*
As a consumer, I do not mind paying for what is done, what is used, profit, and overhead, but I want to see it accounted for. My best experience was a remolding job where the contractor billed me monthly listing labor (hours, type(carpenter, concrete, mason, laborer, cleanup, delivery, etc.), rate), materials (with yard receipts), travel, 10% Management Fee, and 10% profit. He had our main guy there everyday at 7am who had coffee with my wife and I as we discussed what had been done yesterday, was was to be done today, and what decisions needed to be made. We talked weekly and met monthly when he delivered, and I paid, the bill. I never felt that anything was hidden. He kept me appraised as to changes (sheetrock costs went up dramatically between the time he estimated it and when it was done, he dumped the electrical sub and the new subs bill was below what the first one had estimated.
At the other end of the spectrum, I had a new construction project where I didn’t get a bill for six months. When I got a bill, it had minimal detail on labor, fist full of yard receipts, and the subs bills (to the dollar what was “estimated”). I still don’t know how much was excavating, concrete, framing, roofing, etc, so I don’t know how we did against the estimate. I got so I was okay with the bottom number, but it took a while. I felt the guy was as honest as the day is long when I hired him and still feel that way, but the bill put a bad taste in my mouth. I knew profit and overhead were there, but they weren’t listed. I still don’t know how it was financed.
Also, with monthly billing, you (the contractor) get cash and I (the owner) can monitor the project cost. With end billing, even if it is a fair number, it is huge with lots of digits! The sticker shocks causes unfortunate responses. Also with a long project, somebody has to carry the cost of money. I would rather it be me so I can control it rather than buried. If you are carrying the financing of the project, that will eat you alive.
Also, my wife and I are “involved owners”. Some people work well with that and other don’t. If you don’t, SAY SO! One of us will have to change our orientation or there WILL BE PROBLEMS before the job is done. If you tell me something is going to happen by this time, make it happen, of get with me as soon as possible to let me know what happened and when the new date is. I know that you may have several jobs going, but when you are working on my job, I want to feel that it is the most important thing to you for that time and it has your full attention and best effort. Problems happen…. talk to me, don’t try to hide it. We will work it out.
Hang it there, Kevin. If you are good at your profession, you are critical. Don’t let the realities of business kill you. Get a business manager to help if you are not comfortable with it. Your customers will be happier and it will make you more money in the long run. In spite of the quality of job you do, you will only get one shot at me if I think you have cheated me. THe best way to make sure that I don’t feel cheated is to lay every on the tablem up front — profit, overhead, materials, financing, etc. — and the same from your subs.
Later……… jt
Replies
*
Well said Charles!!! Steve
*
Kevin: To the point of your original question:
Basically there are three ways to make money from a business: 1. Take it out in wages as you go. 2.Grow the business as an asset and sell it. 3. Grow the business name and franchise it. You need to purposely decide what it is you are doing and focus on that.
Don't talk to people about their business practices and acumen unless it is face to face so you can see how much is smoke and how much is worth listening to. Don't let the things they have drive your attitude toward them. What a person buys with their profits is a personal decision that may or may not reflect their success. People may rationalize their choices by cost but in the end it is just a personal decision.
Having helped out many businesses I can say that a foundation of good business is to know two things: 1. The PRICE of EVERYTHING. 2. The VALUE of EVERYTHING. To do that you need to educate yourself on basic accounting. Nothing real complicated, just good record keeping, and controls over expenses. A little time with a basic accounting book and keeping a spreadsheet of income and expenses will do the trick.
Don't be afraid of debt. Debt and the cost of debt are legitimate business tools just like a hammer and saw. If you aren't using them you probably aren't maximizing your return on investment.
Perhaps, most important, decide if you can be a manager. Ultimately, for most folks, unless you can leverage other people's talents into income for you whatever business you are in will, at best just cover your needs.
Last in this lengthy post: You say money isn't why you do this. If it isn't then why are you doing it? Not to be unkind, but make up your mind. Either you are doing this thing as a hobby or to make money. If as a hobby then who cares about the income if it covers expenses and why be jealous of other's toys? If as a business then be happy, you are making money at something you enjoy. Lots of folks, including many on this board, don't have that blessing.
*Jim - How many things do you ever buy where you know how much goes to profit and overhead ? When you buy a car, do you know ?How about when you go to Wal-mart ?Why should a contractor building a house be any different ?
