Here lately , (Last several years) I have been working by the hour for anything…ANYTHING. I charge $25.00 and hour, if I have a helper, that cost is added on to the hourly rate. The client usually sets up an account which allows me to purchase whatever I need for her job. I don’t mark up the price obviously, but I do charge them for the time it takes to get the material.
Everyone seems happy about this. The client see me work and I dont have to worry about overages because…”it is what it is”. The floor was rotten and no one saw it, fine! No one loses because I work by the hour. Change orders: Fine! Extras: ok
Client get the bill from the store and it is what it is. Nothing funny here. I turn in my hours and if I purchased material I add it on with no mark-up.
But here lately, I wonder if I am being a Chicken sh#t. I am currently staring at blueprints of another kitchen remodel and wondering how the hell I would ever bid this job without losing my butt. It is an older home that has never been touched. There are aspects of every trade that will be needed for this job ie plumbing, electric. I have ALWAYS underestimated the time it takes to do somthing.I am a carp (Mainly a trim man)that can do alot of different things but I have always just charged by the hour. I pull a ocvered trailer so I can handle most anything on the spot. I guess I have turned into more of a repairman than a remodeler and my wages reflect that, although I do kitchen and bath remodels as well. Is there anyone else out there that strictly works by time and material?
Do you think that I am cheating myself or the client?
I just want to get your thoughts. I am totally happy with the current situation…but there is a voice nagging me..and it aint my wife.
Replies
Where are you? I think that rate is too low, but that depends on the area.
John
North Texas. About 2 hours north of Dallas.
Maybe I am a little low, but I work by myself. My clients love me and call me back every time. They pass my name out and I stay just busy enough to keep moving. I cannot take jobs if I am at another job, so the new ones wait for me, (within reason).
I have been wondering how people stay in business. With insurance, bonding, advertising, GAS, it amazes me that anyone can survive. Seems to me the best way, is to keep the clients calling you back rather than hit them once for a doozy of a bill. I am not business oriented, I admit. I still like the handshake and the smile. Crunching numbers is a business necessity that I have avoided. I used to do it all the time, but losing my butt, over and over and over has swayed me toward T&M and a respectable hourly wage.
As one gentleman pointed out..if I raised my hourly wage to a more current price, I would not get as much work........so? ...Make more money per hour/watch Oprah or keep your clients happy and come home at 5:00.
I am not saying I am right, I just dont see the logic in pricing myself out of work.
I am glad, However, that others do the T&M also.
Try thinking about this. Bump your price up in increments over the next 12 months. at each incremental bump keep good track of how many jobs you are not getting (this will also mean you need to start tracking now, and if possible back track for last year). Do this until your income vs. work time is at a point your comfortable with it. then in the future your prices should reflect inflationary increases. This is what I did years ago , and while I am not rich , I paid all my expenses and had some savings etc. and the time off I wanted and needed.
They can't get your Goat if you don't tell them where it is hidden.
Nothing wrong with $25 per hour, so long as you can manage 100 hours per week. Otherwise, you'll be poor forever. By the time you buy tools, pay for insurance, etc. you can't survive on $25 per hour.
A guy is painting my house. He just left a few minutes ago. He charges $25 per hour. He's broke all the time. If he asked for $35 per hour, I'd pay it. He does a good job, but can't seem to understand that working for yourself is different from being an employee.
Are you insured? pay taxes?
T&M can work. The contractor who built my addition a few years ago charged me materials +10%, sub cost + 10% and his hourly labor charge, probably double what he's paying his crew. It seemed fair to me and to him.
If your clients won't pay you a living wage, they are no good to you. Sorry if this sounds harsh, but you sound like a hard working guy who is hurting himslef by not recognizing that skilled labor should get paid a fair wage.
This would probably be a better Business folder topic.
Your method of "bidding" is a choice many make. It is "safer" only because your rate is so low. When you try to move your rates up into a range that would better reflect the true money that you need to run a "business", then you'd find that your "closing" rate would drop....rapidly.
We price our kitchens this way: find the costs of materials. Find the cost of Labor. Add them up and mark them up 67%. That will return a gross profit mark up of about 40%.
Example: the kitchen materials are 5000. The labor is 5000. The total is 10,000 * 1.67= the selling price of $16,700.
Bob's next test date: 12/10/07
Unless you're a really slow worker you're shafting yourself. I think your hourly rate needs to be at the very least 35 or 40.
Hey...quit goofing off on BT and give me a call! Bob's next test date: 12/10/07
Totally wrong frame of mind today. This deal in Ferndale has really frustrated me. I cant even tie the house up and buy some time without this stupid approval letter.
cuta.... sounds also like you are not marking up your employee !!!!!!lemme guess... your helper charges you $15.. so you charge the customer $15 .... right ?yee gosh, man..... go to work for someone else or get out of your expensive hobbytry this.... you charge your customer $25 for a 100 hour job..... $2500 , right ?next time.... grow a pair ....
take the same job... now you know how many hours it takes100 hours times the rate you want to make $2500 but every hour you work cost something.... it's called Labor burden... in our company it amounts to a markup of 60%so an hourly guy at $20 would COST me $32so the labor portion is $3200then take the materials & subs... add them up ... let's say they come to $3000so ( labor , materials & subs ) = ( $3200 + $3000 ) PLUS your overhead PLUS your PROFITyour overhead not only includes what it costs today.... but it also has to provide for where you want to be in the future....and every business has to make a profit.... or... it isn't really a business... it's just you...
if you owned the BUSINESS and you had to hire YOU... how could you stay in business if you were not making a profit on your employees.... ( you are an employee of the business )so... let's take Jim's number ( markup % of .67 )( $3200 + $3000 ) x 1.67 + $10324 .... that is what you have to SELL the job for to run a businessguess what ?..... that is what the successful remodelers are selling the job forare you choking on that number ? then start with baby steps.... use 1.5 ( 30% overhead + 20% profitnow you only have to sell the job for ( $6200 + $3100 ) = $9300wanna know something else... you customer doesn't have a clue what the job should costneither does your "competition".... they are all clueless..... but not you .. now you KNOW how much it costs YOUR business to deliver the goods... and you can deliver it without fear... and you're worth it... and your customer gets good value.... and you can reassure them that you will still be in business when they need you againremember... it's a business... it's not you working for a wageif you want to continue working for a wage, just admit to yourself that you are not running a business AND you are buying the job , not selling itanother thing it took me a long tome to figure outyou have to find out how to make money on everything you dothe more you try.... the easier it gets... and the more doors open up to you
you just have to start thinking of yourself as a businessT&M is a very difficult thing to SELL .. because you are always trying to convince the customer that you and your employees are worthy of the rate.... and that the time you are charging them is 100% fair.... but it is human nature to be critical of someone you are paying by the hour.... unless they know that your are not charging what you are worthso ..... if you really start to charge what you are worth...... then they become critical and figure they can always get it cheapersell your work by the lump sum job.......
I will do that job for $9300, labor & material....avoid "competitive bidding " we've already demonstrated that you don't have any competition... and those who will offer a price against you are cluelessMike Smith Rhode Island : Design / Build / Repair / Restore
Thanks Mike!
What you said makes a lot of sense.
You may not have a new truck, health insurance, liability insurance, disability, tool allowances, etc., but if you are not charging enough to have all the above than you do noto have a business.If you cannot afford all of these things, than you are not charging enough and why bother like has been said before.What you are bringing to the party is the QUALITY, the integrity, etc. I don't want to be the cheap guy.I want to be thought of as "Man, that was kindof expensive, but what great work!"Double your price, work half as much and make the same - spend the extra time tweaking your business smarts, your tools, your methods and relax a bit with your family.I don't care where you are located - that's too damm cheap! You are actually part of the problem with how customer's perceive the value of the work we do.I have that book - a better bet short term is the book : "How much should I charge - how to determine what your're worth" by Ellen Rohr.NEVER feel like you have to justify your rates - they are what they are.I feel like I have no competition - not because I'm some amazing worker but because we are all apples and oranges - nobody does the same work. I like that fact. I like that I can always stand tall and say "Well, you'll always be able to find someone who'll work for less - here's the reasons I am more expensive..."
I was until recently a trim carpenter who often worked by the hour. As the market changed and I got bored doing the same thing, I decided to get into remodeling. I quickly found that most people didn't like T&M because they didn't know how much the whole job would be. It was scary it first but also exiting as I saw that I could make more money. I definitely lost some jobs. but I'm cool with working a little less for more money. You deserve to make a profit on jobs. You are taking responsibility (and risk) for the project.
