We are currently charging a 15% fee on our costs. It seems to be working for both the client and us. I was just wondering what other builders were charging for their fee/profit. Also, we bill our supervision at $55.00 per hour. If anyone has some feedback on these numbers it would be appreciated.
Thanks
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Replies
There's no way to say whether those numbers are right or wrong, since there is no "right" or "wrong" percentage or rate- only the rate that works for your particular business. If you've got extremely low overhead and your supervisor makes $20/hour, you're doing well. If your overhead is higher and your supervisor's salary is also higher, you may be upside down.
I have been charging 15%, but I'm considering bumping up to 20%. That fee is designed to be profit only. I charge general conditions(everything from insurance to porta-jons) and management fees per job based on how many months it will take and how complicated the job is. I would be way upside down if I didn't account for all of that.
We have designed it to be very similar. The 15% is supposed to be just profit. I have line items built in for everything else, i.e., those pesky general conditions you mentioned. I am getting a lot of push-back from clients in regards to the 15% being tacked on top of the supervision costs and we are considering changing the percentage for that line item. My fear with this solution is the extra complexity it will bring to the contract negotiation process. We have also considered increasing the overall fee percentage but have not been able to find a comfortable number. If anyone is above 15%, I would love to hear how the clients are reacting.Thanks again
I'd be nervous about trying to hide your percentage elsewhere. I present a working budget to all of my potential clients and claim full transparency. That would be very hard for me to do if I knew I had inflated numbers elsewhere that were making up for the lowered profit margin. I usually walk when folks beat me up on my fee.
I feel the same way. All of our accounting is completely transparent. We used to go the mark-up route but it just wasn't worth the headache.
Are you speaking of markup or profit?
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I am speaking specifically of profit. Our current model does not "mark up" anything. There is simply a 15% fee attached to all costs.
So you have a line item for cost then?
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We have multiple line items. A typical project consists of aprox. 40 line items, including a fee line item. All of the other line items are shown to the client at cost.
What are you doing about things like tools and equipment, vehicles and mileage, etc.?
We are a very small company with just three employees (two of which spend most of their time in the office). The remaining field superintendent is responsible for his own tools, but the subcontractors handle 99% of that work. His wage and vehicle costs are paid from the hourly charge to the client. The costs to us (including taxes and insurance) are nearly $50/hour and the client is charged $55/hour.
My feeling is this: if you can maintain net profits at an absolute minimum of 10% you are in the right range. Doesn't matter how you get there, how you show costs or show markup or whatever... after all your job costs, overhead costs, and owner's salaries are paid you should be 10% or better. NAHB surveys of homebuilders show the average at around 15% net profit; you can buy their annual compensation reports online, I believe.
When we built houses....15% was overhead and profit
Other stuff (decks, additions, dog houses etc.) it was not so cut and dried......more like whatever the market would bear at the time and how busy you were.
What is your percentage based on the price of tea in China? Or the percentage of 2X4s?
Profit percentage is only properly measured based on equity.
The 15% number is just something you throw on to a bid to determine a price. It has nothing to do with profit as a percentage. Any specific job does not make a profit as a percentage, it makes a profit in raw dollars. You can calculate any percentage (actually ratio, but that is splitting linear hairs) you want, but they are meaningless. Why should 15% be the right number? If the price you end up with is too high based on the market, you don't get the job. And if it is too low, you lost out on profit you could have made.
If more contractors learned about actual business operations, then maybe they would be seen as a bit more ethical, and wouldn't be going out of business so much.
Price is determined by the market place. Your costs have nothing to do with price, only whether you will offer or not. Whether you earn a profit or not is of no concern to the customer. Neither is your cost structure. What matters to the customer is whether you do what you say you will do and at the price you offer. If you screwed up the price, that is your problem, not theirs.
bryan...
<<<<Price is determined by the market place. Your costs have nothing to do with price, only whether you will offer or not. Whether you earn a profit or not is of no concern to the customer. Neither is your cost structure. What matters to the customer is whether you do what you say you will do and at the price you offer. If you screwed up the price, that is your problem, not theirs. >>>>not exactly..... if you screwed up the price, then the customer will suffer too.... because it is economically impossible to deliver the level of service or quality expectedperhaps not immediateyl, but sooner or later the lack of profit will affect the customer... it might be as simple as wasting time trying to get the builder back to take care of a warranty issue... or having to start the search all over again for a reliable contractorthe customer does have a vested interest in the builder making a profit... unless he is simply looking for the gratification of getting the cheapest price... and damn the consequencesthere are always consequencesMike Smith Rhode Island : Design / Build / Repair / Restore