*10-4! I don't know who JT is, but I sure wouldn't want to do a job for someone like him. I would rather be working than explaining my accounting to him. On the other hand: its $30 an hour for me to do the job, $40 if you watch every step; $50 if you help and; $60 if I have to explain everything along the way - - your choice JT!
*Isn't Iowa city next to Cedar Rapids, the city of five smells?
*
The issue of cost vs value applies here. You can find out the cost of the job pretty easily. Not too hard to find out what the bills are going to add up to, But the value comes when you consider that the GC has spent 20 years assembling his trade base. He has siphoned off the lower quality subs, the no shows, the "personal problem" guys and such. Hopefully the trades can suggest different ways of doing things that will add value to your project. We had an excavator build some retaining walls on our house about 5 years ago. We left him in the am with the words Do what you think would be best. He built a really cool staistep in the middle of thge wall. Neighborhood kids use it every week. This guy added value to our project. It was more than a cost deal. Hopefully your GC is able to add value instead of being an sales order taker.
*
I like it. I have no problem with JT's way of doing things, as long as he is the general, keeps track of the withholding, pays the workman's comp. etc., and takes time to have a beer with the boys to keep them happy. Then, he can add on 10% for me, after he as shown me all the bills, and I would be happy.
Dennis
*Years ago I read that J.P. Getty kept his Cadillacs for years. Warren Buffet drove Volkswagens long after he made his first billion. I have one good car so the neighbors don't think I am broke, and an old one to commute to WI. Last year my wife took the new one to Wi, got a ticket. Last week I got stopped in a small town (25 mph speed limit, I guess I was between 35 and 40), not even a warning ticket, just a little friendly advice from a real nice local cop. Insurance on the old is 1/4 of the new car, license 1/10 - and they both work the same. I know it is important to look good, but at say $10.00 per hour profit, how many hours does a person work to pay off a shiney truck? In addition if you are honest, it is hard to make a buck - and this is not sour grapes. Those of you who have worked for successful contractors know the profits are made at the margin and with the add-ons. For what it is worth.Dennis
*
Jim Tolbert,
Even though this is off track somewhat I would like to say that what you are describing sounds like a time and material contract. T&M contracts are pretty sure ways for the contractor to make money. Where I live and work T&M or Cost Plus contracts are the norm for big custom homes. I believe that there is a core problem with those kind of contracts. What is the incentive for the contractor to inovate and hustle? I am currently working for a contractor who will not sharpen saw blades, supply pencils, buy needed tools etc. And the reason is that fundamently there is nothing in it for him to do so. If he can justify more costs than he makes more money. The consumer in this kind of contract must be very involved and to really get value must know a lot about building. Without anything at risk and a sweet contract the abuses run rampant. So for you to get the value you think you are, you as the consumer need to know how long it takes to hang a door, trim a room or frame a wall. If carpenter takes 4 hours to hang that door are you getting value or ripped off? How do you know? If the contractor has a good line of BS you may not even focus your attention on that.
There has to be a better way. A self policing way to give and receive value.
Regards,
Dormer
*
Dormer, better said than I... sounds like Jim Tolbert's contractor was more of the managerial General Contractor than the hammer-in-hand type.
The 10 & 10 thing sticks in my mind... is that apportioned... 10% profit on the Contractor's work personally performed, and 10% management on the sub's invoices? If it's 10 and 10 on the whole... I want to run Jim's next job! (Do the math fellas... it ain't 10% anymore!)
Jim, if you read this... many of the guys posting here work, hammer-in-hand... myself included. Many customers expect a educational experience, with two or three options detailed for each decision. A detailed synopsis of work to date and anticipated progress for any and all friends and relatives visiting the site, a pleasant "PC" environment when guests and children are touring, etc....
It results in 70 hour weeks, with 40 hours or less actually accomplishing the tasks at hand. The result? Exasperation. The customer expects to pay for work performed, the "customer service" work is just "included" right?
It wouldn't be with any other business.
