Replies

1. 
   shellbuilder | Sep 20, 2006 03:17am | #1

   Try 50% for remodeling if they want to stay in business.

    

1. 
   e2canoe | Sep 20, 2006 03:25am | #2

   50%?!  What!?  Really?

   Gee, no wonder so many homeowners try to manage subs themselves (not saying that it is wise to do so though).

    

1. 
   BarryE | Sep 20, 2006 03:33am | #3

   He's talking about markup and 50% would be minimum.You are talking about gross profit margin.2 different animals

   Barry E-Remodeler

    

2. 
   shellbuilder | Sep 20, 2006 03:41am | #5

   A  smart subcontractor should markup 50% if he is working for a homeowner also. 

2. 
   JerraldHayes | Sep 20, 2006 03:51am | #7

   shellbuilder - "Try 50% for remodeling if they want to stay in business."

   Well that's not necessarily true all the time...and are you talking about gross profit margin or markup?

   I know of a remodeling contractor near me who has no employees whatsoever, subs everything, and he does such a large volume of work that his overhead and profit actually work out pretty to the 10% plus 10% we hear so much about and are told is so foolish. But like I've inferred he a "paper contractor" and does such a large volume (2-4 million) that his actual overhead and profit works out to a very small percentage.

   That said you are probably correct that for many if not most remodeling contractors need what works out to a markup of 50% over their costs to achieve a gross profit margin of 33%.

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1. 
   shellbuilder | Sep 20, 2006 03:59am | #8

   And I would only use a 50 markup on remodel jobs over 10,000.00...Under that a sliding scale at 10,000.00 to 5000.00 , 10% more per thousand. At 5000.00 its a 100%, still depends on conditions but its a good average that new guys can start an be in business and not go broke and keeps profit worries and number juggling to a minimum. 

1. 
   JerraldHayes | Sep 20, 2006 04:28am | #9

   shellbuilder - "And I would only use a 50 markup on remodel jobs over 10,000.00...Under that a sliding scale at 10,000.00 to 5000.00 , 10% more per thousand. At 5000.00 its a 100%, still depends on conditions but its a good average that new guys can start an be in business and not go broke and keeps profit worries and number juggling to a minimum."

   Without getting into all the math right here, right now, I wouldn't use and don't recommend using a markup strategy that markups the total direct jobs costs, what I refer to as a Estimated Total Sales Volume Based Markup ( (Labor Cost + Material Cost + Sub Cost) x ETSV_Markup = Sale Price ) precisely because with small jobs the methodology more often than not typically starts to break down and contractors using that method start using use a sliding scale to compensate for that breakdown (and still sometimes miss getting the right number).

   Just another one of the reasons why I recommend and use a Capacity Based Markup strategy ( (Labor_Cost x Capacity_Based_Markup) + (Material_Cost x NetProfit_Markup) + (Sub_Cost x NetProfit_Markup) ).

   To tell you the truth one of the reasons I asked e2canoe if he or she was a professional who wanted to use the figure to price projects that way was so that I could then discourage or recommend against that idea.

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2. 
   girlbuilder | Sep 22, 2006 04:48am | #21

   I agree with Shellbuilder, markup on the overall cost of the project has got to be at 25% at least and that is only if you include the management time and effort of the GC(supposedly you) running the job and every other non-on the job effort that goes into your business (overhead). I try to include all other incidental costs into each phase or aspect of the job. Also, the more involved or filled with unknowns a remodel may seem, the more the contingency for whatever phase or portion of that project needs to rise as well.Also, each sub phase should have a contingency for unforeseen costs. I usually try to attach contingency amounts to the areas where i think they will occur, therefore being able to attempt to isolate the more problematic areas of the phases of the project from the easier ones.Jerrold, your example of the guy who bangs stuff out seems more someone operating on an economy of scale with a set of standards in place applied to each operation. That can cut costs, but of course, the money for the infrastructure to run such an operation must be steady or it falls apart, seem to me (salesman, office staff, foreman, etc.).Also, t'would seem that such an operation would have difficulty making adjustment for difficult or unusual jobs. I've seen that happen with a large volume remodeler I once subbed for.