I recommend reading taunton Press' book called "Running a Successful Construction Company". It is geared toward building up a business with employees but I found it had some excellent info for me ( a sole proprietor).
Edited 6/12/2008 7:54 pm ET by badarse
Somewhere in time, long long ago, I missed the business boat. Don't know why. Nobody told me when it was leaving....Hell! I didnt even know there was such a thing.
No one has ever told me how to make money. I just flat out don't know how. I have been an hourly worker for so long, that that is what I do. I work. I turn in my hours. I cash the check. I hand the money to my wife.
I know how to work. People often wonder how I can keep up my pace. This doesnt include head scratching, (cuz I do alot of that as well). But people get their money's worth out of me...and they are always happy with the job. To me, that is part of my profit. I know it sounds stupid, but it is the truth.
I am going to take your advice and buy that book. I need it! Because, honest to God, I do not know how to run a business and make monetary profit. I always figured some people were just blessed with good business savy, and I,.....well,..I was handed a shovel and told to "get after it". Now that I am smarter than a grunt, and still work like a grunt..I need to start handing out shovels.
Do not feel like you are alone in that situation, many are. I am 90% of the time. I have just found a solution that works for me.
They can't get your Goat if you don't tell them where it is hidden.
"I know how to work. People often wonder how I can keep up my pace. This doesnt include head scratching, (cuz I do alot of that as well). But people get their money's worth out of me...and they are always happy with the job. To me, that is part of my profit. I know it sounds stupid, but it is the truth. "
You sound like a pleaser. I have the same problem in that I cringe when it's time to hand a client the bill, or estimate.
Gotta get over that if you want to make money--period. You need only to assume that they know good work costs money and charge accordingly.
I've read that book, good rec.
Imagine how happier he'd be if he actually got paid for his hustle eh? Bob's next test date: 12/10/07
I think he's just looking for some friends to tell him to charge more.
;-)
I'm going to totally hijack this guys thread and ask you a couple a questions:
That little shop rebuild I'm going to do (i've given up and going to draw the stupid thing on paper this weekend--take me an hour...) I'm going to tear it down to foundation and rebuild it.
It's got a perimeter footing, two rows of 8" block and a slab floated in all the way up to the top of the block. Has J bolts holding the mudsills down...
Anyway, I'll have only wall jacks and a helper. How would you go about ensuring you end up with flat-level top plates? Level a PT mudsill all the way around with shims? then stand the new wall on it? What shim material? What?
I shot my laser when I first looked at the job and things are less than 1/4" out all the way around so I'm not that worried...
My other question, how do you handle the money for each 'bigger' job? When a client lump sums you 50 grand to start, for instance, does it go into your general business funds or do you create a new account for that job, or?
Another client accepted my bid for her garage to 2-story studio bid. First job with subs, bigger money, bigger scope...
Yikes, I just dumped a long post. First the framing/foundation issue. We platform frame and sheath everything before we stand it. As a result, our technique forces us to create a perfect rectangle with all sides true and parallel. When we stand it, the foundation irregularities will reveal them selves. Its an easy fix with steel shims. The first thing we do (after temp bracing) is put a level on the top plate. You'll probably want to use your fancy schmancy laser. I use my torpedo level. Most of my guys would grab a four foot level. Anyways....we then shim the low side up till it reads level. After that, all the voids will reveal themselves. We then snug in some steel shims under every stud (the studs are the critical bearing points). The voids between the studs are incidental and they can be grouted, caulked or foamed. If there are bolts, we bolt after shimming. Usually, we have simpson straps to nail.The entire leveling and shimming operation should only take one man about ten minutes and use five to ten inches of shims on a bad foundation. I'm posting now. Money talk in next post. Bob's next test date: 12/10/07
I'd like to chime in with a description of my situation. No profound editorial comment intended, just an anecdote. I work for a small and relatively young (<10 yrs) design-build company consisting 2 owners - one is full time primarily working in the field, the other works about 15hrs/week, doing design, coordination, ordering materials, etc. My role would be described as 'almost-lead carpenter' (I'm a recent corporate escapee), and we have a helper in the summers. We will do roughly 3/4 of a million this year, most of it addition + remodeling projects. We are 100% legit with respect to insurance, WC, etc. Labor is billed at approx $60/hr for the owners, approx $45 for me, and we mark up materials and subs by approx $20%. We do 100% T&M, and as others have pointed out, a client relationship based on trust is the key to this. The company has built a reputation for quality and integrity enabling a 100% referral based business (for now) and which supports the T&M relationship.
I don't mean to suggest that these figures are 'right' - perhaps we should charge more but for better or worse thats the situation. If I have a point, I guess it would be to say that it is apparently possible to have a 'real business' doing T&M work, but it really does depend on developing a great reputation.Another anecdote - we sub out some of the carpentry work (we do most of it in-house) to a very experienced, capable and hardworking guy, who charges $30/hr for himself, less for his helpers. He had been using this same rate for his business (mostly bid) with other customers / contractors. Based on the message I have taken from this the forum, I suggested to him that he was undervaluing himself and he should raise his rates (to his other customers only!). He has done so, by $10/hr, and with no loss of jobs. I think he was (actually still) is an example of the 'working by the hour' mentality, undervaluing what he has to offer, and basically its a shame to be stuck in that mindset.
The money is easier than you think. Just figure your cash flow....and do it honestly, just like it will happen. Get all your money up front, before the work that it is allocated for, is started. Did you hear that? BEFORE THE WORK IS STARTED!.End of discussion. One more thing. Factor your spread into those draws and take it as a percentage earned. For instance, if you figured that you'd earn a sales fee plus management fee and it totals 20,000 and the job will take ten weeks, then you factor in 2000 per week that YOU GET UP FRONT. Don't try to take the entire 20k out of the first draw. Bob's next test date: 12/10/07
Just as a counter weight to what is being posted here I suggest you read this thread as to why an owner will never want to pay for work prior to it's being done.
http://forums.taunton.com/tp-breaktime/messages?msg=105778.1
Every consumer advisory written will tell the consumer to never ever pay money upfront except for a small amount to secure the contractors contract.
If the contractor in that thread bails you will know the exact reason
for that advice.
They can't get your Goat if you don't tell them where it is hidden.
dovetail
I find I work better when I am striving to get the money.
If I already have the money in hand I am not as motivated to do the job.
I am generally working for people I know. Ofttentimes for people I have worked for repeatly in the past.
If the job is long, more than a week or two then I ask to be paid in the middle of the job.
If I am working out of town then I usually ask for 1/2 the bid price up front on the day I start the job. With the remainder due upon completion.
Rich
I think the information you have posted here is excellent. There is a middle ground to be found for those of us who are not driven by the need to be "Business" orientated out of desire for being "Businessmen" , but rather we are driven to be "Business" orientated out of expediency and the need to survive. I have been on every side of this equation in the last 35yrs.. I have worked contracts as fixed bid with large down payments, I have worked T+M+ % , T+M+Fixed fee, I have worked simply straight hourly rate and let the owner pay for everything else out of their pocket.I have been an owner, employee and everything in between. I have read a lot of books, listened here to a lot of people and all I know is I have to do what works for me. What works for me doesn't work for everyone else. there is no set definitive way to run these businesses/crafts/trades we are in and make a living.
The thread I linked is a classic in what happens when an owner trusts and lets the contractor get ahead of them, yet time after time here you will read where posters say that is the only way to do business.
I have done a lot of jobs where a bank set payment schedules, appraised each step of the project and paid accordingly. Nothing for the appraiser to look at , no payment. Period! You don't like the way the bank does business, fine, you just lost every single loan customer of that bank as a client. Your point about small towns was right on the money. I found I have to meet the client and banks on mutual ground or I will cut myself off from very profitable work by being rigid in my approach.
My recommendation is find what is comfortable for you , find a middle ground, be flexible and finally be sure you are taking into account all the costs involved. All the costs means the insurance , retirement, expenses, office supplies, hours worked, burden, taxes, etc. etc. But I can be happy billing @ $15.00 hr. if my total living expenses (that ALL again) are only $12.00 hr.
Do what makes You comfortable, Be who you are, develop Ethics if You don't have them and Trust . Thats is all I did.
If things work out I will be posting within a few weeks about a new project and what has developed in the last week on it.
Be a fun story .
They can't get your Goat if you don't tell them where it is hidden.
good post dovetail.
dovetail
Thanks for the compliment. I'll put it in my pat on the back file for use when I am getting beat up. LOL
Just read your long post about the winery. God bless you in your new venture. I will pray for your success and mental stability. LOL
Good advice about "Do unto others".