*Dormer - Here's how the customer wins on t+m job. Since they are usually not building professionals themselves, it can be extremely difficult for them to even imagine, much less decide on the details that make up even the smallest of remodels. With t+m they get to make choices as they occur in the course of the job.When I begin such a job, I have a "budget" for each major item... cabinets, lighting, carpet, vinal, bath fixtures, etc...as we work through the job, and they make their choices, I begin by showing them what they can have for the budget, or if their tastes run a bit richer, they can make the decission then and there to exceed budget. (or chose to downgrade and save on this item). As you see, this puts the owner and the contractor on the SAME side of the table, working together to get the end product the customer wants. After all, it's their house. This is providing a service, together you give shape to their dreams. What seems odd to me is a "bid" job. Then the two parties are on opposite sides of the table. The customer trying to get as much as possible for agreed price while contractor tries to satisfy the customer but still maximize profits. I think this has a lot more potential for underlying conflict. This is more like supplying a product - but one that isn't tangible yet. I prefer to work t+m because it allows me to focus on my craft, instead of trying to save 1% here and 1/2% there. Most folks reaally want your best work, and are willing to pay that 1+1/2% extra to have a positive experience at what otherwise can be extremely stressful proposition. At least, that's been my experience. - yb
*Just say to your clients, "I can do the job fast, cheap, or right, but I can't do it fast, cheap, AND right. Now which two do you want?"
*As spring comes around and the birds start to sing the phone starts to ring with calls to build decks. Yes we build decks and yes we will design your deck.No we won't be the cheapest but your deck will be there 20 years from now. No I'm sorry we don't install Package decks from your local"big box " I'm sure that your brother inlaw's friend can build that 20x30 deck in a day for under a $1,000 dollars. No I can't match that price. But, we will repair any and all damage that he may cause. Hello...........Hello..........
*I would like to try a job on a time and material type contract, people here just want a firm estimate. Even though we call it an estimate it is really seen as a firm price. Maybe it a regional difference. If you do a careful job on your estimate you are not trying to save a little here and there you already know what things are going to cost you. More to thepoint of the original question change orders are very important. That could be your only problem. Why do you feel that you dont make enough money on a job? If its because the job took a lot longer than expected, and the reason for that was because thing kept changing, and you werent getting paid for those changes it can add up fast. Lets say you are charging 30 per hour on a three day job, and it ends up taking a week. Then you probably end up making less than if you worked for someone else for 15 per hour but youve got a lot more time and expenses involved. Next job keep up with the change orders and make them very clear and get them signed before you do the work. Some people try to intentionally get more than they pay for, others just dont know how much one little change can mean. I think it is especially important on smaller jobs because you dont have much room to make it up somewhere else. I try to be as informal as possible but some things have to be in writing. An original contract that is veryspecific as to what it covers and what it doesnt cover and change orders. Many times i have thought about hiring some one to handle the money side of my business but i never have. It would probably be a smart move for a lot of people, myself included.
*OK, you make a good point about change orders, but what I am saying is, change orders from what? Any initial contract is vague to say the least. Especially for non-trades types, which is usually who you're dealing with. And I agree that careful record keeping and review can be a great learning tool for bidding. And without question, once a number comes out of your mouth as an estimate, the buyer thinks "bid". That is precisely why I find it far easier to start with a budget, broken down into price ranges. They can see where the money is going, and so can you. You make a fair wage, they get what they want and know how money was spent. You can even get bids on hammer bangin' parts of project and decide whether to sub it out, or do it yourself. You could do these parts for fixed price or t+m. It gives you tremendous flexibility on any job.Try to understand what JT is saying, and see it from his perspective. His phrasing and tone may offend you, but try to understand the jist of his argument. You can learn far more from someone you disagree with than someone who thinks the same way you do. - yb
*Y B. Ive been trying to give a very detailed estimate over the past year or so and it has worked really well for me. With change orders this system does not differ much from a time and material method the way you are explaining it. I think where the problem comes in is if you dont start with the budget price that you are talking about. I would think that it would be easier for a dishonest person to keep racking up labor hours this way. I usually break down an estimate into labor and materials anyway so they know what they are paying for. As far as the profit and other numbers i think that they are usefull in determining your prices and labor rates but dont really think that they should be on a contract. Ive only seen it on larger commercial contracts anyway. Whatever number that is on there for profit and overhead or whatever is only a number. Mine is included in the labor rate. I could lower my labor rate and add in profit and it would look better to the people who think the labor is high but would look bad for others who dont understand the profit and overhead theory. It would just be a numbers game, useful for running your business correctly but overkill for my customers. As for J.T. i think i understood him pretty well. He hit a nerve and i lost my cool a little but I am wiser now and would weed him out before he owed me any money. By the way JLC said that the next time there is a crash over here that you and your chevy arent welcome.
