Percentage For Customer Bought Materials

Tom F.

How do you guys handle, both contractually and in practice, applying your percentages to customer purchased materials. I am taking on a big renovation/addition job for a good customer. I am the GC. It is very custom, involving probably 15+ trades, and will be done on a T&M basis. Includes major work on the existing house, new 1800' outbuilding, custom pool, etc.

The kitchen will be doubled in size, with all new high end appliances. The wife knows what she wants, and that is fine with me. I am sure she will intend to purchase these on her own. How do I tactfully get my cut on these items?

These are reasonable people. I want to do right by everybody involved. This is the type of customer who helps me continue to get profitable work. How would you handle this type issue?

BuiltByMAC

Are you talking about the appliances, the countertop material, the cabinets, the drywall, the framing lumber?

I would think if you're installing items she purchased, you could charge for the labor to install. If you handle delivery, you could charge for that. If you handle ordering the items, you could factor in a charge for that.

Will you be warrantying these items? Is there any problem for you providing a warranty on items you didn't provide?

Mac

Teetorbilt

Sometimes you just have to let things slide and I believe that this is one of those times. You aren't really losing anything and trying to mark up their purchases could start some really bad vibes.

Would you look for a cut if the appliances were only 6 mos. old and they were going to keep them? How about if they had to wait 6 mos. after the reno? Would you come back feeling cheated and wanting a few$$?

I often run into situations like this or where the ID made the sale and already added his/her markup. I just T&M it.

__________________
You can't solve you're problems with the same level of thinking that created the problems.

Albert Einstein

Tom F.

In this case I am only talking about appliances. Everything else is done through my subcontractors, billed through me. I have a good reputation for not gouging my customers. They know that they are paying my cost plus the agreed percentage for project management. No hidden markups, etc. But, to do this profitably I expect to take that percentage on 100% of the direct cost on the whole job. I don't doubt that the appliances in question are going to cost in excess of 10K. Thats a big chunk to leave out there. I am trying to find the diplomatic way to address this in the original contract so that it doesn't become an issue later on.

I am not wanting to charge for mickey mouse stuff like blinds or things that a homeowner can reasonably get done without me, after the major construction is done and I am gone. I am worried about things like these appliances, that I will have to coordinate and plan for in order for the job to turn out correctly.

philner

I think this is a great topic. I have never marked up materials supplied by the customer. However, I am in the middle of a situation that makes me wonder. Customer supplied alot of thier own fixtures on a new house I built for them, as well as using thier own Mason,Ceramic tile installer(my price was too high) and cabinet guys.well all thier work and her materials were junk, Fancy, but junk. well,shes all over me about backing these Items up. me and the plumber have 40 plus hours into one of her crap defective toilets and she wants me to buy her a new one,even though she supplied it(and trying to match the matching pedestal sink is going to be tough. Mason screwed up his flashings, will have to alter stone to correct, Tile installer was real bozo, made a mess of everything.Upper gabinets have SAGGED 1/2 inch from ceiling.Everything she supplied was late,not what was preped for, regardless of previous discussions, you get the point. Not trying to jack your thread, just a caveat about owner supplied stuff. My contract backs me up(not responsible warranteeing owner supplied/installed items) but trying to be a good guy,and making sure it is her fault and not mine has been a real PITA. Phil

kevjob

i typically don't allow Ho to purchase materials other than appliances, lighting fixtures. beyond that everything goes thru me not only for mark-up, so the right material will be there when I need it. Put a clause in your contract stating delays from HO purchased mats or hired subs will cost ***.xx per day delayed.

__________________
Kevin
Basement Finishing Highlands Ranch Colorado
Littleton Colorado, Basement Remodeling
Kitchen Remodeling Denver

Teetorbilt

Tom, I don't see a way to avoid it without a conflict. HO's are pretty up on it today and the I-Net can get them some good deals outside of the contractors prices. US appliances remain pretty much standard dimensions and shouldn't cause much problem in regards to the job. You can make a fortune installing oddball Euro appliances just on T&M alterations.

I actually appreciate the HO or ID to do the selections. If the project ends up looking strange it's not my problem and I get paid again to correct it.

