Cryin' Time - Contractor Talk - Professional Construction and Remodeling Forum

Ansel · 08-22-2006, 10:13 PM

My time has finally come to vent a little about this wonderful business we are all in!

I am working for a lovely couple who apparently have no problems with cash. He owns a bar, and she is the branch manager of a wholesale company . I believe they have at least three cars one being a Lincoln navigator, because God knows that's what every woman should commute to work in.

Anyway here's the story; and I'll try to keep it short. I was given a materials deposit on a tile job for the exterior of their bar. It actually grew to rot repair to make way for the tile AND while I had 40 feet of pump jacks on the side of the building, I painted the two visible sides as well. The deposit was for $2000,00 towards what turned out to be $3,900.00 worth of hand painted artisan tile...for only 67 square feet! Money's no object right? Well the woman HO really tried to push me to allow her to pay for this deposit while we were at the tile store. "I have a credit card right in here in my purse, blah, blah, blah." I put my foot down and politely told her that if I was going to guarantee the job, I would have to not only pay for all materials but mark them up as well. So I paid and forgot all about it. Midway through the carpentry part of the job the man tells me all about a cash crunch and asks nicely if I could charge all future materials to him, because he has accounts at just about every business in town. It seemed reasonable enough, and when he told me he would tack on a mark-up to each invoice, I said "sure". He never asked me the amount of my mark-up though. As the end of the job approached, I told the man that it was crunch time. I had invoiced him a couple thousand for labor on Friday, and told him that his tile would be in on Monday, and that he would need to get me a check to pay for it (he had told me previously that he liked a lot of warning about invoices, because he didn't carry his company checkbook with him as a rule, and he always seemed to have to "juggle" his money). Rather than pay me for my labor AND give me a check for the tile, I was left hanging, and all of my calls to him went unanswered Monday. His wife, however, called me mid-day to tell me the tile was in , and I told her I already knew because I had called the supplier earlier. Again this selfless, generous woman offered to pick up the tile AND pay, and again I politely but firmly told her we had already been through that, and that it didn't make any sense for her to pay a portion of a bill that was already in my name, PLUS I had to go to a wholesale tile distributer in the same town (the parent company of this smaller store) for all the sundries, so I had to make the trip regardless. Anyway, she went over there Tuesday morning (the place opens at 8:30and HER work starts at 7:00) and tells the woman working at the tile store, that she had my blessings to pick up and pay for the tile! A pretty convoluted (and deceitful) way to find out my mark-up don't you think??? Anyway I sat down today and had to go over all of my receipts for the whole job to satisfy the man HO. He told me that my 20% mark-up was excessive. I told him all of my subs (plumbers, electricians) get over 30% AND it takes them a lot less time to order. He told me he built a huge expensive house, and ordered all of the materials himself, and his GC only marked it up 10%. I actually laughed out loud over that!

To compare a three week renovation job to a 1/2 million dollar house (just a guess) is absurd. I told him if he was paying ME mark-up for 250K worth of materials that I DIDN'T EVEN HAVE TO ORDER, that I could probably get by with 10% too. As a small time sole proprietor, my mark-up NEVER covers my expences, PERIOD. I had about an 18,000.00 overhead the last time I checked, and that was 4 years ago, BEFORE gas was 2 bucks a gallon, never mind 3! I'm guessing now I would have to make about 2K a month now to cover my expences. ANY INPUT???

CAN YOU FEEL MY PAIN???

The long and short is that I lost 2 days pay, because I didn't work yesterday or today. Should I bill him for the two hours of discussion time???

This $#it keeps me on my toes at least.

Tscarborough · 08-22-2006, 10:19 PM

There is the right way and the easy way.

**ProWallGuy** · 08-22-2006, 10:45 PM

Thought you said you were going to keep it short?