Rich
We all know that consumer advisories are routinely ignored. But, if we encounter someone that has read all those advisories and is going to apply all the knowledge, we are actually in a great position to close the deal because 90% of the bidders will weed themselves out! The remaining 10% will have their pricing in the same range as ours, so the entire deal ends up being done on the personalities of the salesagent and the client. So, when the discussion is settled about price and scope, the final negotiation will be the payment schedule. Since we are not coldhearted contractors (are we?), we will be able to negotiate the payment schedule while looking at it from the clients point of view. For instance, if the client isn't comfortable fronting 10k, then we'd find out how small a number the client is comfortable fronting. If 5k is the max and the job is a 100k deal, then there will be 20 payment anniverseries. It's still a very simple concept and very easy to structure. So, I repeat: get the money for the next phase BEFORE THE WORK STARTS! If the client wants to have 50 payments of 2k each...I'm okay with that too! I'd probably just have the lead carpenter collect the checks hourly or daily, whatever fits the situation. Bob's next test date: 12/10/07
JIm, I am not going to discuss the first paragraph of your post. It has no bearing on the reality as far as I am concerned. I will flat out tell you that here what You are saying will not and does not work if the client has taken out a construction loan. Talk all you want about how to approach it that is the real world reality. Things changed after the early eighties and lump sums were no longer dispersed, draws with out work preformed ceased to happen.
Remember what you tell people? "Follow the money" back to it's source.
I will agree with some of your comments in the first paragraph, but not many of them and only on the assumption you have a client funding a loan out of say, a home equity line of credit, or out of private money , but not with a construction loan.
Here construction loans are done on a monthly basis, invoices submitted , along with lien releases, the bank sends an appraiser out, then the bank lets go of the money in the exact amount of the invoices. The entire system is designed to keep the contractor from getting too far ahead (in terms of money) of the work yet to be finished. How can things so different where you are? I would like to hear from others hear who have also actually dealt with the banks on new construction loans and listen to their experience on this.
They can't get your Goat if you don't tell them where it is hidden.
It sounds like you are describing some of your commercial contracts and relating them to the smaller residential jobs that we are discussing. Our current contract is a 100% bank financed job. When I visited the bank, the loan officer asked me what my draw schedule was going to be. I pointed out on page 6 of the contract that she had that it was already spelled out. She said "great, I hadn't noticed that earlier". The first item on that list was "X amount" to secure the schedule. She said "Oh....I see you need that right now!....we will get that check cut on Friday." I said "great...then we will start the project!". Mike, along with others, have consistently stated "we are not banks. We are not financing their projects". I've bought into his program and we have not lost one sale yet because of our payment schedule. Like I said, once the total price and scope is fixed, the payment schedule becomes a small and easy negotiation. We have had to be firm and say "No, the draw schedule is not negotiable", when we have it as low as we can go and still stay ahead of the game. Even if we lose the sale, I don't care! I refuse to be leveraged anymore by clients. I do the work...I want to be paid!So, the reality is that the homeowners have to figure out how to finance THEIR project. That might mean that if they want a 100k addition, they might have to start with 10k liquid money. That money will create 10k of verifyible expenses which can be re-imbursed in your draw explanation. We were negotiating a house deal for a client and the client was flat broke. He did have a paid for lot. That is the security that will fund the 300k construction loan. When we discussed the draw schedule with the loan office, she balked when we told her we wanted 20% down on the construction costs for our soft costs and start up fees. She told us that 10% wouldn't be a problem because the lot had plenty of equity and if we bailed, they would own the lot. At that point, they were well secure. They did agree to give more than 10% but not 20%. The guy went back into chemo treatment and the deal is stalled during the recovery. Everything is negotiable. From my contractor's point of view, I COULD allow the draw schedule to put me behind, but I WON'T. I might rummage around for some sort of middle ground agreeement if there is some valid reason. For instance, I might decide that I'd risk my capital on someone elses project if they put something up as security, like a paid for second home, or their yacht. Bob's next test date: 12/10/07
""It sounds like you are describing some of your commercial contracts and relating them to the smaller residential jobs that we are discussing."" I am not.
I described exactly what the SOP in this area for residential construction is.
Commercial has even more hoops to jump through.
They can't get your Goat if you don't tell them where it is hidden.
Well, if you are describing smaller residential renovations, I can only say we haven't run into any snags getting the ink onto the contracts on projects like that. We probably will encounter some resistance in the future but I'm sure we'll be able to work it out. Remember, the fixed price and scope is normally the big decision. After that is agreed upon, we are a team working together to deliver their dreams. The payment schedule is small detail. I think perhaps this subject also falls into "the battle is in our own heads" category. One of the things I've heard talking heads tell consumers is that most legitimate contractors work on credit accounts and therefore should be able to front the materials. I counter that by saying I pay cash on the barrelhead to get cash discounts and therefore am able to deliver their project at the best price possible. That is a true statement too. Most every contractor I deal with will charge me more if they have to carry me for a month. One other thing. You mentioned that the draw schedule you have been forced to work on only pays once a month. That might be true for some construction loans but there are many loan companies that are much more liberal with their draws. The client has to pay for each inspection and many construction loans have a set number but some will give unlimited draws. In the case of the bank deal we are doing right now, there is no inspections and the client could draw as much as they want anytime they want. That is possible because they have enough security in their house to pay back the loan even if they paid me the entire lump sum and I put it all up my nose. It's a bank loan but it's not a construction loan, so the draw schedule is different. Bob's next test date: 12/10/07
Several things. 1)I stated earlier in the thread that payment schedules could be worked out differently "IF" the loan was not a construction loan.
2) I stated earlier in the thread that any rigid adherence to any type of contract is possible as long as you are willing to lose the chance at jobs that will not agree to the contract type defined by you.
3)Any consumer that would advance money to a contractor in full payment for phases of a project in ADVANCE of that work being done deserves a contractor who puts the money up their nose. I cannot imagine that you hand money out to others without security. There is no security in a piece of paper signed by someone who puts money up their nose.
4)What security does the owner have if they hand you money and you walk? Amounts don't matter. As a mentor of mine says, "Don't loan or advance what you aren't willing to give away as a gift or lose"
5) All types of contracts work , choice of contract style is a matter of personal preference and situation, not a rule set down on a stone tablet handed down on some mountain by a guru.(Unless it is a construction loan by the banks here!)
6) Not everything is negotiable. Withdrawing from a situation is not a form of negotiation, refusing to consider another contract option is not a form of negotiation, They are terminations of negotiations. I fully understand that your posts about contracts are meant to put the contractor in the drivers seat of the situation. There are simply some cars you aren't going drive if you use a single rigid contract style of approach.
I have stated earlier in this thread several times now that there is nothing wrong with that at all, whatever works for you is what works for you.
Please do not keep ignoring the facts of life when giving advice and simply admit that rigid adherence to one form of contract means you are missing out on jobs you may be able to have if you change to a willingness to use varying contract types. Those jobs may not be ones you want to accept because they do not fit into your little box , but they are jobs and they are there. All that is needed is a comment to the client " I am sorry I only work under (insert type of contract here), I appreciate the chance but I will not be interested in the job."
In other words admit that you are the one who made the work unattainable, not the client.
They can't get your Goat if you don't tell them where it is hidden.
"5) All types of contracts work , choice of contract style is a matter of personal preference and situation, not a rule set down on a stone tablet handed down on some mountain by a guru.(Unless it is a construction loan by the banks here!)"You seem to keep reverting back to the banks as your main reason why a contractor can't stay ahead of the cashflow. Your regional reality might be hamstringing you and the finacing operations in your area might be limited. I'd probably look around for different financing options. I wouldn't be held hostage by only one bank. I had a guy tell me here in Austin that the banks require "blah, blah, blah." I just listened. He assured me that no bank would give a construction loan to any homeowner in Texas. I just listened. When I left, I called the loan officer at a lending institution back in MI that I know that does construction loans to homeowners without a builder involved. Everyone thinks this is impossible. I know differently because we did a foudation and shell package for a client that "built his own". The client was the builder and no license was needed for any paperwork or permits. Heres the website. http://www.marflax.com This company specializes in helping small contractors just like we've been talking about. I called them and they said "sure, we will do a construction loan in Texas!". So much for letting the local yokels hold us hostage... On your next financing project, give them a call. The point is that "everything is negotiable." Sometimes the contractor's professional sales agent has to have the skill to negotiate it. Once the battle in won in OUR heads, we stand a much better chance at doing the deals the way we need to do them. This post doesn't claim that there will be 100% success at negotiating and closing a deal with the client money upfront. I understand that some clients have been burned and they might not want to risk even a very small amount up front. I mentioned 5k in the discussion and even that will be too much. Some won't want to make even a $100 deposit to book a 200k addition. Yes, I agree...we can't win them all. I probably don't want that contract from one of those clients though. I'm assuming that we both have developed some level of trust to agree to the scope and price of the contract. So far, we haven't met any of those (that won't agree to our pay schedule) yet since I've adopted Mike's philosophy. In fact, I've been amazed at how aggressive my estimator has been with the draw schedule. She's gotten two full payments UP FRONT on two different $3500 design packages! Yes....you read that right....she picked up the full 3500 when the design contract was inked! And no....I didn't run out and buy any of that funny white powder and put it up my nose. We've delivered the plans and the clients are pleased. One ordered more design work on an open ended hourly basis! Hey....I do like hourly contracts after all! I was so thrilled to get the hourly design contract that we reduced our markup from 67% to 65%! I'm now hoping that the archy and client can get their design wishes and plans worked out in less than a few hundred hours LOL! (Just kidding...it'll be about a days work.)
