Replies

1. 
   jonblakemore | Mar 23, 2005 03:29am | #1

   >>>>>"Do you add O-P to dumpster, porto-let, builder's risk for a particular job, WC for a particular job, permits, etc? Or, should those things already be considered overhead and only multiplied by the Profit (say 10%)?"

   Yes, yes, yes!

   Those costs are job costs. Your truck, cell phone, insurance, office expenses, computer training, marketing program, and pencil fund are overhead items. A dumpster, permit, and porta-john are all job costs.

   Your WC should be figured on top of your labor cost, to reach what is referred to as labor burden. Burden is the cost of employing an individual minus their pay rate. It included WC, vacation and sick time, training costs, perks, payrolll taxes, etc.

   Finally, why does the guy want/need to see more than one number? I would ask him politely why he needs that information. If he cannot come up with a good reason why he needs to know (which he won't) then politely explain to him that you are presenting a firm price bid, and he should decide whether your price is worth the enjoyment that he will derive from the finished product.

    

   Jon Blakemore

1. 
   mikevb | Mar 23, 2005 03:45am | #2

   Thanks for the reply.  You confirmed exactly what I felt should be the case, and had already decided to do unless someone on here convinced me my logic was flawed.

   It sounds like to me most builders simply add up all the job costs (subs, materials, insurance, etc.) and then multiply it by 25% (10% profit, 15% OH - or whatever breakout you want) to get the final job price.  Am I correct in that deduction?

   Why would it not be more correct and fair to the HO/customer to add up all the OH that will acrue during the length of the job and charge that?  Then, you could multiply that plus all the direct job costs by 110% to get the final job price.  That seems the best way intuitively to me for construction work where you don't have a firm idea of what you'll be doing in the next year.

   What do you think?

   MikeVB

1. 
   jonblakemore | Mar 23, 2005 04:31am | #3

   >>>>"It sounds like to me most builders simply add up all the job costs (subs, materials, insurance, etc.) and then multiply it by 25% (10% profit, 15% OH - or whatever breakout you want) to get the final job price. Am I correct in that deduction?"Yes, I think you are correct. The difference is that you are not a builder. Their approach is suited to an easily projected sales volume. They know that they will probably sell 10 houses in the next year, and the job costs will be about $1m. Their overhead (including salary) is $185k so they mark everything up by 18.5% plus their desired profit margin.Conversely, you are a remodeler (I'm assuming). Your projects are more varied in scope and price. Some are 95% labor and some are 30% labor. If you use a standard markup on some jobs you might not even come close to covering your overhead, others you price yourself out of the market.I think a better solution for you is the proof method.
   http://paradigm-360.com/WhitePapers/markup.html
   If you searched for "proof" using the advanced search function, you would find plenty of reading to keep you occupied.Ultimately you need to have a handle on your costs and understand the dynamics of your pricing methods. It is imperative that you charge what you need to cover job costs, overhead, and a sufficient profit.
   There have been many heated debates through the years on markup, billing rates, etc. The most important thing for you to be concerned with is to ensure that you are pricing so your company can survive. 

   Jon Blakemore

2. 
   Schelling | Mar 23, 2005 05:54am | #4

   "Why would it not be more correct and fair to the HO/customer to add up all the OH that will acrue during the length of the job and charge that?"

   Jon's advice is all good and the proof system does address your question.

   I would add that the customer is not going to judge you on whether you charge O&P on your dumpster or if you use the proof system to fairly allocate overhead to a particular job. It is important to you in determining your price (and your subsequent income), but the customer will only care that the job was done to his quality expectations, was on schedule, was done professionally and was done for the price that was quoted.

1. 
   AJinNZ | Mar 23, 2005 02:12pm | #5

   Give the guy one number.

    

   THAT number isnt going to change whether he knows the make up of it or not.

   Why detail your pricing methods like that? If he takes your quote and gets one off another guy, he can now use yours to beat down your competition, or any number of things. How you arrive at a cost, your OH etc should be top secret. I dont tell anybody mine.

   Hell, its YOUR business how things get worked out, not his. Does he go to the supermarket and ask to see a breakdown on the pricing for milk, or beans?

    

   Plus, the price is what it costs for YOU to do it. If he wants cheap, buy cheap. If he wants YOU, then this is the number. He no like, walk. 

   Everything, 100% of it, depends on how you look at it.

   DW

1. 
   mikevb | Mar 24, 2005 03:23am | #6

   I really appreciate all the good advice offered.

   I boiled it all down to one number, wrote it up in a professional "quote" letter (only spelled out material allowances), and took it by his office today.  He seemed happy and anxious to see me until I told him the number as he was simultaneously reading the letter.  Then, still acting very "happy" he ushered me on out fairly quickly, "we're getting another guy to give us a price, so we'll let you know."  I'm sure he was busy since he manages an electrical distributor branch, and I did tell him I couldn't stay long when first walking back.  But, his mood did seem to descend rather quickly.

   I think he was disappointed for two reasons.  One, no itemized details to "discuss."   Two, sticker shock - when I first met with them in their home I said that $100/ft was probably going to be in the neighborhood - which he didn't like too much.  He felt he knew what he could buy for that in a new house and that adding on shouldn't cost as much per foot as new construction.  I felt differently, but just politely said I'd have to get with all the subs and suppliers, add it all up and see.

   I'm quite proud of myself for this estimate, because the price I arrived at was 96.88/ft, which included all conceivable costs (potty, dumpster, insurance, etc.), 3 mos of OH, 10% profit, and a 5% contigency fund.  Not bad considering this is by far my most comphrehensive estimating project since going into business last summer.

   This is a good example of nice people becoming dissatisfied with a home they had built only a few yrs ago.  They really want a new 300K home a few miles away, but hoped they could turn their 185K house into what they wanted by adding the new 480 sq ft master bedrom/bath/closet suite, repainting much of the interior and exterior (brick veneer), and replace about 700 sq ft of carpet with hardwood floors all for 50K or less.  We decided just to come up with a quote first on the addition and associated modifications.

   I would like to do the job, of course, but I wouldn't be shocked if they don't do it at all.  I believe they'll be on the verge of putting more money than they should into this home relative to the neighborhood.  It's a nice neighborhood, my in-laws live there, but I wouldn't want to try and sell a 230K house surrounded by a hundred 185K'ers.

   We'll see.  Thanks again.

   MikeVB