Projects for which the homeowner supplies some or all of the materials — buy-it-yourself, or BIY for short — have traditionally caused headaches for remodelers. They pose all sorts of scheduling and quality control problems, and there are post-completion issues with warranty and repair, as well. More important, however, removing the price of certain materials from the overall cost of a project puts the job's profitability in jeopardy.
It's no wonder, then, that some remodelers flat out refuse to allow their clients to purchase any materials themselves.
However, these contractors appear to be the exception, not the rule. In a recent REMODELING Reader Panel, nearly 84% of survey respondents do work for homeowners who supply some of their own materials, ranging from smaller items like bathroom fixtures all the way up to structural components like lumber and concrete.
“It's the way our industry has changed, and we have to adapt to it,” says Tom Poulin, owner of Poulin Design Remodeling, in Albuquerque, N.M. “I could just draw the line and say ‘We don't do any work for clients who provide their own material,' but I'd lose work if I did that.”
Still, having work is no good if you don't make any money on it. While it's probably not necessary to worry about the markup lost when the homeowner supplies a toilet paper holder — “You don't use nickels to hold up dollars,” says Candace Roseo, vice president of Premier Builders, in Wilmington, Del. — remodelers must have a plan for recovering the money they lose when their clients choose to do their own shopping on the Internet or at the local big box stores.
Off the Top One common strategy for remodelers who work off of fixed bids is to price the job as normal, and then remove only the cost of the materials, leaving the markup and price of installation intact. For example, let's say a remodeling company marks up their materials 67%, and a homeowner selects a countertop that costs $1,000. The remodeler would add $1,670 for the countertop to the job cost, and then subtract the actual price of the material, leaving the $670 markup in the contract to cover overhead and profit.
While some homeowners no doubt understand the ins and outs of business, quite a few don't, and won't really understand what's going on, even when it's explained to them. The good news is that they've been given a price, and they've seen the cost of the material subtracted from that price, so they assume they've saved some money.
If homeowners do ask for a line-by-line breakdown of their project, it is up to the remodeler to use his best judgment on how to handle the situation. John Tyksinski, owner of Right Choice Remodeling, in Kirkland, Wash., says he tells his more inquiring customers that “I do work off of fixed bids. If I bid a job at $46,000, and you get a bid from another company that is $52,000 or $38,000, what difference does it make which portion is labor and which is material? You're still paying X amount of dollars for X amount of service.”
Be-laboring the Point While it seems that a majority of remodeling companies account for their overhead and profit by marking up both materials and labor, there are a significant number of contractors who leave material costs alone and put all of their burden into labor. Because the main motivation for tackling pricing this way is to make money on even the smallest of jobs, it works pretty well on BIY projects.
Bob Siegfried, owner of Siegfried Construction, in Grove City, Pa., is one such contractor, though he didn't always price that way. Years ago, he had back-to-back jobs, each with a cost of about $10,000. One was a replacement window project; the other was rebuilding an elaborate redwood fence. The window job was heavy in material but light in labor, while the fence took many hours to complete, but with very little material. “When I was all done,” Siegfried says, “I didn't make any money on the fence job, but I did on the window replacements.”
Many BIY projects fall under the “light material, heavy labor” category, so it's easy to lose money on them. “The only way to protect yourself from BIY people is to put all your markup in labor,” Siegfried says.
Siegfried also does a fair number of very small repair-type jobs, and for these, he charges a $38 service fee to get his employee to the site, and then $55 for the first hour and $50 for each additional hour.
This type of pricing works for BIY, too, for small jobs that include the installation of just one or two items, and in situations where people want to add things once the project has already started. “People know what a furnace costs, so you can't mark it up 67%,” Siegfried says. “But I can sell $50 an hour, because labor rates are the same everywhere.”
Donna and Riley Shirey, owners of Shirey Contracting, in Issaquah, Wash., take a similar tack. A couple of years ago, they decided to supplement their $2.5 million full-service remodeling company with a handyman division that is aimed at the BIY customer. The hourly rate for Shirey Handyman is $85, more than 50% higher than the hourly rate on the contracting side of the business.
Make it Work for You The conventional wisdom is that BIY jobs are a royal pain for contractors and should be avoided if at all possible. These days, however — with more clients supplying more and more materials than ever before — remodelers are finding it harder and harder to say “no” to them.
For many, it's a customer service issue. “My customers like [that I allow them to supply their own materials],” Tyksinski says. “They haven't talked to many contractors who would allow them to do that.”
Jim Pittman, owner of Kelly's Building Maintenance, in Fremont, Calif., points out a long-term benefit of allowing clients to provide their own materials. “It's not a good thing to go into a project, install all of this stuff, take your markup, and then have someone come to the customer and tell them they could've bought the materials online for 40% less.”
After all, the client is trying to save money, and by cooperating in this way, you're helping them out.
So while some remodelers do the best they can to talk their clients out of buying their own stuff, others take it as part of doing business and point out ways in which it is beneficial.
Good for All Poulin, for one, says you can actually mark up your labor and materials more when homeowners supply items like appliances, plumbing and lighting fixtures, and cabinets. That's because the overall price tag on the job will still be smaller. “They already have a perception that they're saving money,” he says, “and that does give you the opportunity to charge more.”
For smaller remodelers, the under $1 million crowd, BIY jobs allow for greater flexibility, because the contractor's money isn't tied up in materials for one job.
Jack Nichols, a recently retired contractor who was in the business for 30 years, says that if he was building three spec homes at once, he'd have as much as $150,000 tied up. For a company with an annual volume hovering around $1 million, that's not exactly small change. So he encouraged his customers to supply the materials themselves. “I didn't have enough money to bankroll all of these projects,” Nichols says. This way, he wouldn't have to borrow money and pay bank charges or interest on the loans. “I could go build a house with less than $5,000 in my pocket,” he says.
Shirey Handyman, with its graduated labor rate, has a business model that fits perfectly with the BIY customer, and so they too encourage their customers to supply the materials.
The same goes for Pittman. He's pretty much a one-man show, and like many remodelers in the same situation, he'd rather not spend his limited time schlepping back and forth on materials runs. “My work is in the art of putting this thing in, and making it look good,” he says. “I don't want to be a shopper.”
Roseo feels the same way, although to a limited extent. She specifically prefers that her clients select their own electrical fixtures. “You really need to see and touch them,” she says. “A picture usually doesn't do it justice.” Plus, it saves her the hassle of making those selections herself.
“If you want to give yourself a headache,” she says, “a good way to do it is to try and pick pendant lights to hang over the island in a kitchen.”