We have had two e-mails in the past week from homeowners asking about the "Industry Standard" for pricing, wondering if their contractor is overcharging them.
These contractors are giving itemized price breakdowns, or doing time and material jobs. They are charging a 10% management fee plus a whopping 20% to 30%, or just adding a 20% markup to materials. They are giving homeowners too much ammunition. Their prices are too low, but with all that information the homeowners think they are being scalped.
I explained to both homeowners that they need to be wary of contractors with prices that low. They won't be in business long, and when their business fails, the homeowners will lose. Their contractors aren't overcharging, they are undercharging.
- Don't do itemization, unless you are paid for it.
- Don't give out prices and percentages for overhead and profit. That is proprietary information and is no one else's business but yours.
- No remodeling company can survive trying to use a 20%, 30% or (rarely) a 40% markup. You must be at 1.50 times your cost. If you don't get your markup up where it belongs, you will go away.
Give your customer a lump sum figure for their work. Call it a guaranteed price if you wish but forget giving all the details. All it does is create more work for this old farm boy having to respond to questions from consumers that simply don't understand your business or how much money it takes to keep it running. My job is to help you run your business more effectively and more profitably. It's your job to keep your customers happy.
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Related Blog Post - How Much Should a Contractor Charge?
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