*So, if you don't show P+O on your labor, do you show it on your subs? Materials?I'm trying to stay on the good foot with those guys over there - a good bunch - a bit more subdued than folks over here - but then, you already know that. And it's a GMC! :-)
*Bill,
Joseph FuscoView Image
*Right down the road!!
*
Young Bob,
Points well taken. In case I was not clear I am not a huge fan of bids either. Your suggestion that bids put the contractor and client at odds is exactly correct. The flexibilty to fix some prices and budget others may indeed be the key. Thanks for the imput.
Dormer
*
"You can learn far more from someone you disagree with than someone who thinks the same way you do." - yb
Man, you guys are good.
*I too would really prefer to work on t&m basis, but around here most people want the number, and that's it. They don't start out with a budget before they get my estimate, they build their budget based around my estimate. I find that the people whowould most benefit from t&m are the most opposed to going that way, like for example putting that new kitchen into the oldest, former rooming house on the block, where structural changes abound. One of the 'zines had a short section with a mention of once the job is in progress of even charging for "what if..." c/o's even if they aren't executed, like "what if we put a window in there " charging for the time to price it out. And the issue of Qualified Remodeler that I got yesterday had a two pager on getting paid for estimates.I appreciate all the advice. thanks.kevin zale
*kevin - What is "...Qualified Remodeler..."? thanks - yb
*The key is figuring out how the customer is thinking and matching your estimate to that. If they have a budget and some understanding and some trust in you then t&m. If they don't know enough to trust then a fixed number with a call-out for change order rates works. Or, if they are into the big business/government mode the cost plus profit format works.These are just ways of presenting your price to the customer. None are "right", none are "wrong". A person who is on the ball will know the numbers well enough to produce in just about any format that is needed.Don't get hung up on how the numbers are presented; be sure you understand what they mean and that they get you what you want.
*The problem with selling a t&m job is that the customer has no idea where he'll come out at the end and, if he doesn't know and trust you, is worried that he'll get screwed by paying for too much time on simple jobs. Everyone has seen a sub who take hours for work that should take minutes. So you don't hire him again, but for the customer, there's no second chance.Biggest problem is the lack of specificity in the bid or contract, which pits the customer against the contractor. If its there in black and white, everyone understands what's in and what's not. And if its vague, it goes against the contractor, so make it clear and make it complete, or be prepared to do it the customer's way.SHG
*One of the above posts suggested that you stop thinking like a carpenter and think like a business man.The fact that everything is a matter of perspective was brought home to me last week.I paid a bricklayer I know to dismantle a chimney to the roof line and re-build it.About 80 some bricks involved,he supplied all materials and hauled away debris.He was very happy that I was willing to carry the old bricks down the ladder(neighboring houses prevented dropping them) and carry the new materials up the ladder to him.We started at 8:15 and were gone before noon.He set his price andd was very happy with $300.He was very concerned that I make money on the job andd encouraged me to make sure I added at least 10-15% for profit when I billed the customer.I did not have the guts to tell him that the contract was for$1350 and that I was making roughly $1050 for that mornings work.Remember he was VERY happy with his $300 minus materials and I was content with my $1050.(of course I have to pay my advertising,insurance andselling expenses out of that) The point is we each were happy from our perspective.And the customer was happy from his.(also these golden oportunities only come along every so often)I would never enter in to a T&M situation with a customer.How would I possibly itemise the above job?Describe the work to be done in great detail and give one entire price.In other threads I notice many people take great pride in the extensive tool inventories and also and almost equal pride in their "vintage" trucks.I take an opposite tack.modest inventory of essential equipment and new trucks.I consider the truck to be a form of advertising and I don't stint there either.If a $200 truck payment is gonna break you, you need to re-evaluate your pricing.Good Luck,Stephen
*
My sincerest appologies to Calagaz, Kolodzey,Simon and the many other that I have offended. It certainly was not my intention -- I'm just a clod, I guess.
The first job, the one that went very well in my estimate, was set up that way at the suggestion on the contractor. Yes, it was 10% on the entire bill for the management fee. Yes, it was a time & materials job. I received three bids when we were first ready to start the project. They were for $8,000, $34,000, and $56,000. With that spread, we decided that we didn't know enough about what if was that we were asking, so we read more. Then the guy we finally hired was recommended to us and he suggested the T&M route. He seemed happy, we were happy. I have since hired him for several smaller jobs without even an estimate, confident that he would do what what needed, I would get a fair price, and he would make a fair profit. While the second big job was out of the area that he worked, he was the first one I called for it.