Man, there were too many red flags to count with those customers. You should've reined them in long ago or walked. I feel your pain, but you essentially let them do it to you. They completely controlled that job, not you.

reveivl · 08-22-2006, 10:58 PM

"Selfless, generous woman"? Sorry, but she ain't sleepin' with you, Ansel. She's part of the 'good cop, bad cop' scam they pulled on you. Just my two cents, but you brought it up. Rich.

Mike Finley · 08-23-2006, 09:08 AM

My only question is why are you still working for them?

Bob Kovacs · 08-23-2006, 09:19 AM

Quote:

Originally Posted by Ansel

. ANY INPUT???

CAN YOU FEEL MY PAIN???

Here's my input- it sounds like your business is a mess:

- You tell them you're going to markup the materials, which they agree to, but you never tell them what % markup- so in essence, they haven't "agreed" to anything.

- You took a deposit ($2k) for tile that you didn't know the price of- how did you determine that the deposit should be $2k? How did you price the job in the first place?

- You haven't figured out your overhead costs in 4 years, but you know you're not charging enough because your markup never covers your expenses. Enough compared to "what"? Doesn't that sound like a problem to you?

While the customers have their own issues, it sounds like you've got more of your own. You don't have a "business", you have a "job"- and probably one that pays you on a hit-or-miss, week-by-week basis at that. It's time to sit down and get your sh** together before you come in asking people if they "feel your pain"- it sounds like it's self-inflicted.

Bob

**Double-A** · 08-23-2006, 11:01 AM

I have to say that while Bob gave you the no-nonsense version of it, he's got a point.

You have no leg to stand on with this client. You've managed to make several newbie mistakes and to ignore the business end of business for too long, you don't even know if you're afoot or horseback.

Suck it up and quit fussing about what these folks are doing to you and start realizing that you made this mess. Only you can fix it.

Time to do your homework.

mickeyco · 08-23-2006, 11:47 AM

Go down to his bar and order a meal and some drinks, when the check comes call him over and tell him how you think his mark-up is a little too much (you can get a six-pack for the price of one of his drinks) and negotiate the bill.

Better yet pick up your own beer and food, bring it to the bar and tell him to cook it for you and you will pay him for the labor and use of the table.

Kevin

Grumpy · 08-23-2006, 01:59 PM

Is this the same Ansel I know from the Chicago area roofing company?

Ansel, I hate to be cruel but I say this is what you get for allowing others to count your money. Me? It never would have gotten that far.

If it got to the point that the customer wants to negotiate invoices all I politely have to do is show him the contract he signed.

Since you did allow them to buy materials here is how I would approach it. "Mr. Customer you already agreed to a fix price, and then the change order for the rotted wood. Here are the documents you signed. Ok so you spent $x for the tile, so we subtract that from your contract price and here you go you owe...."

You see there that I'd still be getting my material markup. If he asked if I marked up material, of coarse I would say no. If he asked to see how I structure my pricing again I would show him the contract and change order that he signed.

Ansel · 08-23-2006, 05:36 PM

Some good advice guys...I like what you said, Kevin, about ordering a meal at his establishment and telling HIM his profit margin is too high. As for Bob, I'll chock up his rudeness for waking up on the wrong side of the bed or something, I asked for input, not a reaming. I did everything in my power to prevent them from buying the tile. I was so adamant in the tile store about buying it, that the salesperson remembers the conversation still...2 1/2 months later. The female HO went in to the store, and basically lied her @$$ off to get the tile out of there. The hubby said the tile store called them because it was "in the way"...remember it is a HUGE 70SF job! The girls working there said they never asked anyone to get the tile. This trip to the tile store occured AFTER yet another conversation, where I told her I would pick it up myself after getting a check. What these client did was sleazy, period. It does not reflect on me personally. As for how I estimated the deposit...I did it in the tile store while the HO was there looking at samples. I knew within a few bucks that tile, shipping, and mark-up would be about 4K. As for your question Mike, I live in a small community, and I would hate to take a job right up to the point of setting the tile, and then bail, even if I am right. If I am going to suck anything up, it will be the clients' deceit and over-the-top penny pinching. I can get through this. I'll make sure I don't let them get too far behind on payments, now that trust is an issue. Oh, and Bob...I'll bet I could estimate my overhead cost to within a few hundred bucks a year. That doesn't mean that I can tailor my mark-up to meet that number. I am a one man show, and my jobs vary markedly, sometimes I spend a week installing 4K worth of custom tiles, sometimes I spend 2 weeks installing 4 hundred bucks worth of generic tile. If I lived in the burbs of NYC, I could not only write my own paycheck, but I could weed out all of the penny pinchers as well. I live in rural Vermont where every guy wearing carharts and a flannel shirt is a carpenter.

