You can be the most ethical person in the world and if you aren’t charging enough for your work, you stand a good chance of cheating someone else.
It’s not unusual to find a contractor who sells by deliberately underpricing or underbidding jobs and making up the difference with change work orders.
Why cost plus and time & material contracts should be avoided, for both contractors and building owners.
At some point this health crisis will slow down and go away. When it does, there’s a good chance we’ll be doing some things differently. But some things won’t change.
Time and Material contracts are full of risk, especially on larger jobs.
I don’t think writing a check is old fashioned, but there are so many advantages to using a credit or debit card that it’s become the preferred payment method for many.
This note is a painfully perfect example of why you shouldn’t provide details on your pricing.
Don’t confuse profit with salary or hourly wages. Making a profit isn’t optional: Your business needs profit to survive.
A construction company building both new homes and remodeling needs to calculate a separate markup for each type of work.
Michael addresses a few different questions we’ve heard recently, primarily dealing with taxes and profit and calculating your markup.
Over the years, I’ve seen contract language evolve, shifting more and more responsibility to general and specialty contractors.
What do you do when your partner is listening to someone who knows nothing about construction, but still thinks they knows what’s best?
When I teach a class or webinar, sometimes I wonder if my listeners understand what I’m trying to say. After reading some of the questions that came in during a recent webinar, I realized I missed the mark.
Everyone, and I do mean everyone, who has ever compiled an estimate has made a math error that put knots in their stomach once it was realized.
You shouldn’t sign a contract that stipulates what you can charge, even if it’s just on the change orders.
When your books are set up properly, it’s easy to calculate your markup, and it’s also easy to compare your actual results to your estimates.
Should you take every opportunity to increase exposure for your business?
There are two schools of thought on pricing handyman projects and service work: T&M or flat rate pricing. They both have advantages and disadvantages.
The note stated, “Because I’m the middle man, my subcontractor loses out a potential project.” That’s true, and it’s one reason you shouldn’t get into the position of being a middle man.
If your lawyer believes you have to justify your pricing just because someone doesn’t want to pay their bill, it’s time to find another lawyer.
Is transparency the way to go when selling? Be careful who you listen to.
If they tell you the formula to use will make you more profit, that’s baloney. It’s the numbers you use that determines your profit.
A building owner challenges our statement that contractors shouldn’t itemize their estimates.
Being profitable doesn’t mean getting rich off your clients.
You can’t lower your price and expect to make up for it by selling more, because there is a limit to how much you can produce. Every job needs to be profitable.
It’s important to remember you aren’t in business to drive around and give out numbers. If you’re a specialty contractor, you also aren’t in business to provide numbers to architects or general contractors.
“I have more work than I can do. I tell new leads to call me after the first of the year.”
It’s hard to remember what you’re worth, especially if you’re spending time on jobs that cost you money.
Remember, you’re in business to provide a service and make a profit doing it.
Please don’t be this contractor. Please don’t be that homeowner.
Using the wrong labor rate, or using someone else’s markup when you don’t know their assumptions, is one of the biggest mistakes we see and the difference can be thousands of dollars.
In Markup & Profit Revisited, we explain how to calculate your markup. We’re often asked if you can adjust your markup based on the length of the job.
Some advice on hiring a contractor is just plain wrong.
Are you bidding on jobs, or are you selling them? There’s a difference.
When it comes to pricing your jobs, you need to keep it simple, especially if you want to make the sale.
When your client wants a lower price, something has to change. It shouldn’t be just your price.
I can’t tell you how many times in the past few weeks I’ve had contractors tell me they are cutting their prices to get work. I even took a call from a contractor who told me we should come to his town “because all the NARI members are busy cutting their prices.”
It is a fact of life that when you sell construction-related services, you’ll have clients tell you that your price is too high. Bless their hearts. They have no idea what would be a fair price for the work they want done, they just know that your price is too high.
A lot of contractors don’t believe they need to use their full markup on subcontractor quotes. Let me explain why that can be a mistake.
