from table saw bites and numerous other injuries which robbed me of production for about 1.5 years. 2 car accidents and one point where I was very nearly out of business during the changeover to plans/design. Stress... at certain points it was bad enough that if I had experienced it earlier in my career my head would certainly have exploded and I would have been a babbling loon.
Early on I would take on jobs for less than they were worth "to get the job done", out of altruism certainly. Caring more about what the customer thought of me than I did for my own health or personal safety.
Anyhow, long story short I had to look at what I do, what I enjoy doing and what I should be doing. Looking at your own situation is always more difficult than coaching others. I realized that what made my work great was the method, the design and the marketing-which was something I could share with others.
If I did the development and design work... I didn't have time to make a good living.
After 15 or 30 years of woodworking(depends how you look at it)-I knew I resented the injuries so much that I really didn't enjoy woodwork anymore. I had simply done too much. So here I am, not doing more than 2 or 3 weeks of woodwork a year. Drawing woodwork and teaching the business of woodwork and helping people become more successful, and that is what I love.
So take it easy on me guys... when I ask you to push pricing as much as you can. I do it because I am trying to help. Not out of arrogance, more affection for you all. I really wish for all of you to be more successful and have a stress free life-because you all deserve it.
I guess my only point here is that accidents do happen, to all of us eventually. Without profit, you are out of business when that happens. I had 9 months off in 3 years at one point... and if I had not charged what I did for the work that I did... we very likely wouldn't be conversing here tonite.
L
GardenStructure.com~Build for the Art of it!
amen... lawrence.... i'll not make it rich myself.. but i can certainly pass on some of the lessons i've learned..
the hardest was that what someone else was charging has no realtionship to what i charge.... it really doesn't
Mike Smith Rhode Island : Design / Build / Repair / Restore
Exactly Mike... sometimes the head in the sand approach works best.
L
GardenStructure.com~Build for the Art of it!
"...what someone else was charging has no realtionship to what i charge.... it really doesn't"
That's a big 10-4, Mike.
Lawrence - I found myself nodding in agreement as I read through that long post about choosing what work you do and how it affects your life. The thing I don't agree with is your later mention that 18 hour days come with the territory - not if we choose not to work that way, they don't.
Working Saturdays is just as bad. Took me a looooooong time to get over that one. I'm getting to the point where I wake up Saturday and don't find some excuse to "sneak a couple hours in the shop", or stop work Monday afternoon before I'm exhausted, but I still fight it.
Free speech leads to a free society.
Edited 3/25/2005 8:32 am ET by jim blodgett
I knew I resented the injuries so much that I really didn't enjoy woodwork anymore
That's an interesting comment. I too felt that way at one point because of my back situation. I've learned to let that anger go, but when the back starts gnawing at me, it surfaces again.
I was born 30 years too soon. The sky traks would have saved my discs.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Guys, the injuries I've had is one of the things I heatedly argue to an occasonal customer why " i damn well deserve every dime I charge while they and their kids are sitting in nice aair conditioning offices, often looking down at me as though I'm a low life cause I'm a tradesman. fine !! But even though I may be(to them) like a usedcar salesman or garbage man to them, they NEED me, and will PAY for me!It gets old from these older people to hear:"My daughter is a CPA.""My son is a doctor.""My ............... is a store manager/office manager/college professor/ whatever. Again, FINE. I'm glad your proud of them. Here's your invoice from ME.And I was one of those shmucks that never had workers comp on myself. I got smart and decided to stop saving my "customers" and START protecting mine and family's financial life if I ever got seriously injured. I got W/C and added it to my labor burden. Guess what? No change in my closing ratio. I laugh now. Save "them" money? Who are "they?" Strangers, and I'm supposed to save money for strangers - at my expense?Yea, right!
That's right Sonny... injuries, professional prejudice... yet another reason to charge. Profit is your insurance.
A good carpenter has as much in his head as a doctor... and some are smarter.
L
GardenStructure.com~Build for the Art of it!
Hope the back isn't giving you much trouble... we carps are a tough breed. I'm actually looking forward to moving to civilization and joining a gym, since I don't get the workouts anymore.
