A few weeks ago, a homeowner posted a question on our website. It was deleted before we could respond so we want to share it here:
Our contractor is charging 15% fee for our remodel. He has included appliances, light fixtures, bathroom and kitchen fixtures in his fee. He has asked us to go purchase all of these items. I am fine with the fee for items he will be responsible for installing, however the appliances will be delivered and installed by the retailer we purchased them from. His fee is $800 for the appliances. Is it out of line to ask him to remove his fee for the appliances?
Their contractor is charging a 15% fee for a remodel? Please tell me it’s a misprint; this is a disaster waiting to happen.
I pray this contractor will read our book, Markup and Profit; A Contractor’s Guide Revisited and make changes to how he does business. 15% may cover his advertising, sales commission and maybe some or all the salary he probably isn’t taking, but it certainly won’t cover the rest of his overhead expenses, let alone profit.
The contractor requested that the owner buy some of the materials, and that’s what opened the can of worms. It’s obvious the homeowner chose their contractor based on price and now they want to reduce that price even further. If this job goes forward, I wouldn’t be surprised if it ends up in a courtroom.
We work with a lot of construction-related business owners and the one characteristic we most care about is honesty. We don’t care about your skin color, gender, religious beliefs, native language or who you share life with, we care about whether you’re operating legally and ethically.
The problem is that you can be the most honest, ethical person in the world and if you aren’t charging enough for your work, you stand a good chance of cheating a client, subcontractor, supplier or employee somewhere down the road. When you don’t charge enough for your work, there isn’t enough money to pay everyone what’s owed. You’ll cheat yourself first, because that’s what ethical people do, then you’ll either not be able to finish a job or you’ll short someone you owe.
When you own a business, it’s your responsibility to do everything you can to make that business successful, and it starts with charging a fair price for your work. A fair price is the price you need to pay all the material, labor, subcontractor and other costs you incur to build that job, as well as paying your overhead expenses (which should include your salary), and make at least an 8% net profit.
This contractor might be an incredibly honest, hardworking person, but until he begins operating like a business, his clients are at risk. There isn’t enough money in this job for him to pay his wages for working on the job or the salary he needs for owning and running his business. He’s trying to overcome that problem by having the owner purchase some of the job materials directly. This rarely works.
The message I’m trying to convey is that if and when you run into someone operating their business like this, for the sake of your company and the construction industry, set them down and as they used to say in the old west, “Read them from the book!” They won’t always listen but if you can get even one in five to correct the way they’re doing business it will improve the buying public’s perception of this industry.
Our goal to help contractors build stronger businesses, that’s the focus of our 2-day class and other offerings. Step one is charging enough for the work – and there are still too many who are flying by the seat of their pants and heading for a wreck that they don’t see coming.
Run your business like a business, and at the same time do what you can to help others succeed as well. The construction industry will thank you.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations.
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