![]() ![]() ![]() The cookie is used to store the user consent for the cookies in the category "Analytics". This cookie is set by GDPR Cookie Consent plugin. These cookies ensure basic functionalities and security features of the website, anonymously. Necessary cookies are absolutely essential for the website to function properly. Just like your doctor, your mechanic, your grocer and every other business. Markup isn’t profit, it is the money needed to make sure the contractor can complete your job, pay his bills and if he’s doing things right, make a profit on the job as well. There’s an old saying, “A fool and their money are soon parted.” Any owner who selects a contractor based on their price has no one but themselves to blame when things go sideways. So, if you’re focused on finding the cheapest contractor to do your job, you have a very good chance of selecting a contractor who will go out of business while trying to build your job. That’s why so many construction-related businesses fail. I can tell you that in my experience, too many contractors make no profit at all. The National Association of Home Builders published a report a few years ago that stated that their “best” remodeling contractors averaged something under 4% net profit. If it can’t cover overhead expenses and make a reasonable profit, it might not even be in business long enough to finish your project. Profit is what insures a business’s longevity – if it doesn’t make a profit, it might not be in business in six months. It needs a reasonable profit to build and maintain the business, keeping it viable during the down times. It must price the work or services to include the cost of its goods or services as well as cover its overhead expenses and make a reasonable profit. Why do you want to use a cut rate contractor to improve or repair your major investment?Įvery business must make a profit or it will go away. Would you ask your surgeon to reduce his price before doing open heart surgery? Would you ask your auto repair shop to reduce their price before rebuilding the engine on your car? Do you really want them to go cheap? For most homeowners, your home is your largest single investment. If you think it through, it’s not a smart move. Armed with that knowledge, owners try to get their contractor to reduce the price of the job they want done. Or that a 20% markup is all a contractor needs. Somewhere along the line, people started believing that a 10% overhead and 10% profit is the industry standard for construction jobs. The typical remodeling contractor will have overhead expenses ranging from 25% to 54% of their revenue – that means every $15,000 job could have overhead expenses of $3,750 to $8,100. Advertising, sales commission, job supervision (which isn’t usually a job cost), office expenses (even if they work out of their home), insurance, accounting and legal fees, licenses, taxes, employee expenses, and their own salary are just a few of their overhead expenses. I just heard those same people say, “But wait, contractors don’t have any overhead!” Your contractor gets $5,000 to pay their overhead expenses (which includes salary) and make a reasonable profit. He is making $5,000 profit on my job.” Nope, not true. Now many people who know little about business and even less about the costs of running a business will say, “Oh, look at that crook. ![]() If your contractor has a 1.50 markup (which is reasonable for a remodeling contractor), that means that if the estimated cost for a job is $10,000, they’ll multiply the $10,000 x 1.50 and arrive at a $15,000 sales price. It is the amount a business charges above their direct cost. Markup is a general term that applies to the overhead and profit that any business needs to realize if the business wants to stay in business. They frequently confuse Markup with Profit, and we want to set the record straight. They are generally either looking for help with their Cost Plus project that’s gone wrong, or they’re trying to figure out if the price they were quoted (or charged) is reasonable. We realize that many of our website visitors aren’t contractors, they are the clients of a contractor. ![]()
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