I didn't tell you why I stopped framing did I? Slid down an 80' roof because a rookie nailed a plank down angled low... slid out from under me on a cold day-all ice. Landed on a Dodge hood... if it was the windshield frame could have died. 2 weeks later I fell through a barn roof...landed 5 feet away from a tractor with an angled pipe....
Decided at thet point I was going to get really really good at trim.
Believe it or not Blue, after that last Tablesaw incident, the nerves reattaching were so painful I was actually afraid to turn on the tablesaw for about 4 months. I am still weary, but yes, you get over it.
Unfortunately injuries are simply part of this business. 18 hour days are a no no... especially when it is more than 3 days in a row. But it is something that has to be factored into pricing.
LGardenStructure.com~Build for the Art of it!
Good post, Lawrence. Any time anyone here wants to think about "the customer"., think about this.When Pete died last Oct. 16, on a Sat. am, son Tom was not allowed to grieve alone or with his parents, kids or wife. Pete was "loved" buy his customers. And several of these save customers demanded that Tom forget about his brother and own business, but to concentrate on getting their jobs done. On is now suing Pete for Breach of Contract. The bastard died on them before finishing their job.I/when any of us die, within a week we will be thought of as "What a shame. He was such a nice guy. Honey, give me the phone book so I can find another contractor." And that's how life should be since it goes n for the living. But also for the living, in business, customers are customers.Concentrate on yourself, family and best friends. Customers might be friendly and damn nice, but in the business world, and we are in the business world, customers are just that and nothing more. - as they should be.I bend over backwards for my customers. I service the hell out of them.. I accomodate them constantly.I always look out for their inerests as though I were their personal advisor.But they are not me. They are not family. They are not good friends. They are customers. Treat them - as customers.
That makes me think of a highly successful car wash business out in Indiana, where I used to live. This operation ran about four and eight locations in Fort Wayne and Indy, respectively.
Full-service washes, the kind where you get out of your car, hang around and watch while they do the vacuum thing, then walk through the glass tunnel next to your car looking at all the wet, soap, scrub, and blower steps, then pay at the cashier, and go out while a team of kids towels everything off.
They hired nothing but spiffy looking kids, the kinds with looks, smiles, and awareness that you would see giving your junior a campus tour at Notre Dame. Dressed them in snappy company shirts, bow ties, and made them wear decent shoes, black. Black pants.
The inside of the places were so spotless you thought you were in a Swiss hospital.
They charged a lot more than anybody else in town, and were always backed up. And, those kids that open your door for you and hand you in at the dry-n-shine end, always get good tips.
Gene, we have a place like that here in an up scale area and on our main drag- US41. Every time I go buy, and regardless if it's am or pm, it's loaded. BTW, if I owned that towing company, I'd charge $125 per tow and hire those who also had a god command of our language, and I' just arrogant enough to think I'd get it. I'd also make deals with those car dealerships in one sort or another to get them to only recommend my company. In fact, as I discuss it, I might even hire ex-mechanics and pay to train them to at least become familiar with the typical purposes of the owner's having to need a tow to begin with.Blue, I though I emailed you those contracts a couple of days ago.
Sonny, Ive got the contracts, but they are long and complicated ones for the actual remodel.
I was thinking that there is a one page contract to order a SCA. Maybe not?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Thought I send you the single page SCA. I'll email it again.
Who will "you always have to justify your request." to? Yourself? The customer? The community that holds and circulates your reputation and standing?
Yes, Yes, Yes, and more.
We're all here just renting the space, renting the money, renting the buildings. In the end, we won't be taking anything with us anyways. While were here, we owe it to ourselves and our families and those that need us to provide.
If you are are the type that believes in helping others, and you also maximize your skills and talents, you probably would have a lot more to share, which in turn could mean a lot to those less gifted around you. If you decide to lay back, take it easy and squander your gifts...well, then, I want to hear you how explain it to them, those that need you the most.
Get to work and get your fair share before the boogey man gets it first!
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
"Who will "you always have to justify your request." to? Yourself? The customer? The community that holds and circulates your reputation and standing?
Yes, Yes, Yes, and more."
I agree. That's exactly why I am comfortable laying out my overhead numbers to any customer who asks or that I intend to ever bill hourly, on a t&m contract or a change to a bid contract.
As for my responsibilities to others...I'm gonna have to ponder that one a while. I am not my brother's keeper. Free speech leads to a free society.
