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I am just about at wits end about doing whole-house, high-end additions/remodels. As a general contractor it seems I can make more money on a little $50k addition than I can on a $350k “South-of-the-Boulevard” project. Have any of you found the same to be true? I used to think I would’ve hit the big time when I got to this size of job, but now I look back and remember fondly when I was doing littler projects.
– Ben
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Ben,
High-end residential is almost always done T&M. Would rather make 20% of 50K or 20% of 350K?
Ed. Williams
*Ditto ben.....ditto......i love those 10K to 50K remodels where you can make 30%to 50% profit {sometimes} . New construction is tied to 10% ......
*I'm with Ed. T+ M you take the tension of constant worry completely out of the equation, just do your best work and you and the customer are on the same side of the table, start to finish. You may never "cut a fat hog" but it is fair to you and fair to the customer. - jb
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I have a favorite quote that speaks to this issue.
"Work for the masses, eat with the classes; work for the classes, eat with the masses."
Have found this to be the case always.
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Chod Lang,
Joseph Fusco
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*Ben, I too love those 50k jobs. On big high end jobs bid the job at a price you can make the money you want. If you cant get it do not do the job. and when it they want to "value engineer" the project leave your profit in.Rick Tuk
*Ben,I agree with you about the high end , it does seem that having made the leap to that level all your problems are over. But of course that's never the way it goes.I treat every project differently,some are as Ed suggests T&M,some aren't.Every customer has different needs and the high end remodel market has to be just that, high end and thats how I price them.They pay more for my services at that level because they want more of my time.They tend to think of you as there personel builder with no other customers and nothing else to do, most seem happy to pay for the extra attention. Vince P.S. Nice web site and beautiful work .
*I don't know, we just finished up a major high-end remodel, and we're in the middle of another, but the accounting on these things is so complicated that I doubt I could ever figure out whether or not we actually made any money. I know for a fact I'm losing my shirt as we speak. One thing that I was surprised to read here is that some of you do these time and materials. I would love to do that but I know that a lot of customers around here won't go for that. What usually happens is that we contract the job for a certain amount, plus allowances and contingencies, and then inevitably end up with five hundred change orders that we do time and materials, but they so confuse the issue that it's hard to tell what money goes where.I guess I'm just surprised that a customer would do such a large job T&M. What figure do you guys use for overhead?
*P + O - 15%. That's on everything we supply and are responsible for. But we never have done anything over 125k, so maybe I should just shut up about this "high end" subject. - jb
*Jim - I don't think you should "shut up". 125k is a lot and especially depending on the scope of the project. It sounds to me like you do really good work. The major job I'm in the middle of started out at 83k, and it is definitely "high end". It has ballooned to a point where I don't know how much it will cost.
*Ed, How long does that $350,000 job take and how many $50,000 jobs can be done in the same time? I'm with Ben, I started getting the big remodel jobs and thougt I was there,but in hind sight I found that in my area anyway there's the masses, the high end, and those who either want to be high end or think they are high end. This was where I was at And that's where I think you can get burnt the easiest. I sometimes let my ego get in the way and took those wann-a-bee jobs at lower prices then I should have and they would stroke my ego and let me get by with it or as in one case decided they didn't have the money to pay my final payment. Gimme those $50,000 jobs!
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Well, guys, it seems that Nick and I are stuck in the same mind-set.... how do you sell someone on the idea that "I won't tell you how much this is going to cost, but you just give me 20% over everything I spend on the job until we're done".... I'd love to do jobs that way, just don't know how the pitch is made to the customer (especially when there are guys out there giving them fixed prices).... Also, how do you deal with your own labor (assuming you do some carpentry, electrical, or whatever your specialty may be; or are you strictly "briefcase" contracting, with your sole input being supervision?
Lots of questions....
-Ben
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I think Barry may have part of the answer in what he said... My problem seems to be in the range of people who have enough money to do whatever they want ... but not so much that they don't pay close attention to it. My last major job started off at 275k, and I know that they would not have done it time and materials. But it also ended up closer to 350-400k, all told. I can imagine a multi-millionaire retaining someone T&M for a big job, but not most people. So this leaves you trying to budget and plan a job that spans 15 months...not the easiest thing. Then you factor in 100 change orders... you start pulling your hair out.
To compound the problem, these are my meat-and-potatoes customers. The concept of our business is based on them.
Anyway, we go 35% over cost for overhead and profit. It still doesn't seem like enough. Sounds like I'm a little higher than most.
