Some Estimating Help, Markup

Tommy C

I have also posted this in the Masonry section, because that is my trade, but it is definitely a business topic.

I've been a mason for years, but always worked for somebody (family business). I am considering going on my own soon. Here's my question:

Do you guys use square footage prices when giving a homeowner an estimate? That is what my mentors (uncles, cousins) have always done, and no other way. They are very successful.

I am now reading a good book on markup, profits, and running a construction company. Although I now UNDERSTAND the fundamentals of markup, I am EXTREMELY confused as to how it plays into the estimating process.

For example, if a customer wants a price on a driveway in pavers, I would punch into the calculator the square footage of the driveway, and multiply it by my price per square foot for pavers. Easy right? Well that's how I was taught to estimate. Then I read this book.....

Quite frankly it confuses the bejesus outta me! How do you guys figure jobs? Do you use markup? All the time?

Thanks in advance for the input!

-TC

Bob Kovacs

Tommy-

Yes, you can price by the SF for masonry- it's not the "how" you price that's important, it's what's "in the price". In other words, never bid work at "$XX/SF" just because someone else is using that price. The SF price needs to be based on your costs of doing business- your wages, employee wages, taxes, insurance, equipment, truck costs, cell phone costs, etc.

Once you know what all of that costs you to send your crew to work, you then need to determine their productivity rates. If you find that your crew can lay 500 SF of pavers in a day, and the crew costs you $5,000 a day to put in the field, you need to charge at least $10/SF for paver installation. You also need to include a "markup" on your cost to cover your time (if you're not actually on the crew laying pavers), and a profit. Ohh, and BTW- "profit" and "owner's salary" are NOT one and the same.

If you're in the central NJ area, look me up, I often work with startup contractors to help them understand the business issues of going out on their own.

Bob

Grumpy

I had a builder I do some work for ask me a per sq ft price on some siding because he has been underbidding his siding. When I gave him a rough, very rough, price per sqare foot on siding, he said I was insane. He said he could build a whole house for half! He was talking square footage of floor space and I was talking square footage of actual wall surface.

He was also intrigued that I didn't do simple math and use a per square foot price and call it a day, but I started with a fairly low number for the siding and added for features and accessories like window trims, soffit/fascia etc...

Tommy C

Bob, thanks. I am in the Cranford/Westfield area.
I am still a little confused about how to apply markup to a square footage price.
Is this accurate:
(using 500 sf of pavers example)
$5,000 (@$10 per sf) + percentage of annual overhead + percentage of profit desired (company's profits) = SALES PRICE

*Where does Markup come in?

Bob Kovacs

You've got the idea. "Markup" is a multiplier that you use to go from your actual cost to your sales price.

Especially for a small company with only a few employees, I'd recommend applying all of your overhead and operating costs to your labor rates, and then only having to "markup" the total cost for profit. I say this because it's very difficult to estimate the total dollar volume of work you'll do in a year (which is required to determine your % for overhead), while it's easier to estimate how many labor hours you have available to you. If you know you have yourself and two employees working fulltime, there's approximately 6,000 hours of labor available (I'd probably use more like 5,000 to account for rain days, snow days, sick time, down time, etc). If you have $50,000 a year in overhead, you can simply take $50,000/5,000 hours, and see that you need to add $10/hour to your labor costs to cover your overhead. Then it doesn't matter if you're laying block, brick, or $40/SF granite pavers- you take your labor costs (with taxes, etc., and your $10 overhead recapture), add for material, equipment rentals, etc., and then mark the whole thing up for profit.

Seeing how you recaptured your overhead costs in your labor rates, I'd shoot for at least a 10% profit to arrive at your sales price. This would involve dividing your actual costs by 0.9, not multiplying them by 1.1, by the way.

Have I confused you enough yet? lol

Bob

john elliott

Unless you are the taxman, of course, when profit and owner's salary are exactly the same.
John

Grumpy

I disagree. I am the owner of my company but I am also an employee. I make a salary of $250 per week. I also make a % commission on all work as a manager's bonus.

Year end profit can be dealt with in several ways such as purchasing equipment to remove all signs of profit. Another method of dealing with profit is disbursing investor dividends, this is the only time profit becomes an owners salary.

noreast05

I'm in the same boat as Grumpy. I (employee) of the (my) corporation. Gets a base salary and a bonus. I believe in my company and take the profits and purchase more, better equipment. And if need be take a dividend, which increases my salary. But equipment comes before dividends which is not part of my salary. Equipment is an expense taken from the profits. Owners salary has nothing to with profit, until the company starts paying out dividends to it owners. So spend spend spend if you have profit. I pay myself what I need to live on, so I can spend and grow my company. My profit/ salary/ taxes to uncle sam will be when I sell my company to my successors.

JustaFramer

Isn't that not the case if your a sole-proprietor?

CSCLLC

You are now opening up a new can for this thread. DAMN you! If you are a sole-proprietor you will use a flow through method of taxing. All profits and losses will flow onto your personal filings. A C corp will be the only one that does not flow through. So no that is not the case for you. All the "money" will go to you at the end of the year. This subject is extremely hard to keep to a few lines of text. Want a book?

orionkf

Could you expand on this concept (divide by 0.9 vs multiply by1.1) a little more?

nadonailer

Just figure out what you need for beer and toys and double it!

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Grumpy

Yes Justa but why in gods name would anyone be a sole prop?

Brian

If you multiply $100 by 1.1 you wind up with $110. If your costs are $100, you have a profit of $10 and a profit margin of 9.09%.

If you divide $100 by .9 you wind up with $111.11. If your costs are $100, you have a profit of $11.11 and a profit margin of 10%.

Brian Phillips

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Houston Exterior Painting
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Grumpy

After tracking lst years numbers and forecasting this years we determined we need a 35% markup to cover overhead, including my salary. If we run more crews than we did last year, which is the goal, some of that overhead get's reduced because it is shared between concurrent jobs, thus more profit.

JustaFramer

I am sole prop. I went that route to avoid some start up costs. My main goal is to re register when its time to renew and go with a LLC or s-corp and GC licensing. I am not worried about being sued for shotty framing or fencing. I stand by my name.
There is the taxing too in this first year I don't think I break any record numbers to worry that the tax man is taking to much.

diego79

Just wanted to comment on the above.

Wow...it's actually pretty interesting... The way I'm doing my bids I just give a flat price and "include everything".

My typical job is a shower regrout which generally includes grout removal and replacement, tile cleaning, caulk r & r and sealing.

I can see how it might be good to give a fairly low number for the regrouting and then add for caulking, cleaning and sealing.

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and then success is sure".

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