Like you, I run a one person business. One thing I like about breaking out O & P on my bids/bills is that I know what my paycheck is and how much to leave in the business account:A bill I submitted this week for 2-1/2 days of kitchen countertop installing, backsplash tiling and misc. trim carpentry looked something like this:Materials: $165 (money to the lumberyard)Labor: $633 (my paycheck)Overhead: $266 (stays in the business account--gas, insurance, tools etc.)Total: $1064The business account balance is a barometer of how accurate my estimate of overhead is. It really does work for me and my customers are fine with this presentation. I have not felt like I am shooting myself in the foot.
Basswood,Good on you. If you can sell it and it helps you keep track of your acorns, then that's the best way for you to do it!Mike
I think it is an easier sell for some customers when they see what my slice of the pie is (labor only). Then most realize I make about the same kind of money they do. If they think I make considerably more per hour (labor with overhead), than they do, it might be a tougher sell. Of course most people understand that with common contractor billing a bunch of the money never reaches the worker. They never know now much. I don't mind spelling it out.If I were worried about making too much money I would have stayed in teaching (science teacher for 7 years). I always had more fun doing this work in the summers, one fall I just decided to skip school. After 3 years running my own contracting business, I'm making twice my top salary as a teacher. But I guess people value their homes more than their kids.
Edited 3/22/2005 8:17 am ET by basswood
Maryland, your explanation is so far the most definitive and I could see where the system would work for you. I can see where in the design phase and the ensuing discussion of value engineering, your method would be helpful
Thanks for being long winded (really you weren't).
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
"Sage"- One who never answers a question or gives advice directly. One who by asking questions causes you to find the answer to your question on your own.
GardenStructure.com~Build for the Art of it!
That's funny Mike. My hope was for purgatory too! I KNEW I wasn't going straight up to the pearly gates!
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
basswood - "I read about showing O&P on bids and bills in a couple of "Run Your Own Contracting Business" books before I adopted the practice. I can't remember the titles or authors, but a few "biz gurus" seem to advocate this idea (though it is vigorously opposed by most here)."
Basswood if you don't recall the books you do don't recall the books but since hopping into this debate here I been flipping through a few of the ones in my library and I haven't run across one that actually recommends showing showing your Overhead & Profit to the client. And I can't think of a "biz guru" that does either although that is not to say there are some that do. Still if you recollection gets jarred through all this debate I would be very interested in who you find say what about this.
The books I do have that I've looked through so far while they talk about the importance of figuring in your Overhead & Profit into the price of a job none of them have said that this is anything we need or should show the client. I have a hunch that a lot of believing that we should show Overhead & Profit is something we are extending or assuming these writers are telling us when in actuality they never say that at all.
So like I said If you can recall anyone who has said that I would appreciate your pointing me to what they said so I can look it over.
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I read about this stuff probably three years ago in some books I checked out at the library. You could easily be right that I misunderstood the intent of the author. I'll see if I can find the book (or books) again and will let you know what I find. At the time, I knew little about running a business so my mind was filled with too many new ideas to have a cohearant grasp of things. Of course, I still don't entirely know what I'm doing; that's why I'm here. I adopted the practice of beaking out overhead on bids a few years ago (at the same time I generally improved my methods of estimating, scheduling, billing, and began marketing, etc.) So my business has been steadily growing in volume, quality and profitability. The other efforts may be obfuscating the negative effect, if any, of the overhead on the bids. I just haven't seen any negative reaction to my application of this practice with my customers. I hesitate to change things, in spite of all of the advice here, until I get some feedback from my customer base. I am very impressed with the collective wisdom of Breaktime and have heeded much of the advice I have received here. I may cave in on this point sooner or later...I'll keep you posted.
I use overhead and supervision, NEVER profit. I can explain my insurance and other overhead expenses, but I never provide a further break down of what percentage is overhead vs supervision. I can justify and all clients want my undivided attention, supervision if you will, on their project, so that's the easiest and least resistant item to explain. No matter if the client is a CPA, with 4 advanced business degrees, for a large corporation or small entrepreneur, almost no client wants to admit to themselves that you are like their company and are actually doing this to make a profit.
Overhead and supervision equates with working for your money to the client. Profit just means getting additional money out of the client for nothing.