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Discussion Forum

Pricing/markup/labor/addition/subs?

Waters | Posted in Business on May 14, 2007 06:20am

I could use some guidance on pricing an addition I’ll be doing this summer.

Background:  I have been in biz for 2 seasons now.  Licensed GC, insured/bonded.  Up until this point I have been working alone doing bath/kitchen remodel projects and lots of exterior construction and repairs like decks,fences, pergolas, covers, doors, windows, siding etc.  No employees, no subs, no help but for a buddy here or there to lift something…  I’ve done fine $ wise and my work has come into demand.  I have projects scheduled out thru next winter ito the following Summer.

Now I’m hired by friends of friends by referral to do a second story addition over a 2car garage.  I referred my clients to a good designer I worked with b4 and he’s got us good plans-client has paid him.

I’ve asked another contractor friend to go in on this with me and we’re gung ho for it.  He’s also Lic. Bonded/insured on his own, has a good deal more experience than I do working as a sub for another GC.  I’ve known him for 6 years and we’ve wanted to work together but both have been tied up constantly.  We plan to go 50/50 for labor on the job but I will be paid a minimal salary for operating as the principal GC with the client, subs, city, running around managing the job, etc.  We have most of our bids from subs already and we’ve met several times to plan timeframe and estimate labor to complete the job.

Now the ?’s  I’ve read my brains out about markups and pricing work on this site (thanks to those I hope to hear from and have already given a wealth of info!) I have Stone’s and Gerstel’s books.  I know what wage I want to make and I know what works for me working alone.  BUT, even after all the reading, I would appreciate input.

Each of us know what hourly/daily labor rate we are comfortable charging–we know the value of our work–but working for ourselves our rates have included our markups to recover overhead and make some profit.  As we are the only laborers, should we slot in our usual rate and not mark up labor at all?

Then, what of marking up subs and materials.  should a lesser markup result because our margin is included in our labor/salary rates?

And what if we do want a 3rd set of hands on days we need it?  That labor must be part of the budget but a lesser rate than ours for sure…

I just really want to get this right the first time!

Any thoughts for the green estimator?

 

 

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  1. MikeSmith | May 14, 2007 10:39am | #1

    look,it's a crap shoot..

     you've never worked together before..you really don't know  your production rates

    you're doing work that is very hard to estimate  ( a remuddling addition  with interior access )

    the whole is more than the parts...

    if you can identify a cost... put it in.... AND MARK IT UP

    when you get done,there are going to be a lot of costs that you didn't identify but are definitely part of the job... at that point  you will have two  choices..... eat them....

     or try to  get them included as change orders

    better to mark up all the items you can identify  to help carry the ones you are going to miss.....

    so mark up your labor... mark up your materials.... mark up your subs.... and don't forget profit

    Mike Smith Rhode Island : Design / Build / Repair / Restore
    1. Waters | May 14, 2007 06:35pm | #5

      Confidence inspiring--thank you gents.

      Any more thoughts?

      1. slykarma | May 19, 2007 06:29pm | #6

        I just completed a job that was quite similar to the scenario you describe. Renovation and addition at a local winery/restaurant. Original project architect and engineer were engaged so we had good drawings. I collaborated with a good friend (another Aussie, we expats stick together ya know) who has a small remodelling business - too big for either of us, but it contained elements of work that we both had expertise in (concrete and framing for me, multi-disicipline remodelling for him). There were fairly firm timeline elements involved as well, as the winery had already started to publicise its annual Easter brunch and barrel sampling events. 

        We decided that A would be the GC for the record and would therefore take a monthly fee for the extra work and responsibility. Interestingly in the whole project this was easily the most contentious item for the client - he really didn't understand how much work is involved in managing a project, even a relatively small one like this. It finally sunk in when he took 10 days off to go away golfing in San Diego and came back to find work had actually progressed in his absence. I think before this he was convinced that it was his own efforts that were keeping the project rolling and that we were just the worker bees.

        The owner insisted on providing all materials in an effort to avoid markups, so that affected our pricing structure - all overheads and profit had to be covered by the labour componenet alone. This wasn't a problem to me as I operate this way anyway, but A's approach before this has been to offer lower labour rates and recover overhead in materials markups.

        We did labour estimates and then padded them 40% over the burden-added rate to arrive at a final price. The GC fee of $2000/month was separate to this. For convenience we ran everything through A's business and I invoiced him for me and my helper. The only subs we used were plumber and electrician. Winery paid architect and engineer directly. There were numerous change orders - enough so that we went to hourly billing for the finishing phase - mutually agreed on as the change order writing was snowing everyone under with paper.

        All in all it turned out to be a good project, completed on time, owners happy, lots of little extra details done the way they wanted them. Both A and I made good money, there was little friction, and we're still friends! We would collaborate again should either of us see a similar opportunity, but I would caution that the potential for disagreement and acrimony is high with this system. It depends largely on mutual goodwill and fair play. If things go sideways with the job, you could easily put a friendship under a lot of pressure.

        Hope this helps,

        SlyLignum est bonum.

        1. Waters | May 27, 2007 07:41pm | #10

          Interesting.

          So what were your labor figures?  We're you estimating hours/days for the two of you to complete each phase of the project?

          What were your hourly rates? And then the GC fee was 500$ a week on top?

          How long did your project take and what was final pay including GC fee for the two of you?

