A note we received from a homeowner:
“I have been reading your posts and am trying to figure out what happened to us in our remodel but just don’t have the construction background to do so. I’m a homeowner who hired a remodeler (licensed and insured) to do our condo kitchen, hall and master bath. Our agreement was that we would purchase materials and he would supply the labor. He charged $100/hr, and broke it down as follows: 1/3 for his “supervision” and 1/3 for each for the two person crew. Of course, subs were extra, and he marked up their services by 50%.
He had actually asked me to buy the materials so as to “not tie up” his funds and we spent substantial amounts buying quality materials. However, when I went out of town, he obtained almost 20k from my elderly husband without my knowledge and then paid for remaining materials (specifically tile) and marked that up by 50%, too, despite our agreement that I would pay for the materials.
I don’t think it’s fair for him to charge an hourly rate for himself for every hour the crew worked and then do markups on materials we agreed that I would purchase. I have spoken to a number of local contractors who have told me that, for the contractor, if he is charging mark-ups, then he should not be charging an hourly rate for himself.
I want to be fair. I trusted this guy but now believe he scammed us.
Would you mind giving your opinion on this? If this is standard practice, I think I would feel much better or, at least not stupid for letting this happen.”
I have two thoughts:
1. Please don’t be this contractor. I don’t know his side of the story but this doesn’t smell good.
2. Please don’t be that homeowner. Again, I don’t know the whole story but I have a feeling this relationship began with a homeowner trying to control a contractor by limiting what they could charge for their work. It is all about price, which is the worst possible way to choose a contractor. When you want to get the job done as cheaply as possible, you’ll often end up with a flaky contractor.
This situation could have been prevented if the contractor had developed a firm fixed price quotation and a written contract with a clear payment schedule. There wouldn’t have been any concern about asking an elderly spouse for money because money changes hands based on the payment schedule. There wouldn’t be any questions of when or where an hourly rate is fair, and when or where it’s appropriate to add markup.
In the long run, the homeowner will probably pay the same amount for this project using this pricing scheme as they would have if their contractor had calculated a firm fixed price, without the headaches.
Homeowners: hire a professional that you trust, ask for a firm fixed price quotation with the job and materials clearly defined and written out, and let them do their job.
Contractors: don’t concoct complicated pricing schemes, they just lead to problems and mistrust as shown by this homeowner’s note. Estimate your jobs and present a firm, fixed price quotation. Develop a payment schedule that doesn’t put your cash flow at risk; on many jobs, that means you’ll be receiving a down payment and progress payments at least every two weeks. Conduct business like a professional and expect to be treated accordingly.
You need more than just construction skills to do this. You’ll need to learn to estimate, and you’ll need to learn how to sell yourself. Those aren’t impossible skills to learn and we have a few tools to help. You have a choice: you can invest time in learning to estimate and sell, or you can waste time defending yourself when a job goes south because your customer doesn’t trust you any longer.
Investing the time in your skills will pay off in the long run, and it also improves your chances of referral business down the road.
Conduct business in an educated and professional manner and your customers will never have to write a note like this one.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations as needed.