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Hello! This is my first post on here so hopefully I am posting this in the right place! My name is Ian and I'm a new contractor! I started my business about 9 months ago, so far my experience has been... decent. About a week ago I found out I've been doing this completely wrong though. I am one week from finishing my biggest job which is a whole main floor reno. New floors, trims, doors, bathroom, electrical, cabinet refinishing, counter tops and stairs! The job in total costed around $50,000 CAD, after doing some research I realised I have been doing this whole "mark-up" thing completely wrong. I would price out my labour at whatever I think it would take me to complete the tasks I would cover, subs would give me their quotes and I would add $200-$400 on top of it as a mark-up, Material I would also markup but no more then $50. After the research I did I started seeing people say for remodelling contractors they would mark-up their contract TOTAL by 1.50. When I heard this number I thought it was insane! I also heard from an experienced contractor I know in person no more then a 20% markup is competitive. So what I'm here to ask is what is a normal mark-up for a new company? I have no workers and most of the work I'm doing but I do sub in some trades. Any responses are appreciated!

Thanks,
Ian
 

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From another thread... Your percentage of PROFIT markup is going to reflect your business goals, and is different from company to company, but should NOT be confused with you pay yourself... as to only charging a $50 markup on materials, you need to revisit that ASAP, because procurement, handling, delivery fees, etc. if not reflected in your pricing, you're literally paying for out of your pocket...

L - Labor
O - Overhead
M - Materials
P - Profit

Labor... this includes what you want to make GROSS every year for you and anyone you employ, PLUS taxes, Insurance, bene's, retirement, etc....

Overhead... Shop, cell, advertising, WC, electric, heat, vehicle insurance, any vehicle payments, accountant, equipment maintenance, office supplies, etc...

(These two figures (Labor and Overhead) are added together and divided by 2080 hours (40-hour week) and this is the MINIMUM you can charge per hour as they are a CONSTANT. So if you expect a job to take a day and a half, you better assume TWO days unless you are somehow able to fit another job in that half day (unlikely)... so you would take the hourly cost from this calculation and multiply it by 16 (two 8-hour days).) If you have a day where you had no business, it NEEDS to be accounted for in your upcoming jobs if you do not have capital reserved or an emergency fund to absorb it. Until you have a strong understanding of your numbers and get more accurate at guesstimating the hours it takes you to do something, you are better off multiplying this number by a factor of 1.25

Materials... these are what your materials will cost for the project. Everything. Then you add a percentage for handling, delivery, etc... I should also mention, we've taken to adding gas to materials because of it's variable nature. We record how many miles it takes to get to a prospects house for the estimate, and calculate our average gas price for the month and build it into materials. Because we add a percentage on top for handling/delivery, it helps cover any variance... Because you will know what they charge, subs can be included in this category...

Profit - this is what you pay your company, (NOT to be confused with your pay left over after a job, which is covered under Labor) which is based on all of the above... so add up Labor, Overhead, Materials and then multiply x whatever profit margin % you have determined you need. This goes towards things like 3-6 months of Capital Reserves, Emergency Fund and Equipment purchases...

If you do not have PROFIT built into your pricing, there is only ONE place it can come from.... YOUR pocket... EVERYONE ELSE still expects to be paid (subs, suppliers, insurance, taxes, etc.)...

Your challenge is when you add up the numbers for the above (the only variable should be materials and the Profit percentage will take care of itself as it is based on the other three) is you will be surprised at how much it indeed costs you to be in business...

Then you will have to go after the business that can support what you need to make... and then you will come to realize that not everyone is your customer, but only those who can support what you need to be in business... If you drop your pants on a job to "buy it", if you have not accrued any capital reserves or emergency fund, it comes DIRECTLY out of your pocket...

There's no secret involved... just getting to know your prices and what YOU need to charge, not what the other guy charges, which is irrelevant to what YOU need to charge... all this assumes you're an actual contractor and not a homeowner, but might be a good education if you are as homeowners have no clue as to what it costs to be in business nowadays...

Best of luck... 8^)
 

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Discussion Starter #3
From another thread... Your percentage of PROFIT markup is going to reflect your business goals, and is different from company to company, but should NOT be confused with you pay yourself... as to only charging a $50 markup on materials, you need to revisit that ASAP, because procurement, handling, delivery fees, etc. if not reflected in your pricing, you're literally paying for out of your pocket...
Hey KAP,

Thanks a lot for the reply! I have read over it, going to need to again because its a lot of information. If I have any questions I'll reply on here! Thanks again.
 