          (and that's Southern Cal?)

          Thanks for the input!

          Pat

          1. slykarma | May 28, 2007 07:28am | #12

            Not southern Cal, we're in the Okanagan Valley (interior BC). Project ran 2 months. Each of us supplied a helper but we priced all labour at $40/hr regardless, with the GC fees on top. We ended up using a sub to do framing and foundation on the new work while the 4 of us focused on the reno. The owner had pumped up the timeline and this was a more expedient way to meet it. We marked up the sub's price 20% so we made money there but the guy had a newly-acquired substance or relationship problem and was very unreliable and didn't end up saving us much time at all.

             

             Lignum est bonum.

  2. Piffin | May 14, 2007 11:59am | #2

    On the Q of whether to mark up day labour - definitly! They will be your responsibility and they are more likely to cause damage to the house or to your tools. They will misuse tools and run up your overhead. I mark up my labor after labor burden expenses at a higher rate than I mark up my subcontractors. There is simply more headache managing them all. Point a good sub at the job with plans and details and he can manage himself.

     

     

    Welcome to the
    Taunton University of
    Knowledge FHB Campus at Breaktime.
     where ...
    Excellence is its own reward!

  3. DanT | May 14, 2007 01:14pm | #3

    Re-read above as that advice comes from a couple of the best businessmen on the board.

    Now from the peanut gallery.  As Mike said these complex multi task jobs are full of pit falls.  My theory is simple.  If we touch it we make money on it.  I mark up everything.  Subs 20%, material 20-40%, labor 60%, equipment rental 20% etc.  There is enough surprises in remodeling of any sort to sink you so you must make money on all known items.  The next thing to work on is narrowing the field of what you do to become more efficient at it to make more money.  DanT

  4. User avater
    bobl | May 14, 2007 03:21pm | #4

    when your dong the job, don't forget to keep good records so you know what happened about all the costs etc.

     

    bobl          Volo, non valeo

    Baloney detecter    WFR

    "But when you're a kibbutzer and have no responsibility to decide the facts and apply the law, you can reach any conclusion you want because it doesn't matter." SHG

  5. dustinf | May 19, 2007 08:05pm | #7

    Just charge $4 per square foot for everything. 

    Or you could just double the cost of materials.  Jerrald Hayes taught me that one.

    Glamorous

    1. User avater
      SamT | May 19, 2007 11:47pm | #8

      duck, run, and cover!

      Edited 5/19/2007 4:47 pm by SamT

      1. Waters | May 27, 2007 07:33pm | #9

        SamT,

        Re-entering the discussion about estimating the second story addition-650sq ft-I was asking about earlier...

        From the EXCEL 'big bid templete' off Jerald Hayes page.  After a few weeks of getting sub bids, material takeoffs and meeting to discuss labor, with all things considered and all totals plugged in and rounded up for discussion I get:

        $50g 2 partners near 3 months of labor @ 55$/HR

        $20,5g All materials marked up 5%

        $13,5g All Subs marked up 5%

        about 85,000$ Minimum.

        Happy to have your initial response, even with this limited/general info.

        Thank you

         

        1. Frankie | May 28, 2007 12:51am | #11

          A. "$50g 2 partners near 3 months of labor @ 55$/HR"Your math is off. It should be about $30K@ for 3 months. THEN you need to add (20%) for O&P. [$55 x 8hrs x 23days 3months x 2guys= $60,720]B. "$20,5g All materials marked up 5%"WHAT?!! 5%? This should be 20% of what you think you will use. I assure you, you will underestimate materials, need a new saw blade and not be able to wait for it to be shipped from a discounter and you'll realize that some part of the job could be done faster with a new tool. Prepare for it. 20%.C. "$13,5g All Subs marked up 5%"ARG! I thought we covered this above. Forget 5%. Subs costs get an additional 20%. That's how we STAY in business. Part of being a GC is getting/ having access to the subs. This is a value which we pass along via a % of the Sub's price. At 5% you are undervaluing yourself. Also, you will need to do prep work for them and then repairs/ clean-up that you do not anticipate.D. Forget about the current final price. The absolute, final price is what matters. You should be pricing to make your company viable and happy. The customers happiness with the price comes second. E. Do not plan for the margin of one thing helping with a lesser margin of another (when pricing). Everything must stand on its own. After you come up with a hard number/ Project Cost, then you can play with the budget by shuffling it around. I would discourage you from doing this though, because you risk something being eliminated or reduced which was carrying a significant margin. No one will be happy if this happens.Keep track of the Change Orders, Purchase Orders, Transmitals from the Client and Archtect and Sign-Offs. When you wear the hats of the mechanic and the management, it is very easy to put in a few more hours as the mechanic (especially on a beautiful day) and put off the paperwork until the following day/ weekend. Both are important. One without the other and the money stops flowing.Hope this helps.Frankie

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          1. Waters | May 28, 2007 06:11pm | #13

            Thanks Frankie, for the reality check.  I posted just to confirm what I already knew! 

            So, I pushed the markups back up, printed off the tally and met with the owners last night--back to the bank they go!

            I really hope they go for the work and if they do it it will be me and my partner on this one.  But if not, then, well, as you said, "Forget about the current final price. The absolute, final price is what matters. You should be pricing to make your company viable and happy. The customers happiness with the price comes second."

            Thanks,

            Pat

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