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Well, guys, it seems that Nick and I are stuck in the same mind-set.... how do you sell someone on the idea that "I won't tell you how much this is going to cost, but you just give me 20% over everything I spend on the job until we're done".... I'd love to do jobs that way, just don't know how the pitch is made to the customer (especially when there are guys out there giving them fixed prices).... Also, how do you deal with your own labor (assuming you do some carpentry, electrical, or whatever your specialty may be; or are you strictly "briefcase" contracting, with your sole input being supervision?
Lots of questions....
-Ben
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I'm sorry, but I'm not sure I can give any lessons on high-end here.
You start with a plan......some things have to be budget items because the customer is not sure about appliances, marble, paint finishes, hardware, etc. You're in the same boat as everyone else looking at the project. It's to the customers advantage to do the project T&M. That way it only cost them what it cost plus your 20% overhead to manage and operate the project. Otherwise, you'd have to estimate a price over the moon to cover the unknown. They know that. Some of these projects can go on for years.
Ed. Williams
*Ben,How do you get people to do large projects t&m? one word - REPUTATION. They have to want you and be convinced that you are a good builder and honest.Rick Tuk
*From customer point of view, problem with T&M is contractor who goes heavy on the labor, often unnecessarily so, at customer's expense. Also, how do you guys compute the time? Is customer entitled to see breakdown of time/labor, because ultimately they're paying these guys. E.G. so many professional-grade laborers at $X an hour, so many gophers at $X an hour? Or is a flat rate set for all hours, e.g. Total hours at $XX/hour. Assume in this question that contractor is not doing any payroll, just paying his guys straight as contract labor. Is there a standard rate...e.g. rate contractor pays his guys marked up 35% or some such? And what if contractor (thus customer) has someone coming to work who doesn't perform...even at gopher level. Does customer have right to ask that this non-worker not be employed at this job site?
*Chod,I don't know where you got that quote from,but in my opinion,it is easily the most intelligent bit of advice I have ever seen on this site. Maybe I am just stupid or something but the more I think about it the more profound it seems.Thank You, Stephen
*TinaG,These are questions you have to work out with your builder. Every case is different.Ed. Williams
*Rick,Amen.Ben.....In Texas you might want to wear a "white hat"... :-)Ed. Williams
*Heres my two cents.I have never done "high end" contracting, but have always dealt with different versions of high enders.Some strictly do the cost plus route. I have done one small end job and sold it like this. "Since this is remodeling, I don't know what I'm into until I open the walls up. If I have to give you a firm quote, I will assume the worst, and and then mark up from there. If we go cost plus, we can assume nothing and bill you for work that is actually done. I can afford to operate on a smaller margin, because you hav assumened the risk".thats basically the gist of the cost plus gig.Many commercial projects are cost plus.There is also an arrangement that assigns a fixed fee, on top of the actual costs. That alleviates the contractor's incentive to drive the price up, using more expensive quotes, and/or materials.I'm still framing, and glad that my war is with only one builder at a time. I don't envy you "retailers"!And I know I can often make more money than you on one project. You will eventually kick my butt, because you can operate many projects at the same time. That's where your money tree lies.blue
*There is one contract I have seen of late on highend new constructon. Cost plus with a maximum split the difference. The contractor comse up with a high but reasonable price. Everything is billed on a cost plus basis. ( yes the costomer gets a breakdown every month with the bill on where his money goes all markups are agreed upon in the contract including profit). At the end of the job if the total is below the agreed uopn max the contractor and the owner split the difference. usually 40-60. There is usually a maximum that the contractor will recieve so that he wont cut to much or give a ridiculous maximum.Rick Tuk
*Thanks for the feedback. Yes, I know much needs to be worked out with our builder, but it's helpful to know what others are doing, since our builder has never done cost-plus before. We want it to be fair for him as well as for us. He doesn't have access to this board (well, he does, but is uncertain how to even turn on his computer and figures he'll never learn...something we're trying to convince him otherwise about -- I'll probably set up some spreadsheets for him, show him how easy to track hours, costs, etc. and get him started). Liked that split-the-difference idea, but we're probably too far into things to do it. Keep the suggestions coming, though...and thanks again.
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What is your average CM per job? Do you have your contract structurely priced correctly?
*Ok.... I give up... what's CM? Cost Management?Cement Mortar?Contractor's Markup (10% overhead, 10% profit is what we got into the habit of charging after the Northridge Quake....that's what the Insurance Companies (capitalized in deference to their God-like position in our culture)...)Collaterized MaelstromCoagulated MaonaiseCorporate Monolithssorry... long day work today... a bit punchy-BenView Image
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Ben,
You're trying to get real money out of insurance companies.......