I'm a remodler! Not an Interior Designer or some wannabe. I'm not going to spend weeks walking hand in hand through tile, paint, wallpaper, window treatment stores helping you to decide colors, transitions, accent colors, et.al.

TELL ME WHAT YOU WANT! I DO IT! If you need help, I have a bevy of ID's and one will fit your style and budget.

__________________
You can't solve you're problems with the same level of thinking that created the problems.

Albert Einstein

nap

Mark up a customer purchase? What are you thinking?





If they are anything smarter than morons, they will tell you to bite it.

Gee, I wonder if they buy a new car while this is going on if you should get a percentage of that sale too?

As Teetorbuilt stated, charge for receiving, handling, installing if you do those things but if the purchase was not through you, what makes you believe you have any justification to simply toss on some profit on those appliances?

Of course, you do not need supply any warranty or warranty work on these items either.



Bottom line;

their purchase; the only warranty they receive (from you) is that the original work is correct. If the appliance has any problems, there is a service work charge if they expect you to do anything.

By adding in a mark up, you are causing a situation like philner is describing. As it is, anything beyond your control (which includes contractors not under you or materials, supplies, and equipment not purchased through you, has no warranty and if those items cause extra work, there is a charge for it.


Make it clear and put it in writing.

Mike Finley

Tom,

I wouldn't be concerned with losing the mark up on these items.
What I would be concerned with are the creep costs that will eat into your profit that are associated with not supplying these items. I understand wanting the lost mark up, but it's kind of futile in your reasoning. Losing the markup from these items is no different then if the scope of work of the project you were bidding on was reduced from the beginning. Your profit margins weren't based on a gross figure right? Would they have changed from a $100K project to a $200K project?

It's been my experience the bigger issue is protecting your profit from being reduced by being sucked into devoting time, effort and advice from a homeowner in regard to these items they want to save money on by buying themselves. Not to mention losing profit due to material waste, expenditures, changes due to the customers materials changing the rest of the project.

There is a whole list of things to be discussed with the homeowner about what it means to "Supply these items". Including who is responsible and will get paid for dealing with inspection, storage, damages.

How about your time involved with advice you need to give just to protect yourself from the homeowner purchasing something that won't work with the current design? That's almost self-preservation, and most of us end up being free consultants to some degree or another because of it. You should get paid for that.

I've never found true parity when it comes to any of this, I still end up spending time and money for a homeowner when they take it upon themselves to purchase materials. I still end up doing the self preservation thing to protect my schedule by giving advice and doing some inspection along the way.

If you can figure out all the what ifs and find a way to get paid for all of them, that would be more what I would focus on.

Tom F.

My customers realize that, in general, the pricing I receive is better than what they can get as retail buyers. I believe that when the time comes, I will ask her to make the decisions on what she wants, and then let me make the purchase. Even with my markup I don't think they are going to pay much more than it would have cost as a retail customer. Knowing what lines they are interested, I think I'll call the dealer ahead of time and let him know that I am going to send "MY" customer to him for help selecting the product that "I" will be purchasing on their behalf. In my past experiences, the vendor would rather deal with me than the homeowner. I am not in a metro area where there are multiple dealers around for these type of specialty items.

That is today's idea. Still would like to hear other's opinions.

Brock

Great topic. We stopped supplying all fixtures, years ago turnkey, but here's how we get a little cut. We tell the homeowner to go shopping and pick out lights and toilets and sinks and tile etc. They pay the store for the items and we charge a per store pickup/delivery charge to get the items when we are ready for the installation. This accomplishes two things. 1). The business stocks the items free until the day I need them. 2). I get a good cut on the delivery because most places want $35 and up for delivery. I just tell the cust. we are only $25 for pickup/delivery per store. Sometimes the cust will pay me $150-$200 to drive around for two hours loading up fixtures. Ofcourse a lot of H/O will get uncle Bob's truck and deliver the items themself to save the money and we are just as happy for that because we would rather have them on site. Our labor markup is so high that anything we would make from marking up fixtures would not amount to much anyway. Maybe a good lunch at the local topless bar at best. Well, maybe not on second thought that usually runs around a thousand minimum.

Tom F.