2. 
   Jer | Sep 20, 2006 03:36am | #4

   50% markup at least and a 20-30% profit margin. But don't get greedy, pay yourself a salery and dump that gravy back into the biz. Ever hear of a rainy day?

3. 
   JerraldHayes | Sep 20, 2006 03:50am | #6

   Are you asking about Net Profit or Gross Profit and are you asking about margin or markup? You might want to pick up a copy of the NAHB's Remodelers’ Cost of Doing Business Study to get a real statistical handle on this.

   And if I might ask,... why are you wondering? Are you a "professional" looking to use the figure for your on planning or a homeowner trying to figurte out what you might possibly be charged above and beyond the direct job costs?

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   Edited 9/19/2006 8:53 pm ET by JerraldHayes

1. 
   e2canoe | Sep 20, 2006 04:58pm | #11

   I was wondering about gross margin for a typical, decent one guy GC who runs a residential remodelling outfit.  Would be for a typical addition/remodel project say, requiring about $50,000 of sub work over a couple of months.

   I'm a homeowner and was just curious as to what to expect for project budgeting purposes.

    

1. 
   JerraldHayes | Sep 20, 2006 05:47pm | #14

   e2canoe -

   I was wondering about gross margin for a typical, decent one guy GC who runs a residential remodelling outfit. Would be for a typical addition/remodel project say, requiring about $50,000 of sub work over a couple of months.

   I'm a homeowner and was just curious as to what to expect for project budgeting purposes.

   In the case of a homeowner trying to budget management for a project based on what you think the actual Direct Job Costs are going to be you should probably be thinking with that 50% figure that shellbuilder mentioned. In other words $50,000 in Direct Jobs Costs plus $25,000 for the GC for a total project price of $75,000. Yeah, maybe that paper contractor neighbor of mine I mentioned earlier could do it for $60,000 but folks like that are hard to find and to be honest in an area of extreme high end clients he is working the middle market here and just pushing product through that doesn't really require a great deal of management problem solving (siding, roofing, simple additions) so to remind you of the cliche, you get what you pay for.

   Not knowing what you are doing and wondering just how accurate your estimate of what you think the Direct Job Costs might be you might want to keep in mind a project contingency of ±20-30% too.

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1. 
   e2canoe | Sep 20, 2006 11:59pm | #16

   Thanks.  I think my estimates for the subs is pretty accurate based on people I've hired in the past, talking to friends in the business, etc.  And I added 10% contingency (gulp).  If things go bad, we'll just leave out something like the landscaping, back deck, etc.

   ...or (pull pin) I could just GC myself.  How hard can it be?  I mean, (lob grenade) they explain it all on that home and garden channel on TV afterall! ;)  he he he

    

    

1. 
   JonE | Sep 21, 2006 01:57am | #17

   ...or (pull pin) I could just GC myself.  How hard can it be?  I mean, (lob grenade) they explain it all on that home and garden channel on TV afterall! ;)  he he he

   been there, doing that, think it's gonna cost me more money in the long run than if I had just stepped back and opened my checkbook, and waited for the GC to hand me the key to the front door. 

2. 
   e2canoe | Sep 21, 2006 06:15pm | #18

   ...been there, doing that...

   Yup.  Tend to agree.  If GC's markup 50% it is because the market supports it and it must be for a good reason.

   Now I just need to find someone in the Ottawa, Canada area.

3. 
   ccal | Sep 21, 2006 11:46pm | #19

   You have to also understand that most subs will charge a GC less than they will charge you as a homeowner. In my experience that will be at least 25 percent and many times much more.