Good luck.
They think high-end is T-111.
Ed. Williams
*The Northridge Quake -- boy, that one still haunts you, eh? And it wasn't even all that big really... The shaky parts of Calif. are areas where quality construction can matter for a whole lot more than pride and looks. You are also much more heavily regulated, for what good it might do.The T&M v. fixed quote debate is tough -- as a customer, I wouldn't enter a T&M deal without a reasonably firm idea of ultimate cost -- what warning would I have that I was getting in over my head? Or what guarantee that my honest builder (who wants a dishonest one at any price?) would supervise and crack the whip to control costs if things went a bit slow. On the other hand, with a fixed price, I have no desire to rip the contractor off OR to give him an outrageous profit. Now that I'm trying things on the other side, it's the same problems. (Actually, I think straight T&M would make me worry too much I was somehow ripping the client off every time I slowed down ... assuming I liked the client ...)There have been a couple of stories here of customers who cut their contractors some slack when it became obvious that more work was involved than had been anticipated ... and I'm sure some contractors out there have reduced their quoted price when everything went off without a hitch. I wish I heard more stories like this.I strongly believe a hybrid contract sounds like the way to go -- rather than budget for the worst possible case, budget for the average with contingency clause covering sharp good-faith divergences. It's tough, but to take some of the stress out of all this will require trust between the customer and contractor... And, as I think this thread shows, WEALTHY clients are not better sources of trusting relationships.... hence Mr. Lang's pithy aphorism ... not sure I want to eat with the classes, though ...As for change orders, I can't think of anything good to say about them! Well, they can be pretty lucrative ... particularly if your estimate for the main job is proving a little thin... (Repaint the kitchen? Another color? Uh, OK! But you know, it's a lot harder at this point...)
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Andrew:
I can understand what you're saying, but the part about
feeling guilty when you "slowed down" is a little
oversensitive. If you have an off day, it balances for when
you really kick some butt. It's up to you to decide if you
need a break, or aren't getting enough done, and how much
you bill. At least you don't have to worry about screwing the
customer with a high bid.
Besides, you know that we never really slow down, we just
lose a little interest at times!
But I refuse to feel guilty. If the customer interrupts or
wants to shoot the breeze or change something, they can pay for me to
talk to them, if that's what they want.
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Oh sure, my mom used to run up our bills chatting with the guy from the gas company.
"Guilty" is the wrong word, 'cause I know I'm honest. Instead, I just like to get things done the way they ought to be done without thinking about or adding up the time. When you're doing something kind of new or extra challenging (which of course you want in order to keep your brain alive), does the customer pay for your education? And, of course, there's always the potential problem of the "hovering" homeowner -- with fixed price they only complain about the inconvenience of the remodel/construction. (BTW, I've heard many ingenious suggestions here for getting rid of hoverers...)
There are th off days and the days you really crank, eh?
*Well, I try to evaluate what type of quality we're talkin' then budget for each phase of the job in the original estimate. Say - 40.00/yard for nice vinal flooring, or 750.00 for porcelin sink, then, as each decision has to be made, I sit down with them and show them what we budgeted, what they can get for that, what they can upgrade to, or how they can save in that area if they want something else. Whatever they decide, they know what the estimate was for, and have the freedom to splurge a little in any one area or save a little, it's their choice. This puts me and the customer on the same side of the table, and eliminates the conflict that I always felt on a "bid" job. Most folks I talk to (again, I only do 1 or 2 jobs a year of any size) understand the principle of "profit and overhead". In fact, I've had customers tell me that they had me do the work because I was the only contractor they talked with that suggested this approach. - jb
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Oops.
I should have remembered not to use the word "guilty" in
conversation with a lawyer!
Anyway, it is refreshing to discover that your theory is to
not add up the time. My lawyers are like digital readouts
in that department.
I think, in a way, that yes the customer does pay for your
continuing education. And with time+materials, it may be
annoying to have the hovering homeowner, but at least it
doesn't cost as much
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Jim-
One of the ways we deal with the uncertainty of materials, whether it's T&M or a solid budget, is by putting things like fixtures and floor coverings under "Allowances". Allowances can either be in the contract price, or out of it, but either way they represent an amount of money that an "average" item might cost. If the customer picks a cheapo item, they are credited the amount less than the allowance. If they pick something super-fancy, they are billed the extra amount over the allowance.This way decisions on finishes can be put off until the right time, and you can't get burned on the price.