In remodeling the old house, several unexpected situations were encountered which hadn't been forseen by anyone. If the job had been bid, wouldn't you have been bit by that? Wouldn't that have come out of your profit? With somewhat ill defined jobs, it would seem that you would have to way over bid it just to protect yourself.
Again, I am sorry for those that I offended. It sincerely was not my intention. As for the other stuff, in order to make money, I firmly believe in doing what you do best and hire others who do it better for the other parts.
Later.......jt
*
I got to go to bed so I didn't read the other posts, but I took the tool belt and "THREW" it in to storage. I went to work for a huge contractor and I'm happy as a clam. I do have to wear a tie and shave everyday, but this operation is so first class and the projects are those type where you have walked into the building and wondered how they did that. If I told you about the office support, you'd swear I was full of poop. The really neat thing is while I will have some pressure, once I'm a PM, I will be back to running my own work under a great umbrella. It is not for everyone or even most, but I love it.
*
Hi, Ron....
When I buy a car, I try to figure out as best I can what the dealer is making -- true, I don't know what the manufacturer is making.
THe difference that I see is that with a car or a tea pot or a finished house, you can see what you are buying and decide how much it is worth to you.
With a remodeling project or a partial build project, it is much more difficult to foresee all the possibilities.
If you get sick and go to the hospital, you don't get a bid. You (hopefully) get a doc that does what needs to be done and charges you for it.
Later....... jt
*
J.T., no need to apologize this was a minor flame compared to some of the things ive seen on here. Ive got no problem with a time/material deal like your first job my customers wont go for it. I still dont know why you needed to know what the second guy made when he apparently did a good job and charged you what he said he was going to. If you wanted that info you should have hired a guy that wanted to work that way. About running into unexpected problems on a job that ive bid, sometimes i do eat the cost if i figure that i screwed up,but most reasonable people know that thingsdont always work out as planned. In nine years of being in business for myself nobodys ever had a problem with that.If i rip into somebodys wall and find out its been eaten up by termites they dont expect me to fix it for free just because im doing some other work there.One problem that i cant seem to solve in my own business is the little game that some people want to play when its time to get your check. The way ive been running things is a third up front, a third somewhere about halfway through and the final payment upon completion. Everything seems to go fine untill the job is done and then the stalling starts. They know they have the upper hand because the job is done. I know ill get paid eventually but they want to make you sweat it out a little. Im not naive enough to think that im going to get paid before the job is done, theres no need to get lawyers involved, and a few dollars worth of interest tacked on doesnt help me out either.Doesnt happen that much, maybe 5% of the time but it can ruin a lot of otherwise good experiences. Still didnt say what you do and whether you give your customers all your financial details. Take it easy.
*Charles: To shift from the fundamentals in the original post to your payment detail; try offering a discount for prompt payment. I'm not sure exactly why but people will pay quickly to get a small discount where they wouldn't pay to avoid a similiar amount of interest. Also, many larger companies have discount taking policies that move an invoice with a discount to the top of the pile.
*
Thats where a good architect earns his fee, benefitting both the owner AND the contractor. The contractor has a much better idea of the "specificity" of the job and the owner has a much better understanding of what he is getting for his investment.
On a project involving a lot of unknowns (what is behind an existing wall), a good agreement is a "Cost plus a FIXED fee". The contractor is protected by having his fee fixed in advance while both are protected by having all actual costs passed directly to the owner. I have been using this type contract successfully as both a contractor and as an architect for many years.
*Kevin Zale,As long as there are people out there who will do what we do for less, there will always be the problem of enough compensation. I know that some of my home-owner customers can find carpenters to work for less, but I also know that they can't get the quality of a Rolls Royce for the price of a Cheverolet. Unfortunatly, some joe home-owners would'nt know the difference if it ran over them. You always get what you pay for.Good luck. GACC Dallas.
