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Markup for contractorsWe always talk about ways to grow our business. In the remodeling industry, one way is to offer credit options. Another is to partner with the right industry associates. There’s also the obvious – get more clients and more referrals. One aspect of your business you should examine is your markup. Are you marking up your projects properly and enough to make a reasonable profit in order to stay in business? For a long, long time.

With pricing wars that can occur when bidding for a job and the internet at everyone’s fingertips, it’s easy to feel unsure that you are pricing your projects properly. Comparing your pricing with other contractors, based on price alone, is not a good idea. Knowing all your costs that go into a job is the only way to avoid miscalculating the markup you need to be profitable on every job. As surprising as this seems, there are many in the industry that don’t truly know or understand all the costs they should be considering when giving a proposal. Additionally, an important consideration in pricing your projects is to be sure you are not going too low just to get the job. That is not good for anyone – you or your customer if you cannot do a great quality job and stay in business.

What are the costs to be considered for each job:

  • The full costs of labor – what does each employee for each task cost you on the project you are proposing? This includes overtime, health insurance, workmen’s compensation, social security, federal and state taxes and more.
  • Job costs – what are the costs for materials, equipment, subcontractors, permits and everything else that is required in a remodeling project?
  • Time of project – have you calculated properly the amount of time the job will take? A miscalculation will affect your costs and ultimately, your profit.
  • The details of the project – have you considered all that will take time on the job? This could be as simple as project management, items that need to be moved and replaced, matching paint and the current features of the home among other things.
  • Financing – If you are utilizing promotional financing options such as Same-as-Cash or No Interest periods to help close sales, what are those costs?  Also, if you are working with many customers that have less than optimal credit what are the costs associated with financing them?

You will have to take the time and effort to be sure you are not undercutting your business and implementing a reasonable and healthy markup for your business. You will have to decide where the “line in the sand” is. What is the minimum you can take to complete a project with the quality you demand and the profit you need to have in order to be a healthy business? Have you ever heard a business say they are not the cheapest price you will find but they also guarantee a certain level of quality.

What to markup for each project is a difficult and tricky part of the business for a variety of reasons. Losing jobs is never fun but sometimes necessary. And truly calculating and understanding all of your costs is vital to success. Ultimately, you must decide how to markup and how much in order to find the right mix of consistently winning new business and maintaining a healthy business that will be around for a long time.

Articles of interest on the topic: 
Comparing Contractor Markups Can Be Pointless and Very Risky

How Much Should a Contractor Charge?

How Much Do You Markup Your Remodeling Costs?

Markup Percentage for Remodelers