4. 
   e2canoe | Sep 21, 2006 11:59pm | #20

   Yup, I figured as much given that working for a GC makes life easier for the subs: 1) subs get repeat business from GC's, 2) working directly for a homeowner can sometimes be a PITA (e.g. homeowner who questions everything that sub is doing), 3) having a GC means that trades will be properly coordinated/scheduled.

   If anyone knows a good GC in Ottawa, Canada area I'm shopping for one.  One with his own framing crew would be great.  Job is a third floor addition to a 1920's house.

    

4. 
   CapnMac | Sep 20, 2006 04:29am | #10

   I just have to give you the flippant answer the thread title provoked in me:  $100 less than "everybody knows" and a dime ahead of bankruptcy.

   Really, it might could be 150% over T&M in remodeling is best.

   Why?  Two main reasons--"might as well as's" and "gotchas."

   Simple retile job on 5x8 one-wall bathroom with a 4' tall 4x4 wainscot--oght to be easy, right? 

   What happens when you find the tile was on plain gypsum board on one wall?

   Might-as-well-as put CBU up after 3/4 of the drywall leaves with the tile, right?

   Strip awat thub surround--gotcha, water behind tile thorough d/w has rotten the studs . . . not even a might s well as--you now have to replace studs jsut o have a nailing surface.  Oh, it's day Two now, demolition is still not done, neither are you half way started on the tiling,  Who is it who will be telling the client you booked for day after tomorrow that you can't make it . . .

   The "trick" of it is to set up a business case.  What does it cost you to be in business?  Advertising, yellow pages ad, business cards, work cell phone, magnetic signs/decaling for the work truck, the time it takes to find a receptionist who will actually work almost 80% of the 40 hours a week your 'office' is open--these costs add up.  In addition, there's salaries & taxes & witholding & the like--all of which must be paid before you are, whether there's been work or not.  Oh, then there's the nagging bother of paying your own wage . . .

   Contracting is a business.  It's filled with all sorts of annoyingly "business" garbage that is not nearly as satisfying as swinging a hammer or working some trade.  But, that's the rub of it, too--it's a business, and it has to be run like one (unless you like recievership and/or bankruptcy courts <shudder>).

   This is a real art, not some simple formula (ok, "tack on" set me off a bit--I'm calmer now, honest).  A successfull contractor has to be the "indespensible man."  Otherwise, everybody can just cut you out, and save your expense.  You have to be the magician who can find subs who can work when you need them (and find a replacement when they can't).  You have to be able to juggle client needs with sub needs, and with funds availability.

   It's an art, a near arcane alchemy.  There are a number of folk here who meet my granfather's definition  of "professional"--"They can take something that is incredibly difficult and make it look so easy & effortless that any one could do the same."

   Occupational hazard of my occupation not being around (sorry Bubba)
1. 
   e2canoe | Sep 20, 2006 05:03pm | #12

   I'm asking as a homeowner.  Although I have contemplated getting in the business in the past as its in my blood - my Dad was a plasterer then archi and Grand Dad a GC.  And I've done lots of jobs myself without any disasters yet ;).

   Just planning some potential projects and wondering what to expect to pay for a GC for budgeting purposes.

1. 
   BossHog | Sep 20, 2006 05:16pm | #13

   I think you sort of hit a hot button with some of the contractors that hang out here. There tends to be a perception out there that contractors are mostly crooks, and are raking in tons of money. But that's simply not true. The truth is, being a contractor isn't as easy as the shows on H+G TV make it look. There's a lot of overhead to carry. Lots of expenses that homeowners don't think about. Failure to charge enough for jobs is part of why so many contractors go belly up.
   If I won the lottery, I wouldn't be one of those people who immediately quit their jobs. I'd make my boss's life a living hell for a week or two first.

1. 
   e2canoe | Sep 20, 2006 11:54pm | #15

   Ya, I figured that it could be a hot button ;)  Like many professions, it can seem easy from the outside.

   OK 50%.