An example is the kitchen I'm budgeting now. I'm going to do it T&M, plus OH and profit, with a price-not-to-exceed. This price represents my labor and materials that I pick, but the allowances are not included in the price-not-to-exceed. They are listed separately and billed separately, so they can change their minds at the last minute, and I won't get screwed. But the figures I gave for allowances aren't just out of thin air, I think they're pretty accurate, so they have a realistic view of how much the project will cost.
Anyway, this may be something everybody does anyway, I don't know, just thought I would throw my two cents in.
*But in our profession, the learning experience is constant. There is always a new technique or idea to try, or a step further to go in the depth of the craft. You bet they pay for that. Just like they benefit from the lessons you learned on the last 25 jobs like theirs. It is a continueum (how the heck DO you spell that?), there is no finite limit to your knowledge. - jb
*Nick - that is almost exactly what I tried to say about the way I approach t+m - except I have never done one with a ceiling. I'll have to give that some thought. - jb
*If you do not thnk you pay for continuing education for your doctor, accountant, or laywer you are sadly mistaken.So od not think you are ripping off your costomer when you are at the bottom of the learning curve. Our last big cost plus contract was with a laywer. He spent about 15 minutes quizzing me on what was overhead, what our labor burden was ect. He asked about my time, was he going to have to pay every time he asked a question. I told him I wasnt a laywer I do not bill by the minute. He paused for a second then laughed. That was the last qusetion and we didnt have a problem after that.Rick Tuk
*sorry to ask a stupid question Andrew but what does BTW mean?thanks ,Stephen
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Rick:
LOL and agreeing!
Stephen: I don't think anyone replied, but "BTW" means By
the way" or "bite the w__g" depending on context.
*
Stephen
BTW:
i Bite The Wallabee. . .
a little Ozzie irreverance we picked up from Mark, along with Beetroot & Onion sandwiches. And of course BMW:
i Bite My Wallabee.
-pm
*Not a dumb Q -- BTW is just one of many abbreviations created by hunt-and-peck computer people. "By The Way" also see IMHO: In My Humble/Honest Opinion ... or YMMV: Your Mileage May Vary (i.e., take it with a grain of salt)
*yb,I don't really understand the idea of a "ceiling". It's either one ( T&M ) or the other ( Price ). If it's time and material with a ceiling does this give the customer the right to choose whatever they want and if it goes over the ceiling I have to pay for it?Ed. Williams
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Yes, it does seem that if you put a ceiling on the job, you have effectively just bid it. What happened on my last nightmare job was that the homeowners (long-time friends) got me into helping their lifestyle through the remodeling project with little "could you just hang this picture for me" items.... and talked my ear off... got me to help design fireplaces and took a month getting their interior designer (don't get me started on them) to come up with a kitchen "feel".....
I can also see where the T & M jobs could get ugly if the homeowner thought you were dragging your feet.... at that point they become the time-management watchdogs, dont they?
-Ben
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Doesn't commercial work pay higher labor rates? It is hard to charge homeowners as much as you can charge big corporations. That just might be my answer to the original post's question.
Joe
*Joe - I just figure what my time is worth, to me, and that is what I charge. Who the customer is does not effect my rate. - jb
*Hey Ed - yeah, "ceiling" sounds a lot like "bid" to me. - jb
*Ed - The way we budget, and write our contracts, the items the customer chooses aren't part of our "ceiling", so we can't get screwed that way. Our contracts also specify what is covered in the price-not-to-exceed, so the work scope is clearly defined. What I use as a "ceiling" is normally more than what I would budget the job for, to give me a little margin of error. The advantage to the customer is that there is incentive for the builder to work conscientiously, and they may save money over what would have been a fixed price. The advantage to me is that I don't lay awake at night worrying about what I left out of the budget. Actually, what I do is budget the job as closely as possible, bump it by a few thousand, use that as a ceiling, and then afterwards I can compare actual cost to my budget and see where I need to improve. I still use change orders to modify the "ceiling" if the customer adds to the work scope.
*Nick - How many guys/jobs are you typically running at any given time? - jb
*Jim - It varies, of course, but more so lately. Typically we have run two jobs at once, with about 75% of our business being "high-end" above 100k. The other 25% is smaller jobs, sometimes stuff that really isn't in our normal field, and a lot of repeat work for former clients. We had about 4 carpenters and 3 helpers. Not to cry or looking for pity, but things aren't so great right now. My father ran the company and I was sort of lead carpenter/problem solver, but he died in July. I fired the one carpenter, who was ripping me off, and I'm concentrating on just one job, which is fairly substantial. So right now I'm down to 2 carpenters and 2 helpers. I'm shifting my focus to smaller jobs until I get my s**t together. That's partly why I'm looking at a lot of T&M work, I'd rather make a little than risk losing a lot.My lack of experience means I'm no expert, but I have had a lot of learning crammed down my throat, and my father had a pretty good system, so I'm just picking up where he left off.