Bob's next test date: 12/10/07
I used the bank because they are the highest percentage of the financiers for projects and tend to be the most rigid in their approach.
Doesn't matter who is holding the cards if they won't deal to your seat at the table, you still can't play the game. Substitute owners if you want the message remains exactly the same. I don't involve myself in the financing at all. Not mine to deal with, I contract for the work to be performed. I do however remain flexible to all the approaches out of the gate until I can decipher the pitfalls and advantages of each as it applies to each project. Do you pay your subs, suppliers and hourly workers in full in advance of work done?
They can't get your Goat if you don't tell them where it is hidden.
" Do you pay your subs, suppliers and hourly workers in full in advance of work done?"Hahahaha. That is a great question though. One of the things that I consistently run into here in Texas is subs who demand 50% up front as a condition of signing a subcontract agreement. I just laugh because I've been fronting entire houses back in MI that the mere thought of getting one penny up front just makes me laugh to think about how the builders would react if I demanded that. So, the answer is: no. I don't pay up front. I've already lost a substantial amount of money to Texans and I'm done donating. These ole wiley Texans have duped me for the last time LOL! Since I have the money up front, I do have the ability to pay promptly upon the reception of the invoice though. If the subcontractors want money up front, the answer is a flat no. There is a good reason though. If I give them money, and they abscond, I wouldn't be doing my job as a GC and protecting my client's interests. I'd be foolishly handing out their money instead of protecting it, and the job. I'd be risking my company's solvency and by extension, their job. If I go broke, I can't finish the job and we all suffer. Yes, this is fair. If the sub does the work and I don't pay, they can file a lien against the property and eventually sue to collect. The property is the security. If I hand over 5k to a sub and they absond, I have no security to attach. I could sue, but they could file bankruptcy and leave me with nothing. So, I do like your bankers: I set up the draw schedule to protect ME! Bob's next test date: 12/10/07
LOL , Your last sentence is a BINGO!! I do appreciate what you are doing and trying to do . Hard as it is try for a minute to see me as someone who also has years of experience at being a GC. ( 33 out of the last 35 to be precise).I am not as much of a business minded person in some ways as Mike is and cheerfully admit that.
Now I didn't always function in that role, still don't. But that was by choice or circumstance I made happen and the majority of those years I did function as GC were doing one of a kind high end projects. I really was quite successful for a number of years, business problems didn't bring me down, MY problems brought me down.
I am not trying to goad you, I am offering you MY perspective and advice is all. Flexibility in contracts is is good IMO, You or I may choose not to engage in it but that is our choice, not that it is of and by itself inherently bad.
Covering the start up costs and not getting upside down is always the problem. 5-10% isn't uncommon, and here is where it works for me. The bank won't give me the money, but generally the owner will. Call it earnest money , contract guarantee, deposit, whatever you want.
I am on the verge of signing a 7 figure contract on a commercial building as GC, down is 2%. Owners are writing the check. The bank isn't touching a pen to paper for a check until work is done. The exact same thing works in the residential side of the field.
Best trick I ever discovered was to always start a job the last week of a month. Virtually every supplier and most subs close their books by the 25th. of a month. Their billing isn't due for 30 days after the bill arrives. So 60 days from the start.
By then I should have completed 3-4 of my phases of construction.
They can't get your Goat if you don't tell them where it is hidden.
Congrats for still being in contention on that 7 figure commercial deal. You dont' get to that stage without excellent credentials and a solid reputation among those that are hiring and financing. I'm rooting for you! I've used the late start date too to capitalize on my credit accounts. It's still critical to watch the cashflow and not use up the "earned" money instead of saving it for that upcoming payment. Guys that are undercapitalized are at great risk if they don't carefully watch their payables. One of the biggest dangers is counting on receivables to come in to pay for the goods and services bought on credit. Thats one reason why I've adopted Mike's ideas. I'm now in total control of my funding. I still have some risk but it's all much more contained in my own hands. Theres enough stuff to go wrong in contracting and if the little guys like me can figure out a way to eliminate, or greatly reduce, the exposure from creditors or clients who decide not to pay, it certainly make the job easier to stomache. If you don't mind, I'd like to know a bit more about your plan to deal with cash flow on commercial deals. I'm guessing that you are able to hold off paying your vendors untill you get paid for their services by a bank draw. That would seem to imply that you are never upside down, even in 7 figure deal. I plan on moving into the commercial GC field as soon as I stabilize this fledgling residential busines so the topic interests me. Bob's next test date: 12/10/07
I will tell you just as soon as I am sure how it works! Start up is a partial contract while waiting for bank to finalize financing.
2% fee for starters (owner pocket book), contract based on estimated cost to pay costs for work within the first phase scope. Due 10t. of following month. Includes 1/8 O&P, Fees, etc. (8 month job est. that is why the 1/8th)
I will use some of the 2% to pay mobilization costs, but not anywhere near all of it. When bills come due, bank or owners will get the billing and pay me withing 10 days by contract. Do Unto others ...
Bear with me, I am a bit overwhelmed here lately but want to tell this tale because it is central to my advice and attitude towards business. I would never have imagined myself sitting where I am now. I truthfully did not start out with any goals at all when this whole sage started out 6 or 7 years ago. I gad downsized to just myself , worked almost everything by the hour, just tooling along being lazy and comfortable.Not broke, just paying the bills entirely my own desires at the time.
I did a small job at a vineyard. maybe $700 dollars, billed hourly , waited till end of month to bill to bill, got paid.. Actual work agreement was without contract, and was with the then GC (guy I knew). Owner called asked me some questions about myself, invited me to look at more small work.
So we met, I agreed to do the work again hourly rate, no material costs on me, bill at months end.
Maybe $2500 worth. Got paid.
Owner calls again , lets talk about moving this sold barn. Ok I did that job, (moved barn, completely remodeled it, all once again hourly rate, no materials or mark up on what I didn't write a check for. Maybe total job costs of $100,000. By now I knew the owner was a fair sized GC commercial contractor himself ( $2-30 mil range) Next thing I know I am now his site super on a winery, then the following year I am again doing the same on yet another bigger winery I actually was contacted about first and brought to him to handle the business side of things on. Both those jobs I was on salary.
Business dealings with those who always look to maximize their cuts, no matter how , are my biggest weakness and fear. Bad history there with me. I let him deal with that and was quite content with my salary, he can have the profits for the headaches. Next , build a custom home for a wine maker who is dying of Lou Gherig's disease. That one I GC., pretty much a donation /break even for me. Made carps wages. All this time I am just trying to be "Me", trying to be being fair, honest and open, not ask of others what I would have them ask of me.
At each step either the last owners or someone else highly involved in the job somehow have a hand in finding the next job I arrive on 3 months ago got a call, want to do a winery he says? I say sure when are we starting. He corrects me : "No I mean YOU do it." I decline, tell him I don't think I have the business acumen , heart , or mind for it. He listens , assures me I can do it , but accepts what I tell him.
About 2 weeks later , him again, owners really want us to do it , offers to be partners with him handling the business side. "Ok say I", happy to be a super on salary again.
I do all the sub contacting , pretty much handle the estimate, bids, etc. Spend all the time talking to archies and owners, he lays out the business costs for management, documents, legal stuff etc . He reviews all the bids, checks figures, looks for loop holes in them as well. Now last Monday I get a call , he wants to not do the job. he is 69, has some health issues, wants to retire but really wants to see me do the job and to connect the owners, who are friends of his, with me on the job.
I decline, too much headache/ fear/ insecurity about being sharp enough/ruthless enough to compete at that level of dollars... not to even mention if I fail I will wipe out everything I have !!
