I’ve been in construction so long that it’s easy to forget not everyone understands some of the terms I use. I was asked recently to provide a few definitions:
Mr. Stone, fantastic book (markup & profit). I consider myself a numbers guy, so this was a fantastic read for me to brush up on some things as well as learn some new techniques.
I have a quick question for you. When comparing some of our numbers to what you note I keep finding myself saying ‘well, are we new construction, remodeling, specialty, etc.?’. We specialize in high end outdoor spaces like decks, patios, and porches and I feel like I could make a case for each title.
What are your thoughts? When you say new construction in your book are you referring to homes only? Would specialty be your dedicated guys (plumbing/hvac/drywall etc. etc.) and remodeling would be anything built onto an existing house?
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Appreciate any insight. Thank you.
We appreciate his kind words on our book and are glad it’s helped him. Those are words we love to hear.
I’ll begin by dividing contractors into two camps: general contractors and specialty contractors.
What Does a General Contractor Do?
A general contractor manages projects that usually involve three or more trades (electrical, plumbing, drywall, framing, concrete, etc.) General contractors can build new homes or buildings, or they might be involved in remodeling; a few do both.
What is a Subcontractor?
General contractors often subcontract parts of their project to other contractors. A subcontractor is a general or specialty contractor performing work for a general contractor.
Define Specialty Contractors
A specialty contractor is a specialist, they specialize. They might specialize in electrical work, finish carpentry, landscaping, painting, drywall, roofing, siding, windows and doors, gutters, hardwood floors, etc. Some specialty contractors work for general contractors, some work directly with homeowners, some do both.
What’s the Difference between New Construction and Remodeling?
New construction is performed by a general contractor, and it’s building from scratch. You have a bare lot and put up a building on that lot. A general contractor might build homes or commercial buildings. I’ve often referred to new construction as being a factory in a field. One reason new construction has lower overhead expenses as a percent of sales is because the work requires less intensive involvement with the building owner.
Remodeling is work performed on an existing structure. Some call it remodeling, other terms are renovation or rehab. Call it what you will, it involves making changes to an existing building. Room additions are considered remodeling, not new construction, because you’re changing the home. In residential remodeling, the existing building is usually occupied while the work is taking place.
Remodeling contractors normally have a higher markup than new construction or specialty work because of the complexity of their relationships. It’s not easy keeping homeowners happy and comfortable in their home while employees and subcontractors are making noise and dust.
Remodeling is almost always performed by a general contractor, but in a few situations a remodeling project might be completed by a specialty contractor.
What About Decks, Patios, and Porches?
The writer stated that he does high end outdoor spaces like decks, patios, and porches. That makes him a specialty contractor in my book.
Specialty work generally involves two trades or less. Now this can be a bit loose, and the writer is a good example. A new deck can involve excavation, concrete, masonry, framing, roofing, electrical, plumbing, finish carpentry, painting and maybe more to complete a project. He also does patios which probably would have only excavation and concrete and he does porches. He is a specialist in outdoor spaces.
Your Markup Range
The question came about because I suggest ranges for different types of contractors, so let me add another comment. Don’t try to convince yourself that you belong into a range just so you can use a lower markup. The ranges shouldn’t be an excuse to keep you from figure out what works right for your business.
You need to calculate the markup based on your business needs. The writer is a great example of why that’s important. If you’re a specialty contractor marketing directly to home and building owners, you’ll spend far more on advertising than a specialty contractor working primarily for general contractors. Your markup range might be closer to a remodeling contractor than a specialty contractor. You need to calculate your own numbers and not depend on the ranges in our book or on our website.
If anything, most of our readers should be raising their markup. There is more work available right now than I have seen in years, and there aren’t enough contractors available to do that work.
If you’re marketing your company as you should be, you’ll have plenty of profitable jobs to pick and choose from. Contractors that we’ve referred to Brian Javeline often come back complaining that they have more leads and work than they can handle. That, my friends, is a problem we want you to have.
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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