*Sincere condolences, no pity....Yeah, take the time to get your sh*t together. The building boom will go on for a long while, esp. at the high end (they're the ones who really made a fortune these last few years). Odds are a variation on your dad's system will work best for you. The "ceiling" -- I'd call it a "worst case estimate" -- sounds sensible, especially if customer-chosen fixtures are accounted for separately and change orders maintained carefully.
*Nick,Here's wishing you the best of luck......I know it must be tough picking up the pieces, but it sounds like you got a good head on your shoulders. Remember this.....simple is best.Ed. Williams
*Thanks guys, it's just one of those things. This business ain't easy for anyone.
*Yeah Nick, sorry to hear about your Dad. The two men who got me started in the trade are both gone now too. I recently realized that guys like us are what's left. It's up to us to carry on the legacy now. The reason I was askin' how many jobs you have going, is I was wondering how much of your work is carpenterin' and how much is contractorin'. You were talkin' about your mark up bein' high, and I was thinkin' that the more time a guy spends contractorin' the higher his volume or his mark up would have to be. Seems like the business end is where you can make the most profit, but I like carpentry too much to become an administrator (not that I think any less of anyone who does that. In fact, I think it is smart - if you like that kind of work) - jb
*Yeah, I don't do much carpenterin' the past few months, all my tools are sitting in my garage getting lonely. I try to spend as much time as possible on the job site but I've decided that trying to do both would be shortchanging the customer, because I need to spend a large part of my day making sure that materials and subs will show up on time, tracking down hard-to-find items, and taking care of paperwork and all the other BS. If I spent too much time trying to be a carpenter I think a lot of mistakes would get made. But I hope to be able to strap on a tool belt again - I still have a lot to learn.
*It's amazing how much work a (good) manager has, isn't it? And so many workers just think they're annoying a**holes.
*Hey andrew, that's not like you to be careless with your words...managers are "workers" too. - jb
*Not according to labor law! That's why every low-level grind in retail seems to be an "assistant manager" these days.Anyway, just how often have I heard carpenters describe themselves as the people who work for a living? Heck, even I say it now, a calloused scabby pair of hands in a badge of honor.
*Yeah, I just meant that "work" with a hammer, calculator, or telephone is still "work". It is harder work for me to sit at a meeting, or try to find materials at 2% less, or deal with subs, than to build something. The folks that do that stuff everyday earn their money too. A little mutual respect would go a long way in our profession. - jb
*And I was talking about the attitude -- a lot of the front line guys are pretty surprised when they find out how burdensome and stressful running a business is -- being the guy where the buck stops. Not much glory.
*yup, you're right.
*Tell me......I'm just an over-paid gofer these days.....I spend a lot of my time running to the lumber yard and the hardware store for the things that come up that you don't expect. I could pay someone to do that, but it cuts into a major part of the profit to do that.Ed. Williams
*Jim,That's the way.......Just because someone has millions doesn't mean I'm gonna charge them more.That's not the way you do good business.Ed. Williams
*PSSSST: HEY guys! You don't charge them more because of the two mercedes in the drive...But if the *free*, initial consultation runs 3 hours past what you expect...You up the bid, or the rate, for PIA Quotient. There are still people I just will not work for, Like my uncle that haggled during the consultation. I don't care if he is family...I will not take that kind of financial hit for anyone.(I wonder how many people haggle with his 175/hour fee as a lawyer...Sheeesh) Ohh and before you jump to conclusions...I charge 60/hour canadian for my time, I was going to charge my uncle at 30.
*Ed - if you do a task that you could pay someone 10.00/hr to do, that's what you are earning for that time period. - jb
*Lawrence,How's the hand? Are you still selling the tools, or have you thought better of it?Rich Beckman
*Hey, an extra $10 is, what, a movie ticket these days?Ed, why do you have the free time to go-fer? Doesn't harassing the help take up the day? :)
*
I am just about at wits end about doing whole-house, high-end additions/remodels. As a general contractor it seems I can make more money on a little $50k addition than I can on a $350k "South-of-the-Boulevard" project. Have any of you found the same to be true? I used to think I would've hit the big time when I got to this size of job, but now I look back and remember fondly when I was doing littler projects.
- Ben
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