I call all my standard subs to tell them the news, people who will follow me almost anywhere to a job. They encourage me to do it, take the job on. ( I have known some of these guys 30 years)
Now I get another call from my main man, we talk, he offers to help me in anyway he can. I ask if I can hire him , as a consultant /guide/ mentor. He agrees. tells me his entire office staff is at my service and offers me very good rates for that service as well as offers me a ridiculously low fee for himself. He will contact his lawyer to assist me. At this point I am overwhelmed , but realize that so many believe in me when I cannot believe in myself that it has to be my problem, not theirs. So I decide to accept the job as GC.. Jim all I did for these 6-7 years is do my best , try to treat others in my business world as I would like to be treated and try give 100% everyday to the effort. I have never advertised, tried to find these jobs, tried to set a goal or be someone I am not. I am still that lazy hippie who only wants to work hard enough to get by, doesn't care about money unless I owe it to someone and would rather spend the day sitting in my canoe and eating PB&J sandwiches than go to work eat steak and dine out...
The one and only time I went looking for work and found it in the last 7 years it didn't work out worth a damn, the owners of the project however wrote a letter for me to stick in my resume with a high recommendation of me. Anywhere along the line had I become totally inflexible the ride would have stopped, had I looked at things with the eye of how much can I get out of this I am convinced it would have stopped.
None of this bragging, it is just the truth of the last 7 years of my life. I am stunned here. I ran from this business 20 years ago because of the "Business" and now find myself having to confront that same demon again. I learned however that I can ask for help, I can learn, I can listen and I can try. There is my advice. Do unto Others...You never know who is the one who is going to impact your life , ask for help, listen , try Now if I fail, I will have failed after hiring the best people I know for the jobs I hired them for, and I will have hopefully finally overcome some demons that have dogged me for the last 30 years.
They can't get your Goat if you don't tell them where it is hidden.
Excellent post and a great testament to the effort you put in while not in the canoe! You are going to reap the rewards of the seeds you are sown!I like the idea of hiring good people and especially the consultants. If you are dealing in 7 figures, it makes sense to have the proper advice on all aspects of the job. No...it's imperative to have the proper advice! Like anything else, the first go round will be the worst. The risk you are taking is somewhat managed by the decision to use the professionals in the areas where you are shaky. All in all, it sounds like an exciting chapter is opening up for you. Congratulations! I hope it all works out. Bob's next test date: 12/10/07
<<<<Do you pay your subs, suppliers and hourly workers in full in advance of work done?>>>no , but i do pay them when billed... and i pay my employees weeklymy subs like me for my fast paymenti get great service from my supplierscash flow is very important to me.... and my reserves are small... so .. to keep delivering great service to our customers.. they have to keep the cash commingthat is the quid pro quo , right ?we will do this... and they will pay this.....Mike Smith Rhode Island : Design / Build / Repair / Restore
I have always paid my people, suppliers and subs the same way. If I had to go upside down for a period of time that was my problem , my people and suppliers did what I asked them to do and deserved their money on time. Preferably just as soon as they finished if I could afford it cash flow wise.
They can't get your Goat if you don't tell them where it is hidden.
dove... i'm here to tell you it will work if the customer has taken out a construction loan
i just tell them .... early in the conversation.... that i am not a banker.. and in order to service his contract , i'm going to need a deposit.. and that his bank is probably not going to give him my deposit.. so he will need another source...
they usually get it....
sometimes ( like once in 30 years ) i have gone strictly by the bank payment schedule.. and that was enough to tell me i didn't want to do it again
most banks can work with their customers .. if the customer gets a heads-up that my payment schedule is going to be different than their norm... i have never had a problem since i started prepping my customers
along those same lines....
my first boss built on spec..... he always got three payments:
foundation / roofed / & finish
he would do all kinds of dumbazz things to get that "roofed" payment
no fascia... no drip edge... no tar paper.... heck ... not a lot of nails in the plywood either
these were all National Homes... panelized... when the trucks rolled up , the deck was on three days later the "roof " was on on he'd get his payment
then we'd spend all kinds of time working backward
funny guy.. learned a lot from him... didn't use all of itMike Smith Rhode Island : Design / Build / Repair / Restore
Mike, your post made me remember my first employer. We worked backwards alot too. I never understood it because he was a smart guy but we always seemed to do really stupid things in our race to the roof too LOL! Sometimes we'd have two guys for two weeks doing punchout on a one week house LOL! As a sub, we used to set our draws at the second floor deck, then the roof. In later years, we couldn't get draws. We were always at risk and always lacked leverage. I like the system you taught me much better: their cash up front! Bob's next test date: 12/10/07
Edited 6/14/2008 3:56 pm by Jim_Allen
Mike,
I have talked to the loan officers about this issue. Here there is no budging as far at least as my efforts are concerned.
Have you ever gone to buy something and have the seller absolutely refuse to budge on price, conditions of sale or anything at all?
Your only recourse is to buy or walk away and find someone esse who is willing to negotiate. If so then You will understand what I am saying. When I started out ALL contracts were with owners, I set payment schedules and what they had to do to adhere them was their business. Came the S&L meltdown of the 80's and all that changed. We used to use a 10/20/20/20/20/10 % schedule pegged to stages of completion. Foundation was the first 10%. Final was the last. Owners paid for permitting costs. Easy breakdown, stages always kept us just about 10% ahead of the curve given billing cycles for the subs and suppliers.
Yes it meant I financed my labor at the start.
Do you pay your help a week/month in advance of the work they do? Again I am not saying what You and Jim advocate can't be done as a manner of running your business. I see nothing wrong with it except it leaves the owner wide open to being ripped off. It is a great way to run the business.
What I am saying is it is not the ONLY way , Nor is it actually necessarily the BEST way.
Adhering to Your and Jim's way as a rigid manner of doing business has to consider the fact that because other people are willing do contracts differently means they have the opportunity for those jobs You would not be considered for is all I am saying.
Not to admit that is, IMO, misrepresentation of the facts.
They can't get your Goat if you don't tell them where it is hidden.
I just looked at the last several contracts we've signed to see the percentages. It looks like we are getting close to 10% to ink the contract. Then, the start check is 30 to 40%. A midpoint is 30-40%. The final is hopefully less than 5%. The bank deal went like this $1 to ink. 2300 upon bank finance. 6200 when we commence. 6200 upon commencement of 2nd bathroom. 6400 upon commencement of windows. 1100 upon substantial completion. We don't use any cookie cutter type percentage pay schedule. Instead, we just try to plan for our cashflow according to our real needs. We're not trying to gouge. We just want an easy cashflow situation from our point of view. Dove, please don't think that I thought this way all my career. My head was screwed on all wrong for the better part of my career. I've just recently embraced the GC career (necessity) and decided that I'd do it Mike's way. For many years, I was always behind the eight ball on contract after contract. In fact, that might have been one of the reasons I quit the retail remodeling business. I'm willing to say that if I had this resource back in the 80's and had someone like Mike explaining how he does his contracts, I'd have been much more likely to write the contracts to give me a positive cashflow. Anyways, I think we basically agree on your "rigid" thinking statement. I do agree that I will lose some clients if I'm not flexible but I'd certainly exhaust every negotiating tactic I know to stay ahead of the game before I bailed on the client/job. So, from that perspective, your caution about some having different situations is valid and they might have to concede to a negative cashflow contract. The question then becomes: how does the small contractor protect himself and assure that he will get paid when he's fronting his capital? This is an especially important element of the contract for most small contractors because they often are undercapitalized. I know I am so the cashflow thing is very important to me. What do you suggest to protect the contractor when he is upside down on a contract? Bob's next test date: 12/10/07
First, since this is a money issue, please know that I mean no disrespect to you.
Look at it this way. If you charge twice as much, you only have to do half as much work for the same income. Is there that much work around you?
IMO you don't want to be the guy everyone calls just because you're the cheapest. Also, does your work pay for health care, a mortgage, a vehicle, insurance, phone, gas, some type of retirement funding, vacation time ? Many jobs will pay for these things, if your work doesn't, perhaps you should look for employment. I know this sounds harsh, especially in todays economy, but if you aren't getting ahead, why keep doing the same thing ?
Is 25$ an hour all your market will pay? Maybe you need to work toward finding higher end customers.( Always easier said than done, but they are out there.) Keep in mind, this is not a self worth issue, only an issue of what your market will bear.
Try calling all the repair guys and remodelers around you and ask them what their T&M rates are. Our work is hard and requires intelligence, we should be compensated well for it.
I'm just like you. Although I've done a couple full kitchen remodels and a few 10K and up jobs, practically everything I do is by the hour. I get $35 but I can't say your low or not, without knowing then economics of your area.