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Discussion Starter #4 (Edited)
From another thread... Your percentage of PROFIT markup is going to reflect your business goals, and is different from company to company, but should NOT be confused with you pay yourself... as to only charging a $50 markup on materials, you need to revisit that ASAP, because procurement, handling, delivery fees, etc. if not reflected in your pricing, you're literally paying for out of your pocket...
"you are better off multiplying this number by a factor of 1.25 "
so whatever my hourly cost (labour + OH divided by 2080) then add 25% on top of that? aka for security if my hourly estimates are off?

"then multiply x whatever profit margin % you have determined you need"
Do you have any tips on how to determine this? My problem I am having is I don't want to go to high and be not competitive with people in my area. Should I go off what that experienced contractor told me (no more then 20%). He has been in the business for many years and has 2 or 3 guys working for him. They don't take more then one job on at a time.
 

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" you are better off multiplying this number by a factor of 1.25 " so whatever my hourly cost (labour + OH divided by 2080) then add 25% on top of that? aka for security if my hourly estimates are off?
Until you have a strong handle and history, yes... because if you come up short, and you don't have 3-6 months of Capital Reserves and Emergency Fund (these are funded by paying your company PROFIT) it comes directly from the only place it can come from, because everyone else (i.e. - subs, suppliers, taxes, insurance, etc.) still expects to be paid... YOUR pocket...

So if you guesstimate a job will take you 30 hours, you'd make it 37.5 hours (actually 40 because you want to round up to the full day unless you have other work scheduled that day)... you can adjust it to your experience and comfort level as you go... if you feel 1.2 or 1.15 works for you, go for it...
 

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Until you have a strong handle and history, yes... because if you come up short, and you don't have 3-6 months of Capital Reserves and Emergency Fund (these are funded by paying your company PROFIT) it comes directly from the only place it can come from, because everyone else (i.e. - subs, suppliers, taxes, insurance, etc.) still expects to be paid... YOUR pocket...

So if you guesstimate a job will take you 30 hours, you'd make it 37.5 hours (actually 40 because you want to round up to the full day unless you have other work scheduled that day)... you can adjust it to your experience and comfort level as you go... if you feel 1.2 or 1.15 works for you, go for it...
Thanks for the reply, Makes sense! I think I added to that same comment another question while you were in the process of replying to it. Do you mind looking back at the response and see the second quote? Thanks
 

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I mark up material 10%.

I try to figure my labor burden (actual cost of my guys for that job, along with my rate) as close as possible to what it's going to actually be, then double it.
 

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It would be smart and money well spent to sit down with a good business minded accountant to show you how to determine what your overhead cost is, then how to calculate markups accordingly.
On small jobs we pretty typically charge at least $50/hr for labor, sales tax + 20% on top of materials, 15% on top of subs. Also need to charge something for your equipment used, similar to what rental houses charge.
 

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Here is an example of how not to lose money and how I calculate my costs.

Let's say you doing a small job with a total job costs of $200 with added overhead and your profit to the job costs:
$200 + 32% overhead ($200 X .32) = $64
$64 + 10% profit ($64 X .10 = $132) = $64
$200-128 =your total profit on this job is $72. If you continue to calculate this way you will always come up short, and if you coming up short on your jobs, it means you working hard for less profit.
Now try doing it this way.
Same job Cost of $200
Same overhead at 32%, and same profit at 10%= total 42% (1-.42=.58) now you take $200 /.58= $344.82 you just picked up an extra $144.00 this makes your profit $216,82.
Always remember that the gross profit (overhead + profit) which in this case is 42% that is 42% of the revenue (remains unchanged) and you will come up short on every job.
Good luck
 

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In addition to the great advice given above I would add you have to know your market and what costs it will bear. That doesn't happen overnight. If you win every bid your prices are too low. You should only close 1/3rd of cold leads (not referred by another client). Hot leads should typically have a higher close ratio. If you have work booked out quite a ways raise your prices 10% and see if it changes volume. Low volume high profit is generally better than high volume low profit. Highest profit overall will come from a strong reputation and prices slightly higher than average. Not sky high prices. Think 6/10 on a scale from dirt cheap to gold toilets.
 