Nap, the example of the client buying a car is ridiculous. Explain to me how the oddball custom appliances in a kitchen that I am otherwise completely responsible for is not directly related. Other than that you make some good points.

Mike, the whole project is T&M for the very reasons you bring up. While these are nice, reasonable people, I have been in too many of these high-end homes with customers who will work me for hours on their "idea of the day." You can bet that I will bill every hour, productive or not, once the contract is signed.

Probably the best solution is to offer my services in purchasing and making arrangements as a convenience and possible savings, but make it clear that it is strictly their choice about the level of service I will provide.

Mike Finley

Tom, I've found with reasonable people (who are good customers) once I sit down and explain how it will work as far as if they supply something: warranty issues, pick up/delivery, inspections, responsibility for damage, responsibility for wrong items, colors, models, and of course what it means for them to supply something -- as in : "Pretend I'm not involved with any of the buying decisions"... the reasonable ones quickly figure out that there is really no money to be saved even after we mark it up above retail or what they could go buy it for themselves.

Usually there are only two other reasons why a customer after hearing the 'realities', wants to go buy things - #1 is they simply really enjoy the shopping experience and the fun they will have in the process of going and looking at everything, or #2 is they are way too short-sighted and not able to comprehend the realities and are way too focused on the dollars. When they are number 2s it's usually pretty obvious and most of the time they have already eliminated themselves from even becoming a customer.

JPV123

If you didn't already quote it, Add in an allowance of $10,000 for appliances to your price before your markup. Then mark up the total cost. If she spends $12,000 you only lose out on the $2,000. However if she only spends $8,000 then you charge her $2,000 less but you actually made your markup on that $2,000.

Teetorbilt

Thinking as a cust., I don't want just anybody picking out MY appliances. I'm not at all happy with my wifes choices. I cook, I want gas. She doesn't cook but likes the look of glass. What do we end up with? A cool looking POC electric cooktop that's really difficult to keep clean.

Reefer, top freezer. Not the most economical but better than a side by. Also too small. Now have a second one in the garage, full feature, digital but her mom gave us the exsisting one as a 'housewarming present' and it can't move elsewhere like to a deserving 3rd world country. I'm taking off, bye.

__________________
You can't solve you're problems with the same level of thinking that created the problems.

Albert Einstein

Tom F.

It is not a fixed price job. Cost plus percentage.

Grumpy

Well I need to make the same ammount of money at the end of the day, so if the customer wants to buy the mnaterials, all I will back out of my cost is the actual cost of materials. The markup will remain the same. in essence doubling the labor markup.

However I don't do these kinds of work.

AtlanticWBConst

My 2 Cents:
The arrangement of the appliance purchases and mark-up, sounds "iffy".
Basically, I don't feel it's a good "place" to go to with a client, unless you have the wording in your "signed" contract, that you can point out to them.

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- Build Well -

DavidC

If your overhead and profit is 100% on your labor rate then you wouldn't be missing anything when the HO purchased the appliances.

I may have gazed over it already, but are you installing these appliances? If not then no worries, who ever sells the appliance has all the warranty issues. If yes then you are taking on additional risks and there should be an additional profit for you to compensate.

I would want to spell out in the contract who is responsible for what. For ex., we would specify that we are not responsible for product warranties on customer supplied products. The only warranty would be that they were installed correctly. Then make sure to follow manufacturers installation instructions to the letter. For this we would receive our normal hourly which carries all of the burden and profit.

FWIW, we normally work for a set cost and mark up materials by our profit %.

Good Luck
Dave

Tom F.

All these are good points, but some have missed it that there is no fixed price contract here. This job has way too many variables to do for a set price. It is mostly new construction with about 20% remodeling. One of my competitors locally, who has been doing it much longer than I, has the policy that everything he touches from the start to the finish of the construction gets the percentage. Whether he purchases it or the HO. That's including things like appliances and custom audio/video. I know of a house he did last year that had over 60K in home theater, for which he took 15%. It may be that this is a local tradition. I suspect that while this practice may look odd to many of you guys, it is balanced out by the comparatively low hourly rates we charge around here.

I have pretty much decided to let the issue just slide on this job, but am going to up my hourly rate a bit to make up for it.

Thanks for all the input.