A young guy who was just getting started asked on an online forum if signing on with one of the big box stores was a good idea. He said they promised him lots of work. He hasn’t discovered yet that getting a lot of work doesn’t mean you’ll make lots of money.
If the big box stores are willing to pay what you need to cover all your job costs and overhead and make a reasonable profit, it’s a great deal. That’s rarely the case. Instead they offer a fixed figure for each type of job you do.
They’ll pay $xx to install a hot water tank. They’ll offer $yy to install a replacement furnace and $zz per foot to install new gutters and downspouts. I was talking to a guy from one of those stores about hot water tank replacements and he told me that, “the amount per install may look low, but don’t forget we’ll give you at least five of these a day.”
Installing hot water heaters isn’t like selling hot water heaters in a store. You can only install one hot water heater at a time, and every install is different. So I don’t care if they give you five or fifty-five hot water tank installations in a day; if you aren’t paid enough to cover your job costs, overhead and profit, you are going to lose money. You can’t lower your price below what you need and expect to make it up in volume.
The big box store this young man is talking to offered a blanket discount on all his purchases. I doubt the discount would be enough to make up for having to accept their pricing schedule on all the work they give him.
This store also had a policy that their customers must be 100% happy when the job was done. If they weren’t, the store reserved the right to give the job to another contractor to fix it. The first contractor would waive any pay on that job because the customer wasn’t 100% satisfied. Now tell me, how many of your customers are 100% happy with everything you do for them? How easy is it to make them happy if you have five other installs, in different parts of town, to do that day? Even if you’re given a chance to go back and rework the job to the customer’s satisfaction, you’ll spend more money trying to make them happy than the job is worth.
Why don’t big box stores send employees to do these installs? In my opinion, it’s probably cheaper to hire subcontractors. They don’t have to pay benefits, and they don’t have the risk of an employee damaging the home or taking too long because they’ve run into a difficult install. The subcontractor assumes those risks. The big box store’s pricing structure is set to guarantee money in their pocket, not yours.
If you want the security of steady work coming your way, sign on as an employee with a big box store or somewhere else. You’ll probably make more money getting an hourly wage as an employee than you’ll make taking the risk of doing installs on the big box store’s pricing schedule.
If you’re going into business, go all the way. Market your services and set your own prices. It’s risky, sure, but it’s also more profitable and much more satisfying.
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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