Last week we received a note with two direct questions:
- Are the numbers in Markup & Profit (revised) relevant in today’s economy?
- Are the numbers in Markup & Profit (revised) structured for the Canadian economy and market? If not, how can I adapt it?
Direct answer: Markup & Profit Revisited, published in 2012, teaches the principles of running a construction-related company, including how to price your work. The principles don’t change. They are valid regardless of your economy.
We’ve sold the book in almost 50 countries, including economies you wouldn’t expect: Afghanistan, Bahrain, Bosnia, Cambodia, China, Egypt, Indonesia, Iraq, Japan, Philippines, Poland, Russia, South Africa, Zambia, to mention a few. The principles taught in Markup & Profit Revisited apply everywhere, and math is math, regardless of your economy.
There are many numbers in the book used as examples. They aren’t important, what’s important is the method or formula that’s presented. The book explains what you need to calculate for your own business, and how it’s done. That’s what matters; your numbers for your business.
But the book was written with the U.S. economy in mind. I worked through the book again this past week, looking for places where a hard number was quoted or suggested rather than a representative figure. Those are the figures that will change with inflation or in a different economy. I found a few that need to be addressed.
- Early in Chapter 3, when explaining how to project your sales volume I wrote, “In my opinion, your salary for the first year should be at least $40,000 and preferably more.”
If you’re working 52 weeks a year, 40 hours a week, that’s $19.23/hour. (How many business owners work 40 hours a week?) There are parts of the United States where $40,000 might still be a livable annual salary, but in many states it’s not much more than minimum wage. There’s a burger chain near us hiring workers at a $19.25/hour starting wage.
The U.S. government publishes an inflation calculator that states that $1 in 2012 (when the book was published) is $1.46 in 2026. So today, in 2026, I’d multiply the $40,000 by 1.46 and suggest the first-year salary should be at least $58,500 and preferably more. In reality, it needs to be enough to support you and your family while your business gets its feet on the ground.
- Chapter 6 is about building the work profitably. A major problem many contractors have is hiring too many employees for their volume of work. You can use the inflation calculation here as well, but those numbers aren’t cut and dried. If your business has cash flow problems, if making payroll is a challenge, it’s time to review the first few paragraphs of that chapter and consider how much of your revenue is going toward payroll.
Having a lot of employees is an ego issue for many business owners. They believe that the more employees they have, the higher their status. It’s also virtuous because you’re providing employment, helping others take care of their families. That’s true but it won’t last. Too many employees for your volume of sales will drive you into debt and out of business. When that happens, no one has a job and you’re in debt.
- Chapter 14 walks through formulas you should know, that includes calculating travel time, and it states that there are two ways to calculate the cost. The first method ends with the statement, “The $2 is obviously an arbitrary figure.” It is. Use the second method to calculate travel time for your employees.
- Finally, Appendix A, the Ten Cardinal Rules. Rule #6: “You shall get written quotes on all items that exceed $300 on your estimate.”
I still believe $300 is a reasonable number, regardless of inflation, but it’s your call. How much can you afford to lose? Decide what size error your business can absorb and get written quotes on all items over that dollar amount. If you don’t estimate carefully, your profit and then some will disappear with a significant error.
There are probably a few other places where an absolute number is given that needs review in today’s economy, but the book is about the principles and guidelines you need to run a profitable construction business. Those principles and guidelines will be relevant for generations to come.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses. He is the author of Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations. More here.