*
yb Qualified Remodeler is a magizine , monthly I think geared toward professional remodelers .It deals mainly with the business end , very little technical stuff . It has a lot of advertising but is free to the trades .email me if you want and I'll find the subscription info for you . Chuck
*Stephen,How did you come up with the $1,350.00 figure?Dan
*Dan,this answer isn't going to cast me in best light ,but I will tell you the truth anyhow.Several years ago I paid a moonlighting union bricklayer do do a similar project about $600-800. He doesn't do side jobs anymore so I contacted the Sub who built my garage foundation last year.He looked at the job and said"demo and building it about $350 ,lets see you need materials and dumping debris... say $450. I added the $350 and the $450 and got $800, about what I had paid several years ago.I doubled the price the brick layer gave me and added a little to cover time reflashing the chimney.I turned the estimate into the homeowner who asked me to delete flashing the chimney as he was going to have the same guys back who re-roofed the house last year. (there is another even longer story involved with THAT!) Now our price is $1350 and I don't have to be liable for any roof work.Contract stated that any repairs to roofing following masonry work would be at an additional charge.We did the brickwork as described previously.Nothing fancy,very basic,but the bricklayer kept the roof AMAZINGLY cleanWhen the bricklayer gave me his bill I realized that he meant $450 covered the whole job,not 350 +450=800. So I ended up making more money than I figured when I would be taking on the liability for flashing the chimney.Now jobs like this don't come along very often,usually misunderstandings and oversights end up costing me money.Since customers don't pony up more money for my miscalculations on a bid in their favor,I don't rebate money when my miscalculation gives me an unexpected bonus.Remember the bricklayer was happy with his money,I was content with mine and the homeowner was satisfied with the overall cost(or he could have got someone else)Good Luck,Stephen
*Wow!Looks like you scored a couple of times on that one.Congratulations.
*Do you hope he doesn't visit Breaktime?BB
*Kevin. Increase your unit price enough to buy a new truck.If you work 2000 hours per year, you'll need a 2 dollar raise per hour to buy and operate new. Maybe 3$.Or, increase your units. Hire 10 carpenters, and make 1$ per hour off them. 10 X 2000 (wildly optimistic) = 20,000$! I think you can buy a new truck.Don't take jobs that are not priced right. If you are too busy loosing money, you will not have the time to find good work.Quit giving the remodeling contracts away! Sell them. Figure your actual costs, and markup 50% or more.I've sold some insurance repair work for more than 500% markups. And the clients are happy that a quality contractor that takes care of business is overseeing the work!I even got a reference from an insurance man who cried when he saw my bill. They can't force a lower paid contractor on the homeowner, but they can fight in court to prove that the work was overcharged. It wasn't.If you want to mae more money, charge more!Period!And lose you "low cost mentality".I don't even want references from clients that got a cheap job from me. Of course, I don't work retail any more. Blue
*
I seem to be able to make almost anything with a hammer and saw except money. I'll give you that money isn't the reason I do this, but I have noticed alot of new pickup trucks out there and I can't sem to figure out what I'm not doing that I should.
What are some things you do to ensure that you do more than just cover your time?
I"ll even start off with knowing that I don't police change orders as vigilantly as I should.
What else?
*Kevin,Maybe nothing... those with the new trrucks are probably up to their eyeballs in debt.
*Kevin,Those guys with new trucks are, as Mark said, probably up to their eyeballs in debt. My friend Bill Grey says all you need anymore is a new truck with gun racks, a four foot level and a black lab to be a contractor. I think a lot of those guys believed him.Keep your overhead low first of all. Don't buy those shiny new tools if you don't really need them. Buy quality used or rebuilt if you do need them. Sometimes it's better to buy new, but for large things you can often get a good deal and have enough left over to buy another small one. Or to pay the electric bill. Buy levels new, but get the dog at the pound.Second, figure out what you're spending in order to be in business and charge for it. There's a couple of ways of doing this. One is to figure out what you spent in the past year and divide it by how many weeks you worked (or would like to work). That gives you a weekly amount of overhead that you need to collect. You could also divide it by how much you made to yield a percentage to tack onto your labor fee.Thirdly, don't take jobs that you're not going to make money on. If the clients want it done cheaply, tell them that they should probably find someone else to do it. I break this one a lot, but only for jobs that I find interesting enough to warrent the loss of cash.Fourth, add profit to labor and overhead. Labor pays your wages. Overhead pays the cost of doing business. Profit is what your company earns. Some people call it markup, but I don't like that term. It sounds like you're ripping off the client. I prefer to think of it as a fee. One more: when you make an estimate, be liberal with material and labor numbers. If you get the job done quickly, you come out ahead. If it takes longer than you expected or you cut a 16' 2x12 too short, you're covered. Hope this helps,Dan
*Dan - what % profit + overhead do you charge? - yb
*Kevin
Joseph FuscoView Image
*Kevin...You would do well to trust Dan to the letter . Only thing I would differ on in Joe's response is the part about working like hell. Work too hard and you'll end up with carpel tunnel syndrome(not in spellcheck). Work smart, not necessarily hard. Save steps and time whenever possible. But his point about advertizing is right on the money! Better to be turning away the work than scratching at the bottom of the feed bag. The new truck issue. I used to be one of those guys. When I looked at the additional repair bills on these new vehicles I went back to the old ones. I typically drive a truck 35-50,000 miles a year and my cost for this honour was in the range of 20,000/year, (dollars canadian), including insurance and gas and repairs and financing. Two years ago I got the bright idea to fix up an old truck. 25$ a month insurance. After rebuilding the 83 ford my cost for the vehicle was 5000, No payments, No interest, and I can carry 3 tons for hours at a time without a look from the highway police. When I get the urge to go buy a new truck...I just take the old one to my favorite body man...or price a new stock car motor for the old buggy. Doesn't that sound like fun. I have better things to do with my money than support a multinational corporation, and their service games.