Personally, I'd do the kitchen just like anything else - By the hour. I'd give an estimate. Say, if I expect it to take 3 months I'd figure 480 hours times myh working rate. However, that is just an estimate. It may take 2 months or it may take 4 months. I won't know till I'm done.
I would ask for $2500 up front to cover out of pocket extpenses. This is not a deposit for your labor, that's a completely separate matters. If you go through the $2500 turn in your reciepts and get more money for further expenses. The idea is that you should never have to spend your own money for materials.
Labor should be paid at the end of every week. Work for 40 or 50 hours, get paid for those hours on following Monday. I think this works out best for everybody. Maybe after you've done a dozen or so large jobs, then you can start bidding. But until then, better to play safe than end up sorry. Trust me, I know from experience.
--------------------------------------------------------
Cheap Tools at MyToolbox.net
See some of my work at TedsCarpentry.com
On second thought, do what I do. Ignore my previous reply and listen to the others. You and I could both use good dose of making real money and having a real business.--------------------------------------------------------
Cheap Tools at MyToolbox.netSee some of my work at TedsCarpentry.com
I don't know your market but I suspect that being close to Dallas there is work and gas prices are high no matter where you are. At $25/hr you would be better off getting a job. I mean that in a positive light. In my area union carps get $30+ an hour with benefits. If you wish to stay working for yourself you need to raise your rates by quite a bit.
I seldom work t & m because people balk at my rates, but will pay the same or more on bid. Here is what I suggest for you. Keep doing what you are doing but Go out and bid a job.Preferably for someone who doesn't know you. Take what you think it will cost and multiply it by 8 to 10- I'm not kidding, if I charged twice what you are charging I'd be broke in less than a year.
To get a gauge of what you should be charging go into a good auto repair shop and find out their hourly rate. If you get ever job you bid then your prices are too low. It is better to get 60% of what you bid at twice what you currently charge then to get everything at your current rate.
As for your feelings about ripping off the customer- get over it. You are in business. Funny thing is the more you charge the better you get treated.
Hope you make more money & take your wife on a vacation.
catawooda
Listen to what Mike Smith and others are saying and apply it.
Do it in small steps and start to change your business profile.
Rich
I might suggest operating in two parallel universes. Since he's already surviving on $25 per hour, he wouldn't need to do much to set up an alternate form of that service and do it like a business. My belief is that his current referral network is poisoned with the low rate mentality. They aren't referring him for the right reason. I'm 99.99% confident that they all mention his rate as the primary reason they go with him. So, I'd just plod along with that referral base while setting up an alternate universe. I'd create a marketing plan in a different part of the city and start advertising. I'd send in a professional salesperson...one who isn't afraid to bounce number around like Mike talks about and put them on a commission only basis. I'd probably tag the lead generation cost onto them too in the form of an additional percentage. Then, when the new salesperson sold a job, it would simply create a one week hole in the $25 schedule, and add one week onto the $85 schedule. We all know that we can't live on one week, so he would still have his $25 week schedule cooking. At some point the $85 schedule would have enough work booked to eliminate the $25 schedule. Bob's next test date: 12/10/07
Jim
May I suggest that you are operating in a different universe than the OP.
You think like a big fish. I'd send in a professional salesperson
The OP is a small fish like me. People call me because they want me to solve their problem. They want to talk to me face to face. You and I do it too. I never want to talk to the service manager. I want to talk with the guy who is going to fix my car. I want to deal with the person who has the power to make a decision, I don't want a flunkie.
My belief is that his current referral network is poisoned with the low rate mentality.
I think his main problem is in his own head. He talks his own price down. And he operate like an employee. Cutawooda, don't be offended, it's what we all do. That and being overly optimistic when we are estimating. So stay there forever and others learn to change their business practices.
If he wants to change is business profile he can still do it with his current clientele. After all they are not going anywhere. They will keep calling him even if he raises his rates, because they are comfortable with him.
I think he is working in a small town enviroment (he gets his clients to set up accounts at the lumberyard and paint store, you only do that in small town America). They would laugh him out of town if he sent in a salesman with slick hair.
I am going to post to him next what I think he should do. Then charge him my 2 cents.
Rich
"You think like a big fish." "I'd send in a professional salesperson""They would laugh him out of town if he sent in a salesman with slick hair."First, thank you for the big fish comment. I'm not actually thinking like a big fish, I'm just trying to do business as a big fish would. Actually, I'm just being realistic about how many hats are worn in the remodeling business and recognizing that one of those hats are worn by a professional salesperson. Your comment about slick hair seems to indicate that you think all proessional salespeople are someone with a fast tongue and a bag full of high pressure tricks. My vision of a professional salesperson is someone who is pleasant to be around, likes the remodeling industry, loves to explore designs over the kitchen table with Mrs Jones, loves to solve Mrs Jone's problems, isn't afraid to look realistically at the costs involved in a project, is willing to promptly schedule and get to appointments, is willing to promptly put together estimates and proposals, is willing to return with the proposal to discuss it along with all the details etc. etc. etc. The person I'm thinking about might be your nice 28 year old neice, or the nice middle aged lady down the street....or....YOU! Yes, you probably would make a very good professional salesperson...if you're not afraid of the money and not afraid to work hard to solve their problems. Would my ideas work in smalltown America? I think so. It might not work with your ideas of sending in Mr Fasttalker with slick hair. Bob's next test date: 12/10/07
Jim
I can't wrap my mind around your concept of a salesman. Yes for roofing, gutters, siding maybe.
explore designs over the kitchen table with Mrs Jones, loves to solve Mrs Jone's problems, isn't afraid to look realistically at the costs involved in a project, is willing to promptly schedule and get to appointments, is willing to promptly put together estimates and proposals, is willing to return with the proposal to discuss it along with all the details
It took me years of going to school (working everyday) to have the insight to see a job and the pitfalls behind the walls. Or trace the leak without disturbing the structure or romoving materials.
I agree it is hard to wear many hats. Right now I have more demands on my time than I have time. And yet I need to do production. Mostly small stuff, but it's still important to the HO.
Rich
Cargin, you are speaking like a classic tradesman..a nuts and bolts guy. You only see value in knowing what is inside the walls. Don't take that as an insult...we all know there are engineer types and "feel good" types. Some people will respond better to one or the other. Mrs Jones though, might not care what is inside the walls. Shes feathering her nest! When a guy like you comes in and talks about wires behind the walls, Mrs Jone's eyes glaze over. SHE DOESN'T CARE ABOUT THE STUDS....THAT'S THE SKILLED WORKERS JOB! So...our estimator/designer only knows a little about whats behind the walls. She knows what studs are. But....she knows something a lot more important than studs.....she knows how to ask Mrs Jones questions about her wishes for her nest. She knows how to draw out her true desires and talk about exciting things. She knows what will make Mrs Jones happy because she's in tune with her "feelings". So, after asking lots of questions, our estimator walks out with a list of wants, wishes, and needs. She figures things out and puts a price proposal together, sometimes with my input, other times without and goes back to Mrs Jones and shows her how we can help her accomplish her dreams. Sometimes, the request is so complicated that we have to send in the mechanic to figure things out before we quote the job. For the most part, we figure a way to quote it, but we include some disclaimers for what might be hidden behind the walls. We "qualify" our proposals for the unkown, when there is an unknown. So, what is the difference between your system and mine? You send in your mechanical expert in the beginning of the process and I send them in after the financial aspects of the project are handled or after it is determined that the scope of the project is so complicated that we need a skill guy in there to make the proper assessment. This system saves the skilled mechanic's time for things that he is uniquely qualified for. It employs a different person that is also uniquely qualified for her job and allows her to spend the correct amount of time doing that job. I'm not sure that a guy that spends all day working in the field has enough energy left to properly do a sales call, then the follow up research to give the best deal, then the presentation and explanation of the proposal, then service the sale after it's started, then send thank you notes for referrals, canvass the neighborhood that the job is going in, develop relationships with the clients, network with other professionals and groups to further the interests of the company, etc, etc, etc. Frenchy has said it many times...sales is not easy. A full time sales person earns their pay...they're not stealing anything. My estimator has puts lots of miles and talked to a lot of people. She's doing great by my standards but she is way down by hers. Along the way though, she's created a lot of goodwill. The clients love her. She's been invited to a day trip to a water park and invited to a private country club for a round of golf with a very wealthy client (strictly fun...the gentleman is a wise and humble retired CEO). Some clients want her to hang out and party with them at their home. In a nutshell...she's likable, confident, aggressive, driven, hungry, amitious, and a host of other good things....like tenacious, friendly, smart etc. She is making a living, working hard just like you and others like you (not me...I goof off too much). Anyways, it's just a different system. I've done them both now and I can see why I burned out the first time when I thought everyone needed to hear me sell myself. I now know think that is the worst thing to do. Oh wait...I've accompanied my estimator on four first appointments. We are batting .750 when I went with her....I hope I have time next week to accompany her on a few more!