Should you let a client furnish their own materials?
A young fellow recently asked about his hourly wage.
“I am working on designing a few jobs with the job costs starting around $125,000 and up. What is your opinion on markup when the job costs are getting bigger? I want to make sure I am staying competitive.”
Why would a developer ask for a cost plus quote to replace a fixed price quote? Because he wants the very same work done at a lower price.
As the economy slowly improves, we are being asked to revisit issues we haven’t discussed for many years.
In a perfect world, estimated costs will match actual job costs. At the end of a perfect year, total job costs will equal projected job costs. It’s not a perfect world.
Cutting your price to get a job is a money losing approach. Over time, you won’t be making a profit and you’re only working yourself into debt.
Many of our website visitors aren’t contractors, they’re clients looking for help with a Cost Plus project gone wrong, or wondering if their contractor is overcharging.
Many contractors use a variable markup or margin to price jobs. They believe that in the construction industry you have to reduce the price to get the job.
Not charging enough for your work is the major reason construction companies fail. Here are some of the mistakes contractors make when pricing their jobs.
A note that came in a few weeks ago: “We have a very competitive market here . . . My husband and I both agree a lot of our problem is not charging enough for our work.”
A contractor on the east coast was frustrated with how he was being treated by architects. For starters, they were requesting a list of all his subcontractors.
You don’t have to be competitive. You have to be profitable. If you aren’t profitable, your business won’t last.
Don’t take any job where the client tells you how much you can charge for your work.
Don’t worry about what “the other guy” is charging.
“Your price is too high” means you haven’t done your job as a salesperson.
Guidelines to a more successful construction-related business.
One of my coaching clients told me recently about a client who is quite affluent and apparently has been taken advantage of by several contractors over the years.
Over the years, I’ve learned that too many contractors determine their job price by borrowing someone else’s numbers. That can be an expensive mistake.
I had a “Ho, Big Macklin” moment this morning when a young fellow called. He told me he’d given a recent quote to an architect, and was reconsidering his quote.
Transparency, as I understand it, is opening your books to your potential clients and showing them all the numbers pertaining to a job you are quoting.
I received a note from a contractor. He took a call from a potential client for a job he quoted 9 months ago. They want to do the job but at the same price.
A building inspector in a city in Ontario, Canada has gone out of his way to tell two different home owners that their contractor is charging too much for his work.
It’s a basic principle: Cash flows into your construction business when you sell a job. Cash flows out when you pay the costs of the job and your overhead expenses.
Last weekend I passed a billboard on the side of the road. It loudly declared, "We will build your new home for $32 a square foot."
He asked a sub for a quote on a job, and it was higher than expected based on past jobs. When he asked, the response was, "Well, I just wanted to see if it would stick".
I wrote a Blog post for another company recently stating that I didn't think it very smart to negotiate the price of your work. A reader agreed with me and said:
Wandering through construction forums, I've recently read posts commenting on the markup that sales people should be allowed to use.
I heard about a scam a local building owner is pulling on his subs. He has several properties and is apparently worth a considerable sum.
There are four basic ways to charge for construction services. These are fixed fee or lump sum pricing, Time & Material pricing, Cost Plus, and using an hourly rate.
A homeowner commented on a forum. He’d been told to add $3 – $5K to a job just to cover the extras that will come up. He was under the impression this is normal.
Jack Welch said, "The value decade is upon us. If you can't sell a top-quality product at the world's lowest price, you're going to be out of the game."
She got a call from a guy about cleaning 300 feet of his driveway. When she told him her minimum trip charge ($300), she heard the famous, "Your rates are too high!"
The idea that contractors should cut their prices because the economy is in the toilet doesn’t make sense.
I was reminded again recently of the need for in-house training on what it takes to pay the bills in a construction related company.
Bidding work just to keep busy and keep employees working is financial suicide.
Someone once said, “No man’s business is safe while the legislature is in session.” Here is another example.