*I agree with all of the advice given so far. For me it is very simple, if you are competent, staying busy and still not making money then you are not charging enough for your work. Its not easy for me to charge people what i charge for some of the jobs i do. I always try to be fair but it costs money to run a business. I used to get every job that i bid on because i was not charging enough, now i miss out on a few here and there, but i make a decent living. Believe me, it is a lot more fun when you are making money. Everything can be boiled down to an hourly wage. How much do you need to make per week or month to pay your bills and make some profit, and how many hours do you work. Once you figure this out you have to charge accordingly. If you cant charge that much then you have to cut expenses or find a job that pays better. I know its a lot easier said than done, but people will pay more for quality work and reliability. It helps to check around and see what others are charging for similar work and use that as a starting point. That will at least keep you in the ballpark. Good luck
*Young,Is Young your first name and Bob your last name?If so, is your Dad named Plumb?My overhead comes in at about 17% of my labor. Every couple of months I look through my records and see what I've spent and if I'm still roughly at that rate. But it does fluxuate. Last month I bought an Paslode Impulse Nailer and a David White level-transit. That was a lot for my scale. but over a year or so it sort of evens out. The flaw in this system is that next year's expenses may be wildly different form this year's. That's why I keep checking.Profit is tough. How much should you make over and above the expenses of the job? What's fair? I usually see how an additional ten percent looks on the estimate, then round up or down to a nice even number.Don't even ask about the ten percent. I have no idea. I feel like an idiot every time I punch the numbers into my calculator.If I'm doing something that I consider to be special, and if I'm going to learn a lot, I charge a minimal fee. If I'm not an expert, I have no business charging as if I were one. But I don't work cheaply either because I am damn good at what I do. Next time I do a simillar project, I will be an expert (thanks to all the advice here at Breaktime).How do you figure it?Dan
*I believe in "square dealing". I try to be fair in every interaction with every person; customer, employee, sub contractor, inspector, lumberyard and anyone else I deal with. I pay subs the day they bill. I pay my suppliers the day the bill arrives. I have never asked an employee to wait until Monday for his/her check. Along with being honest and fair with those folks, I believe in being fair to my family and myself, in that order. I figured out what I think is a fair wage for my time. It puts a smile on my face to get paid this hourly wage. I feel obligated to work hard every hour I bill because it is a bit high for our area. The customer always knows this number and I bill weekly. Anytime they feel they are not getting their moneys worth, they are free to terminate our agreement. No one has to date. I also add 15% to the total cost of the job. This I call "profit and overhead", and show it as a "line item" on every bill. Most people I explain this to are reassured that I make a fair profit. They understand that P+O helps insure that I will be in business next year, if the need arises for repairs or warrenty work. It usually doesn't.Like you, I occasionally take on work that I know will really challenge me, A job I really want, and I will alter my regular rate for that job. - yb
*Kevin, learn from the past. The last housing boom, in the '80s begat many a new truck, new boat, lake house, spare woman, and a habit for nose candy... most of those guys lost all of it, except for the habit. The original woman, took whatever the repo man didn't, the customers left, and now... he's the guy with the DTs, some good stories and photos from the '80s, and much lost potential. See the sage advise above about gaining profit... I'm still trying myself.Owe nothing. That's my advise. Pay for your truck, tools, and materials COD, get a cash discount. The going gets tough, and you survive.You don't want to be out of work for 40+ weeks, with a $35K note due!