Bob's next test date: 12/10/07
Jim
Cargin, you are speaking like a classic tradesman..a nuts and bolts guy
You send in your mechanical expert in the beginning of the process
Yup. That's me.
But my orginal point is that is it pointless to tell the Op to hire a saleman when he is not charging enough and he doesn't mark up materials or his helper.
He had many other hurdles (many mental) before he gets to the point of hiring a saleman.
He needs a paradigm shift. to shift from a employee of the customer to a businessman.
Heck, I would need a paradigm shift to hire a salesman. LOL
Rich
"He needs a paradigm shift. to shift from a employee of the customer to a businessman.Heck, I would need a paradigm shift to hire a salesman. LOL"Are you seeing a pattern here? "He needs a paradigm shift." "I need a paradigm shift to hire a salesperson". BINGO! Lets talk about HIS risk. He's already mucking around making $25 per hour. He works by referral only and manages to eek out a living. I suggest setting up a parallel universe where a professional salesperson finds and develops his own leads and sells the leads himself with no monetary or time involvement on the OP. THERE IS NO DOWNSIDE! THERE IS NO RISK! So, lets say something really, really crazy happens. The salesperson, who actually knows how to sell and isn't afraid to sell, and isn't afraid of losing every lead....actually closes a deal and the labor is calculated at $45 and marked up to produce the necessary 40% gross profit markup. I know...that is crazy thinking. But...lets just say, it really did happen. What is the risk now? Now the OP has to stall one of his $25 per hour contracts and make room for a $67.63 per hour contract! Horrors....what if he misses the bid amount and it takes an extra ten hours? His gross hourly rate might only be $55 per hour! Cargin, I don't know what your situation is, but I know this. Back in the mid 80's I had this stupid crazy idea that I needed a salesperson to sell my carpentry services. I went and talked to ONE GUY that I knew was a good salesperson. He said "I'll think about it". Two years later I talked to another guy that could also sell. He said "Sure, I'm interested" but he never did anything. So, I plodded along, wearing all the hats because I didn't really think that I could find a salesperson and I didn't truly believe in the value I was delivering. Do you know how much money I've squandered by not following through and finding a competent salesperson? Let just use round numbers...nice easy ones. A part time sales person should easily be able to sell 200k per year and earn 20k sales commission. A full timer should be able to easily do 500k and earn 50k sales commission. If they are selling correctly and getting the 40% gross profit markup, that will return at least 10% net profit and provide 15% overhead which would include some owners salary. Lets peg that salary at 5%. So...the net loss by me each year would tally 15% of 500k for every year since 1985 when I first thought about hiring a professional sales agent. In 2009 dollars, that would total $1,800,000 not counting interest. If you want to trim the expected gross income in half, that's okay too. I've still squandered 900k. The reality is though that I've lived in localities that easily would have provided me with 1 million dollars a year in gross sales if I had professionally went after it in a business like manner...meaning: price it right and sell it instead of pricing it low and giving it away. Bob's next test date: 12/10/07
Personally, I think that T&M is the fairest possible way to work - although it requires a great deal of trust from both parties.
Although they may be presented differently, all bidding processes begin with estimates of the time required to do the work and the cost of the materials that will be used. If the bid isn't T&M, you have to either make assumptions about unseen conditions, limit the work scope, and/or add contract language regarding changes.
The real trick to the bid process is knowing the actual cost of your time - and it's always more than whatever you're paying yourself. Insurance, bonds, licenses, taxes, tools, vehicles, office expenses, etc, etc need to be included as part of the hourly rate or you'll find yourself wondering why that $25/hour you thought you were making only results in $15/hour in income.
You also need to understand the concept of "billable time". If you assume a 40 hour work week at $25/hr, you're making $1000/week, right? No you aren't!! The time you spend talking to prospective customers, preparing bids, doing bookwork, etc isn't directly billable and has to be made up in the rate you actually bill. Vacations, holidays, sick days also have to be factored in too. I've seen situations where billable labor rates are double (or more) the actual wage rates.
Don't make the mistake of thinking that you can put in 40 billable hours a week and do everything else "off hours". If you're putting 80 hours/week into your business and getting paid $1000/week (40 hours @$25/hr), you're working for $12.50/hr - not $25/hr. Like the fella says ......."TANSTAAFL". (There Ain't No Such Thing As A Free Lunch)
I don't see T&M as any fairer. You seem to be warning that you have to build in your non direct labor costs. That could be construed as "padding the bill" if you want to talk about "fair". Please understand that I don't disagree that you need to be compensated. I'm just pointing out that every type of bid is equally fair. All the risks and rewards are negotiable. An offer is made or rejected. Things become unfair when one party or the other uses trickery or fraud. In the absence of that, it's all fair equally. Bob's next test date: 12/10/07
I say "fairer" because it eliminates the need to either pad a bid to cover unforseen problems, or define a detailed scope of work describing the limits of the job - then adding language to address the inevitable changes which occur when the "unforseen" problems become "seen" problems.
It takes something of a leap of faith for the customer to trust that the contractor will do the work effeciently, cost effectively, and give an honest assesment of the time and costs involved when dealing with those unforseen problems.
My favorite "bid" is T&M Not To Exceed. I only do these when I'm comfortable with the customer's willingness to be involved in the job and open to discussion about changes needed to deal with problems. The customer has an upper limit (subject to change, perhaps) and I have the flexibility to do the job without constantly thinking about whether something is "out of scope".
My least favorite bid is firm fixed price. These force me to either guess at what unforseen problems I might encounter and "pad" my bid to cover them, or to write a very detailed work scope and be prepared to write change orders for every little deviation from the original scope. If I guess right, I make bank at the customers expense. If I guess wrong, the customer makes out like a bandit on my dime. Hopefully, it all works out over the year, but some of the customers will have effectively subsidized other customers jobs.
Labor costs (either direct or indirect) must be part of the fee schedule or you're going down in flames. - lol My favorite comparison is the shop rates posted in auto repair shops. Do you really think that the mechanic gets all of the $90+/hr you're being charged for that brake job? The mechanic probably gets 25% - 30% of that in the paycheck and the rest goes to pay for the shop, taxes, insurance, and profit.
T&M with an estimate but with no upset limit means "the slower and dumber I am, the more money I make"!
T&M not-to-exceed means "the customer wins and I lose, whether I estimate high or low"
Fixed price implies fixed price WITH fixed scope of work defined in writing or "bid high, I win- bid low, customer wins". It only works IF you're prepared to write a good proposal and workscope AND to do change orders when they're required. In my business (not home construction or reno), I like this best- because I know what we're worth to our clients and I'm not afraid to charge it- and because the smarter I am at finding the most economical way to solve a problem, the more money I put in my own pocket.
There IS a fourth option, called "target price". I estimate the job and define the scope. If I come in low, we split the savings. If I come in high, we split the cost. I still write change orders, but they just add to the estimate. This can be a win-win situation with the right kind of customer.
Add to that list Cost + a Fixed fee. IMO the best option.
They can't get your Goat if you don't tell them where it is hidden.
I guess we are going to agree that we disagree. I am a buyer of goods and services every day. Every day, I'm using subcontractors and to date, I have rarely been satisfied when I'm paying hourly. In fact, I will do almost anything to eliminate paying the trades by the hour. I want a fixed fee. Go ahead...pad it if you think you must...but a fixed fee is the only thing that I think is fairer to me. Cost plus might be fairer in your mind but when I'm the buyer, cost plus is not fair in my mind. Actually, it's "fair"...I just won't do it unless the guy's proven track record shows me that it'll be the best effort scenario. The trouble is....there isn't going to be any chance to develop that track record. As a GC, I'm not interested in working cost plus. I don't want my clients questioning me about who is going to benefit from half a can of joint compound that is left over or why did we buy such a large can of plumbers primer and glue....or "look at all the wasted nails that the laborer is sweeping up". Also, the cost of documenting all the details of the job must ratchet up the paperwork trail. I'm okay that some people are okay with the cost plus system and I've done a few jobs myself but it sounds like a hard way to go. Bob's next test date: 12/10/07
No problem, Jim. I've worked under almost every kind of contract out there and have reasons to love and hate them all. Whatever form a deal takes, it always comes down to the degree of trust between the contractor and customer. As someone once said (or should have), "A contract is a formal agreement between two or more parties where each party gets to list the reason(s) they distrust one another." - lol
When I said that my favorite was T&M, I qualified that by saying that they only work if there's trust on both sides. The real truth is that a handshake is my uber-favorite. I have a very small (and very select) list of customers that I'll work for on nothing more than a handshake.
dave45
Most of my work is done with a written estimate or bid proposal and a handshake.