During a recent survey, comments were made about price fixing. They referenced the Sherman Antitrust Act and association warnings about the appearance of price fixing.
If you read the two previous blog posts you know markup and gross margin. Today we'll look at one of the major mistakes made when calculating the sales price.
Yesterday markup – today gross margin. Let's look at using your gross margin to calculate the correct sales price for your work.
There’s a lot of confusion over using markup vs margin to price jobs.
Our blog article “A Fair Price For Your Work” hit a nerve with a number of contractors. In a follow-up comment, I listed two questions for every potential client.
Both companies sold jobs in the mid six-digit range. Both used a markup of 1.20 times their cost. When I asked why (nicely of course) they both gave me the same answer.
I often hear construction-related business owners, when they talk about the price of their work, express a concern about “being fair” with potential clients.
In an earlier blog post, I said lowering your price is financial suicide. If you can’t cover your overhead and make a profit, you’ll be out of business AND in debt soon.
This week, I’ve seen estimate sheets from three different companies with markups of 30% or 35%. These percentages added to their job costs are simply not enough.
I’m frequently asked for the “industry standard” rate per hour for various types of work. There isn’t an industry standard markup, and there isn’t an industry standard hourly labor rate.
During a presidential debate, one of the …
An earlier post of ours is getting a few homeowners riled up. The post discusses homeowners who have contacted us, unhappy about the prices their contractor is charging.
At a recent seminar I did, one of the young guys came up to me after class and said, "I can't markup my work as much as you say I should, no one would buy from me."
A slightly different perspective on Cost Plus contracts that provides two more good reasons why Cost Plus contracts should be avoided.
I glanced at the headline of our local w …
As a contractor, you need to know that the homeowner is both able and willing to pay for the work being done.
I read an article telling general and specialty contractors to give itemized estimates. Oh joy. It talks about goodwill, trust, comparing estimates, and other tripe.
A young lady told me her husband is using a variable markup on jobs. He marks up labor 3 or 3.5 times and materials 1.5 times. He adds 10% to subcontractor quotes …
We recently received this note. He seems to be a nice chap, and we exchanged a comment or two. He discusses the world of commercial and industrial construction work.
Adding overhead and profit to job costs to calculate sales price is a mistake. Contractors should use a markup calculated for their construction business.
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.
A long-time friend and coaching client received a letter from a young plumber just getting started, mailed to local general contractors hoping to obtain business.
Often we get phone calls from contractors worrying about what a customer will say when they present their price for a job.
I have had several discussions of late with contractors who can't accept that they should sell quality, value and service instead of trying to play the low price game.
If you are tired of starving because you have enough work but don’t have the money to pay your bills, heed these words.
A coaching client was working with a potential customer who wanted a remodeling job on a cost plus basis instead of a fixed fee contract.
If your employees consistently take longer than you estimated, you need to change your method of estimating. The human body can only work so fast.
A reminder to avoid any contract with an owner, architect or anyone else that has language that states you will charge your job costs plus overhead plus profit.
Time for a quick review of some terms: gross profit, net profit, owner’s salary, owner’s wages. Owner’s salary is overhead, owner’s wages are a job cost.
A contractor called, wondering about the markup he should use on items from specialty contractors. If he applied his markup, it might raise the job price too high.
We got a call last week from a company whose customer had arbitrarily decided that the markup used on their job wasn’t fair. This was a Time and Materials job.
If I’m a remodeler making a 44% gross profit, I’m doing great, right? It depends. Your gross profit means nothing if your sales will not support your overhead expense.
A recent note said, "The client wants to furnish all the materials. They are going to give me the money to go buy the materials, should I add my markup on the materials?"
A contractor dealing with a Time and Material Contract is hearing constant complaints about his price. Instead, give a firm fixed price quote upfront.
“I’m a contractor and underbid a house. I’m almost done and just figured that out. I can’t afford this loss. What can I do besides bankruptcy?”