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This can’t be emphasized enough if you are a one man band.


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Even if you are a 2 or 3 man band. If you can cover the costs of your guys with less work, then put them to work in the shop if you have a few slow spots. It's costing you the same either way.
 

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"then multiply x whatever profit margin % you have determined you need"
Do you have any tips on how to determine this? My problem I am having is I don't want to go to high and be not competitive with people in my area. Should I go off what that experienced contractor told me (no more then 20%). He has been in the business for many years and has 2 or 3 guys working for him. They don't take more then one job on at a time.
You're potentially looking at this wrong... unless you want to join the race to the bottom it is IRRELEVANT what someone else charges... you have to charge what YOU need to be in business otherwise why are you in business?

To put it in perspective, your friend is charging a 20% profit margin in YOUR market... do you understand what that means? It means two things and shows why it's IRRELEVANT what someone else charges...
1) He has a couple of guys working for him, which right off the bat means that he has a much higher load (i.e. - salaries, insurance, employment taxes, equipment, etc.) which gets passed along to the customer than you do... so putting PROFIT aside, he HAS to charge more than you to even be in business... that is the case in EVERY market... those who charge more or less than you... does that mean because YOU can charge less than him that he's going to lower his prices to be "competitive" with you? Of course not... he has to do what YOU need to do... find the business that can support what he needs to charge to be in business... productivity savings with more employees can only take you so far...​
2) So if you're going to use as a crutch "what the market will bear" as opposed to finding customers who can support what you need to charge to be in business, look at it this way... your friend is charging enough to support 2-3 guys PLUS himself and THEN is adding 20%... so if you were going to charge what he charges to support his business to be "competitive" and on par with what he charges, would that be only the 20%? OF COURSE NOT because you don't have 2-3 guys PLUS yourself and all the load that comes from that... this is why it is IRRELEVANT to YOU that he charges a 20% Profit margin... but since you have a friend with a few employees, have him price out what he would have charged to do your last job (offer to pay him for his time) and watch the difference in the money being left on the table...​

A couple of signs you're not charging enough or your need to increase your productivity gains (which only goes so far for a one man show)...

A) You're not making enough money...​
B) You're not managing your time and jobsite efficiently...​
C) You find yourself in robbing Peter to pay Paul cycles...​
D) You view "Profit" as what you pay yourself, as opposed to what you pay your company to fund things like 3-6 months Capital Reserves and Emergency Fund, Equipment Fund (this does not happen overnight and takes time but will go a long way to freeing you up from "buying business" to pursuing business and referral markets that can support your business)...​
E) You don't have benefits for you and your family (i.e. - savings, health insurance, retirement, etc.)...​

You're not retail... there are a LOT of moving parts in this industry and things that set one company apart from another... if that were not the case, there wouldn't BE anyone in your market that can charge MORE than you or LESS than you... everything from experience, to materials used, to customer base (referrals), etc. lead to what part of the market you are serving...

The biggest thing is... we tend to view everyone as our customers... they're not... ONLY those customers that can support what you need to charge to be in business are... does that mean from time to time, that there will situations where you're in a position to charge less for whatever reason (i.e. - helping someone less fortunate, in starvation mode, etc.)... not at all, but hopefully, it's not a business model for you but the exception to the rule and your 3-6 months of Capital Reserves and Emergency Fund will allow you the flexibility from time to time to exercise that option if so needed depending on circumstance...
 

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If you aren't dumbfounded by how much you have to charge, you aren't charging enough. If 10-20% of your satisfied customers aren't bitching about your rates, you aren't charging enough.
 

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If you aren't dumbfounded by how much you have to charge, you aren't charging enough. If 10-20% of your satisfied customers aren't bitching about your rates, you aren't charging enough.
Learning not to feel bad when putting together an estimate was hard for me.

But wanting to give everyone a good deal just leaves you eating ramen for supper.
 

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Learning not to feel bad when putting together an estimate was hard for me.

But wanting to give everyone a good deal just leaves you eating ramen for supper.
Tried Ramen for the 1st time, had spicy seafood... they just opened up a joint near me, pretty good stuff.
 
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