Mike Finley · 08-23-2006, 06:02 PM

Good luck with this one. I'm sure now that you know what you are dealing with you will do what you need to do to protect yourself. I hope you make it out unscathed. Don't bend over too much around the husband ---

Bob Kovacs · 08-23-2006, 06:13 PM

Quote:

Originally Posted by Ansel

As for Bob, I'll chock up his rudeness for waking up on the wrong side of the bed or something, I asked for input, not a reaming.

Nope- I woke up just fine. And I wasn't trying to give you a reaming, just wanted to make sure that you understood that you were just as much at fault for pieces of this as your lying customers, and get you to realize there was something fundementally wrong with how you're handling markups (see below).

Quote:

Originally Posted by Ansel

. Oh, and Bob...I'll bet I could estimate my overhead cost to within a few hundred bucks a year. That doesn't mean that I can tailor my mark-up to meet that number. I am a one man show, and my jobs vary markedly, sometimes I spend a week installing 4K worth of custom tiles, sometimes I spend 2 weeks installing 4 hundred bucks worth of generic tile. If I lived in the burbs of NYC, I could not only write my own paycheck, but I could weed out all of the penny pinchers as well. I live in rural Vermont where every guy wearing carharts and a flannel shirt is a carpenter.

The problem you're having with your markup is that you're trying to cover your overhead with a markup on materials, or on total job volume, rather than just applying it to your labor. That's the common method taught (if you can call it teaching), and it causes great grief because it's entirely dependent on your sales volume (which is totally out of your control). By taking your overhead, and adding it all to your labor charge, you now simply have to work a certain, pre-determined number of hours a year at the required rate, and your overhead is covered. Whether you're installing $4,000 worth of backsplash tiles, or $4 worth of backsplash tiles, you're recouping all of your overhead costs.

This same situation is also creating the problem you're having with your customers wanting to buy materials directly. If all of your markup is in your labor, you don't have to worry about "adding a markup" to the materials and worrying about what they'll think of the percentage. This way, they can run around town like idiots, pay for their materials with cash, company checks, or chickens for all you care- it doesn't matter.

Something to think about, no??

Bob

Tscarborough · 08-23-2006, 06:25 PM

I consider markup on material to be the cost of carrying the paper for those expenses. That is, the markup is not a profit center, it is a way to porportion those costs directly to those expenses. Overhead and profit should not be a consideration in material markup (although they can be, especially if you do any stocking of material, for instance, in which case you are a re-seller).

dayspring · 08-23-2006, 06:32 PM

Quote:

Originally Posted by Bob Kovacs

The problem you're having with your markup is that you're trying to cover your overhead with a markup on materials, or on total job volume, rather than just applying it to your labor. That's the common method taught (if you can call it teaching), and it causes great gried because it's entirely dependent on your sales volume (which is totally out of your control). By taking your overhead, and adding it all to your labor charge, you now simply have to work a certain, pre-determined number of hours a year at the required rate, and your overhead is covered. Whether you're installing $4,000 worth of backsplash tiles, or $4 worth of backsplash tiles, you're recouping all of your overhead costs.

This same situation is also creating the problem you're having with your customers wanting to buy materials directly. If all of your markup is in your labor, you don't have to worry about "adding a markup" to the materials and worrying about what they'll think of the percentage. This way, they can run around town like idiots, pay for their materials with cash, company checks, or chickens for all you care- it doesn't matter.