I usually don't have contracts. Most jobs are 1k to 10k.
Last job I did I didn't even meet the lady. She called me for a roof job at her downtown building. I e-mailed her the Bid. She called me back with the acceptance.
I did the job and e-mailed her the invoice and pictures tonight. $4,500
I knew her late husband, but not real well. I know where her farm is. She knows who I am and I know who she is but I don't know if I could pick her out in a crowd.
Rich
My feeling is that with two somewhat identical jobs - both say around $5k,Given that both jobs are done with complete satisfaction - you'll end up with (maybe even sub-consiously) happier clients in those jobs that you bidded the job for.The job that went great with good result at time and materials, sub-consiously (or consiously...) the clients will always wonder if they paid too much.All clients wonder if they "paid" too much, but in a bid situation, they only wonder that at the beginning, by the end of the project, they are too happy to be done and they've already gotten oven any regret of the price.With time and materials at the end of the job is when they start regretting and questioning the cost.I do both types of work, but in general, anything over a days worth of work, I like to bid it out.Plus, I can never understand how you folks sell people larger projects on T&M. The only thing I can figure is that it must be the lower cost cause you are not charging enough like the OP.Julian
""All clients wonder if they "paid" too much, but in a bid situation, they only wonder that at the beginning, by the end of the project, they are too happy to be done and they've already gotten oven any regret of the price."" I disagree. I think that statement is a projection of what the contractor feels clients think rather than the reality of what they may actually be thinking.
The projection is a form of the contractors bias ,not a reality.
I have done a number of projects under both methods and that alone proves that not "All Clients" think or want the same.
I have received bonus checks because the client didnt think they paid enough for my product at times as well.
They can't get your Goat if you don't tell them where it is hidden.
I am starting to see that I have been disillusioned all this time.
As I mentioned earlier, no one has ever discussed this stuff with me. There are advantages to working by yourself; away from any distractions, however, being an island presents its own problems. I have missed out on a stream of information that one picks up as we socialize and converse, let alone taking a course in business practices. I have missed both.
This has been very helpful. Probably one of the most productive posts I have submitted. If more posts come in on this topic I will be reading them.
Thanks for everything.
mjb
go to JLC and read some of their forums also!
Don't disappear, there's always more to learn about this stuff and this forum is a graduate level course. - lol
You've gotten some real good advice here, and I second the suggestion to go to the JLC site and read the business posts. There are some real good books too, "Markup and profit" is one.
I started out T&M, because I was not confident I could estimate the labor involved in certain jobs. With experience, I got that confidence for new work and jobs where the walls were open (I'm an electrical contractor). The key is to do a post-mortem cost analysis on every job; compare your estimate (the basis of the fixed-price bid) to what it really cost you to do the work. It's called "costing the job". It requires some discipline, in that you have to track materials costs by the job, and accurately log the hours spent on each job, not just time working on-site but also time spent on materials runs, phone calls, etc.
On remodelling and other old work, I've finally gotten to where I can make a good estimate based on what conditions I'm likely to encounter. I include a cushion for unforseen conditions. But I also spell out in the bid that there may be unusual cinditions that I can't cover within the scope fo the bid. I include limitations, like:
"Discovery of unexpected hazardous materials (like asbestos), or unanticipated conditions (for instance, finding a buried junction box that requires running extensive cable to relocate) will require additional labor and materials and will increase the cost of the work. When any major unanticipated condition is discovered, the client will be immediately advised of the discovery, options, and additional cost to provide a safe, Code-compliant installation. If the client chooses to not proceed, the client will be invoiced for and pay for work completed and materials installed, the work area made safe with respect to electrical wiring."
Using a T&M approach and a low hourly labor rate is great for the client, but what client will have you start a job without any idea of what the cost will be? Even if it's not written, you probably give some idea of the total cost--a range, maybe.
Using a T&M and not to exceed figure is not a good idea--it means that you're basically working for a wage, because you have capped the cost but give the client the difference if you have an easier time of it. If you run onto a mess and honor the "not to exceed" amount, you could end up working for $3/hour or less. A fixed bid means that you can make more per hour than you thought if things go your way. Is this cheating the client? No, it's a reward for bidding well, and being lucky.
A big part of this, I think, has to do with the tradesman's willingness to take risks. If you have a bit of a gambler in you, a fixed bid approach is exciting; you can make a lot of money if youbid high, get the job, and things go better than expected. You can also lose big if there's stuff that shows up that you did not anticipate. It also has to do with level of experience and self-confidence; if you've done enough similar jobs, and are confident you can cover the bases, and feel that you're worth top dollar, a fixed bid approach is kind of fun.
Some people have expressed thoughts concerning "fairness", with the undertone that charging beyond a certial amount for a job is stealing from the client. I disagree. A client can get other bids and should get other bids. It's rare that two bids cover exactly the same work and the same quality of materials, or the same craftsmanship. If you believe your work is better, your materials are better or will serve the customer better, and that you will show more respect for the client and hos/hoer house, family, pets, and neighbors, then you are worth more. And there are people who will pay more.
A lot of people pay a lot of money they don't "have to" for a car, a house, clothes, even their fancy coffee every day. They know they're paying more than they have to, and they feel good about it. The key is to make them feel that by using you, they're getting something very special.
A lot of contractors think it's better to work at a low rate than not work; one wise man said, if I can't make money at running a business (not just a wage, but cover ALL costs fo doing businees and also provide benefits and make a profit), then I'd rather break even while sitting home and watching TV, or be out fishing.
And who has the luxury or wants to not work? But if you run a business like a hobby, that's when you have to realize that being an employee (working for wages) may be more suited to your personality. And many of us have lived in both worlds at different times. It's not a one-way door out of running a business, or signing on for a lifetime of employment.
It's a journey, enjoy it. And don't be afraid to make money.
Cliff
Nice post Cliff but I'd like to add something. When you decide to be an employer, you take on the responsibility to offer your employees a fair and reasonable standard of living. If you refuse to meet the demands of being a quality businessperson and simply settle to only work for wages, you have no business taking on an employee. Bob's next test date: 12/10/07
Jim,
Spot on, as a buddy of mine from England would say.
Cliff
cutawooda
1st off here are couple of links to a similar situation on BT.
Not being very Profitable by Willie Wonka
http://forums.taunton.com/tp-breaktime/messages?msg=104492.1
Willies reply
http://forums.taunton.com/tp-breaktime/messages?msg=104492.45
Let me guess. Your wife works, has the insurance and some benefits and the only retirement savings you have is through her work. If you had to make it on your income only then you won't make it and you defintely wouldn't have health insurance. Am I right?
I do not say this to belittle you or to put you down. I can relate to your mindset. Your methods have allowed you to build a good referall business and a strong client base who depend on you to solve their problems. If you don't charge enough to stay in business then you are not really helping your clients. Next time they have a project then they are going to have to go out and find a new contractor and who knows if they can trust him.
May I suggest that it's time to change your business practices. Build on your client base. Don't turn in hours. Bill them for your labor. Don't tell them what your rate is unless they ask. Then be honest. Then move into billing materials thru your account. Mark them up 20%.
Your statement should look something like
Labor to install storm door $150
Materials $175
Total $325
Don't tell them it took x number of hours to install door. Don't show them the reciept for the storm door. Continue to bill for the time you spend buying materials.
Figure what your cost of doing business is. Figure that into your hourly rate. I think you could easily charge $35 to $40 per hour.
This winter I changed my rate from $35 to $40/hour. Nobody noticed.
Many other contractors in my area charge $25/hr and no markup. They have a wife that supports there carpentry habit.
Then you can start to invest money into a Roth IRA and have an emergency fund.
Then you can move into bidding jobs. Others have already given you advice on job costing.
You've learned how to be a tradesman. Not learn how to be a businessman. Hold your head high and charge your rate and don't back down. If you are like me you have a backlog of work to do.
The battleground is in your mind. You have change your thinking first.
Rich
The battleground is in your mind.
that's a great line.
carpenter in transition
cutawooda
Here is another thread that you will find interesting.
http://forums.taunton.com/tp-breaktime/messages?msg=104491.1
Rich
just one thought, as this is a great thread-
in your current situation, if your helper is injured on your job, who will take financial responsibility ?
carpenter in transition