*Kevin,There seems to be a couple of ways to figure the P&O (usually 20%). The first and most common way is to multiply the bid by 1.20. For example: 1000 job x 1.20 = 1200. But if you calculate the actual percentage of P&O to gross: 200/1200 = 16.7%? The second and better way is to DIVIDE the bid by 0.80 (100% - 20% = 80% or 0.8). Using the same example: 1000 / 0.80 = 1250. Calculating the percentage of P&O to gross is then: 250/1250 = 20% which is correct.If you ask for 20% or 15%, don't shortchange yourself. What do you'all think?
*As a consumer, I do not mind paying for what is done, what is used, profit, and overhead, but I want to see it accounted for. My best experience was a remolding job where the contractor billed me monthly listing labor (hours, type(carpenter, concrete, mason, laborer, cleanup, delivery, etc.), rate), materials (with yard receipts), travel, 10% Management Fee, and 10% profit. He had our main guy there everyday at 7am who had coffee with my wife and I as we discussed what had been done yesterday, was was to be done today, and what decisions needed to be made. We talked weekly and met monthly when he delivered, and I paid, the bill. I never felt that anything was hidden. He kept me appraised as to changes (sheetrock costs went up dramatically between the time he estimated it and when it was done, he dumped the electrical sub and the new subs bill was below what the first one had estimated.At the other end of the spectrum, I had a new construction project where I didn't get a bill for six months. When I got a bill, it had minimal detail on labor, fist full of yard receipts, and the subs bills (to the dollar what was "estimated"). I still don't know how much was excavating, concrete, framing, roofing, etc, so I don't know how we did against the estimate. I got so I was okay with the bottom number, but it took a while. I felt the guy was as honest as the day is long when I hired him and still feel that way, but the bill put a bad taste in my mouth. I knew profit and overhead were there, but they weren't listed. I still don't know how it was financed.Also, with monthly billing, you (the contractor) get cash and I (the owner) can monitor the project cost. With end billing, even if it is a fair number, it is huge with lots of digits! The sticker shocks causes unfortunate responses. Also with a long project, somebody has to carry the cost of money. I would rather it be me so I can control it rather than buried. If you are carrying the financing of the project, that will eat you alive.Also, my wife and I are "involved owners". Some people work well with that and other don't. If you don't, SAY SO! One of us will have to change our orientation or there WILL BE PROBLEMS before the job is done. If you tell me something is going to happen by this time, make it happen, of get with me as soon as possible to let me know what happened and when the new date is. I know that you may have several jobs going, but when you are working on my job, I want to feel that it is the most important thing to you for that time and it has your full attention and best effort. Problems happen.... talk to me, don't try to hide it. We will work it out.Hang it there, Kevin. If you are good at your profession, you are critical. Don't let the realities of business kill you. Get a business manager to help if you are not comfortable with it. Your customers will be happier and it will make you more money in the long run. In spite of the quality of job you do, you will only get one shot at me if I think you have cheated me. THe best way to make sure that I don't feel cheated is to lay every on the tablem up front -- profit, overhead, materials, financing, etc. -- and the same from your subs.Later......... jt
*Young Bob...want to move to Iowa City...we could use you....
*J.T., why is it that you think that you need to know how much profit a guy makes when he does a job for you. Yard reciepts? Subcontractors bills? If you wanted those things contract it out yourself and get your own materials. Try to find out how much profit they are making off of you the next time you go to the grocery store, hardware store,car dealership, doctor,lawyer,insurance agent, we could go on and on. What kind of business are you in? Do you open your books for your customers so that they can see your profit and overhead? Are you one of those guys that drives a car that cost as much as my house, but has to make a smartass coment about how much i am making every time i get a check for a job. Are you paranoid that people over charge you because they think that you can afford it? There should never be sticker shock at the end of a job if you got an estimsate in the beginning. If the guy brought the job in on time and on budget you should be elated rather than worrying that hes making too much money. You knew what it would cost up front,nobody forced you to hire him. What difference does it make who financed the job for him? Is it because if you arent doleing out the checks when you feel they are deserved you arent in complete control? I dont know how you would ever get anyone to work under those terms, and when you do I can assure you that you are paying a premium price for it.