When we talk about making money, it’s rarely about big chunks of change. Few contractors ever land a multi-million dollar project, and many who do know they can lose money on those jobs, too. Making money in construction is done one dime at a time.
One overlooked item that costs money is rounding numbers. For instance, your markup.
We’ll assume that you’ve calculated a markup for your business of 1.4927. Too many will look at that figure and round it down to 1.49. That is close enough, right?
Let’s see what it does to your bottom line. It won’t have a drastic effect on a small job. If you estimate job costs of $11,623, a 1.49 markup will give you a sales price of $17,318.27. You’ll probably round that down to $17,318.
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But if you rounded your markup up to 1.50, as you should, your sales price on this job would be $17,434.50. That is $116.23 more. Not worth worrying about, right? Maybe, maybe not. But let’s see what it does over the course of a year for an average remodeling contractor. The typical contractor might have annual job costs of $450,000.
Doing the math, using a 1.49 markup: $450,000 x 1.49 = $670,500 sales price for the years work.
Doing the math, using a 1.50 markup: $450,000 x 1.50 = $675,000 sales price for the years work.
It looks to me like the contractor who rounded his markup down to 1.49 left $4,500 on the table.
Here is the thing. Folks who round down are always more worried about price than they are about their own family and how to care for them, their business and their employees. It doesn’t take any more sales effort to round up then to round down. It won’t have any impact on your sales to leads ratio. Rounding down lowers your net profit and reduces your ability to take care of your family, your business and your employees. Rounding up has exactly the opposite effect.
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.