Have you ever been asked for the average cost per square foot for a remodel? Average home building cost per square foot?
The reason we get that question is because the public believes there is an average cost, and that the average cost will relate to their project. As a contractor, it’s your job to help educate them.
There is an average price for a 2″ x 4″ x 8′ board, right? Everyone knows, or should know, that they’re $6.75 each. Or maybe not. Let’s see, we have fir, hemlock, pine, cedar, redwood, spruce, any others? And is the cost in Portland, Oregon the same as the cost in Pensacola, Florida?
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There is no average anything in construction. Contractors don’t pay an average insurance rate; their rate varies by their location, their history, their volume of work, their type of job. We don’t have an average vehicle cost. Have you seen the average fuel rates in your area? Are those the rates you pay where you get fuel?
There isn’t even an average job that contractors build. Now, if you specialize in kitchens, maybe you can come up with an average for the kitchens you build, but that doesn’t mean your next job will be anywhere close to that average.
Consider a response like this, the next time you’re asked for an average cost or price for a project:
Mr. Client, no two contractors will buy from the same supplier, use the same subcontractors, purchase the same insurance, drive the same vehicles or have the same employee expense. That means their job costs and their overhead expenses will always be different. Assuming they all want to make a similar profit, when they estimate a job they’ll all come up with a different price for that kitchen or bath or room addition.
If you look at the “Cost vs. Value Report” published every year by Remodeling Magazine, you’ll see that the sales price of kitchens, baths or room additions varies from state to state and from city to city and those numbers also change yearly. There is no average price, and there is no average job. The price for your job will be determined by the design of the project and the selections you make.
From there, if you know enough about what they want, you can start to provide the three ranges for what their project might be. We discuss that in our book Profitable Sales, A Contractor’s Guide (if you own the book, it’s Chapter 7, The Four Basic Questions). But be careful: don’t provide a range unless you’re pretty sure you know what they want.
Another common question we hear is “what’s the average contractor’s markup?” Another version of that is asking for the average contractor’s fee. Well, since every contractor has different overhead numbers, and builds a different volume, their markup will be different. Again, they don’t use the same insurance agency, drive the same vehicles, purchase the same fuel, use the same phone carrier, or have the same expense for their employees. Therefore their overhead expenses will always be different. Assuming they all want to make a reasonable profit, when they build a job, they will all come up with a different number for their markup or gross margin.
And, frankly, a contractor’s markup or gross margin is proprietary information. Do you ask your doctor how much money he makes? Or how much he pays in overhead for his office? Would you ask your attorney or CPA? When you’re asked for your markup or margin information, explain that its proprietary information. Just like every other professional, our income and our business finances are private.
When a sales call heads down this road, there’s a good chance you’re dealing with an uneducated client whose focus is on price. Your job is to educate them on the fact that every contractor will have a different price (there is no average), and you also need to explain why selecting a contractor based on price is a mistake.
Make sure they understand that the design they choose and the selections they make will determine the price of their project. As the contractor, your job is to help obtain their selections and find the best mechanics to install those selections in the manner they want, on time and at a fair price.
Another reason clients might ask questions like this is because they just want to know if they can afford to do what they want to do. What can they afford with the money they have? That’s why the Remodeling Magazine Cost vs Value report is so valuable. Have it available, either in print or digital, so you can share it with them. Then, when you know enough about the project, provide them the three ranges as discussed above.
Now that you have a well-educated client you can move ahead. If they can afford the project, you’re more likely to make the sale. And if they can’t afford the project, you haven’t wasted a lot of time and you’ve hopefully made a new friend who will remember you when they can afford the project. It’s a win-win.
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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