Something to think about, no??

Bob

That hits the nail on the head!

Ansel · 08-23-2006, 06:51 PM

Some good advice, Bob. Better delivery too. I just had a company meeting a couple of months ago and the concensus (of one) was that I get a $5 an hour raise, so I am with you. It is in the interest of not pricing myself out of the game completely that I mark-up the materials too. But it is great advice. I have this vision of installing an expensive french door (supplied by the HO) and dropping it off a deck or something, at least the 20% would be a start on the replacement costs. Insurance is to have bot NOT use in my opinion. I think that in a perfect world a set price contract is the way to go, but I just spent literally 6 1/2 hours tiling about 10sf! Just tiling...the grouting hasn't happened yet. When I get into this intricate stuff, if I didn't work by the hour, I would have been out of business looong ago.

Bob Kovacs · 08-23-2006, 06:55 PM

You're missing the point though- if you feel the need to cover some potential exposiure for damage, or whatever, you just add that into your labor rate- not onto the material price. The end result is the same.

As an added bonus, you can always put a 10% markup on the whole job- material and labor- for profit. No one will argue with 10%- it's the number that's been ingrained into the public's perception of "proper" markup, and you could use that to offset any material damage.

Bob

Ansel · 08-23-2006, 06:57 PM

I just had a brain storm! Have any of you seen the signs posted at some garages. I am not sure if all of them are tongue in cheek or not, but they say something to the effect of " $55 per hour shop rate; your parts $65, you watch $75" , To raise your hourly rate to accomodate these nice HO's who want to buy their own materials would not be out of the question, would it? Anybody ever do this on a T&M job?

Ansel · 08-23-2006, 07:04 PM

I purchased a book about 8 years ago, called the Contractors Legal Kit. It gave detailed examples of T&M and fixed price contracts. I have used them throughout the years, modified to suit me. a Are you telling me that on a T&M job you would mark up the total job 10% as you invoice, with a line item of "profit and overhead" or something like that? It would result in a much higher profit, and perhaps seem more reasonable to the HOs, especially in the glory days of home depot.

Bob Kovacs · 08-23-2006, 07:10 PM

Quote:

Originally Posted by Ansel

I purchased a book about 8 years ago, called the Contractors Legal Kit. It gave detailed examples of T&M and fixed price contracts. I have used them throughout the years, modified to suit me. a Are you telling me that on a T&M job you would mark up the total job 10% as you invoice, with a line item of "profit and overhead" or something like that? It would result in a much higher profit, and perhaps seem more reasonable to the HOs, especially in the glory days of home depot.

That's pretty much what I'm saying, yes:

Labor- 10 hours at $65/hour = $650
Material = $350

Subtotal $1,000
Markup- 10% = $100

Total Amount Due = $1,100

I don't see why you think it'd result in a larger profit- if you're not including profit in your overhead markup currently, you're missing something. No one should be getting into this business just to make wages.

Bob

Ansel · 08-23-2006, 07:24 PM

I am marking up only materials curently. So in the scenario you posted my mark-up would have only been $75. I understand the need to do all of the things we have talked about; a higher per hour rate, and a percentage of every invoice marked up to cover overhead/profit. It is something to think about AND do. I'm working in that direction. Let me ask you this though, just to be the devil's advocate. Do you guarantee materials NOT provided by you? I am very picky about my stting materials, for instance, thinset grout etc. i would hate to have to extend a warantee to some HOs, who did all their shopping at the depot. Also, at least where tile is concerned, there are so many different components to consider, double outside countertop corners, for example or double bullnose tiles. I have had to tell at least one HO (a long time ago) that I couldn't guarantee a sink counter, because the proper counter edging was not there, and I had to make do with something that was close, but no cigar. The more i think about it the idea of a HO running all over town to bring me bowed and cupped trimboards to install doesn't appeal to me, and if something as simple as trimbords can be F'ed up, I am sure I can think of about a million other areas where this could be really problematic.