Most remodelers base their margins not merely on what is required to cover overhead and profit, but on what the market will bear. In a competitive market, they may need to cut margin to win the work. On the flip side, the busier they get, the more they can charge. Some remodelers also raise margins on small projects. But what about the opposite? Do remodelers ever reduce margins when projects get very large?
One East Coast remodeler (who asked not to be named) says his company cuts gross margins from 30% to 20% for jobs over $500,000, and has gone as low as 15% on million-dollar jobs. The same company marks up materials by 50% on smaller jobs, but just 30% on big projects. And it often lowers the size of markups for higher-priced items.
Other companies maintain their margins but vary markup to offset cuts in one place by raising prices in other places. “I don't have to bid against other companies, so I work with fairly high margins,” says Eric Borden, of ESB Construction in Toms River, N.J., whose oceanfront projects average about $1.4 million. Borden uses line-item contracts that specify the price of each item. Sometimes the perceptions of his customers, most of whom live out of town, force him to lower the markup for a particular item. “I might take a lower markup for roofing and push up the labor costs on the installation the siding.”
Other remodelers demand the same gross margins everywhere. “I don't buy the idea that you should have to take a lower margin for a bigger job,” says Craig Lord, who owns R. Craig Lord Construction in Moorestown, N.J. “A $300,000 remodeling job may take me a few months, but I might be on a million-dollar job for a year. I still need to cover my costs from month to month, so why should I take a lower margin?”
Lord admits that there are times when he has no choice but to vary his markups. “If I'm installing $50,000 worth of cabinets, I might lower my markup to the retail price. I might do something similar if I'm paving a driveway, because the customer can always get someone else to come in and do it.” In the end, the payoff from keeping control of the job outweighs the lost markup.
Charlie Wardell is a freelance writer in Vineyard Haven, Mass.