Small Jobs Add Profit

There is plenty to worry about when you take on any project — so it had better be worth your while in terms of profit. That's pretty much the thinking when remodelers are asked about whether they accept small jobs. “It's difficult for a company over $1 million to make money at it. I just can't make the margins I need,” says Brian Nobile, whose company, in Branford, Conn., will do small jobs for existing clients but will pass on others. That, of course, means that Nobile and many other remodelers are giving away jobs — and possibly future larger jobs.

Nobile goes on to qualify his remark: “I just can't make the margins I need, based on the way I'm set up.” Therein lies the key. Being prepared and having the right systems in place can help make small jobs pay.

Small jobs are, of course, different for every company. They can be small in size, scope, cost, or the amount of time they take. But whether a $5,000 job or a $50,000 job is what you consider “small,” efficiency seems to be the way to make such jobs profitable. And efficiency must be built into every step from sales through estimating and production, since the details — such as billing, meetings, and scheduling — of any job are the same, regardless of size. Obviously, spending 10 hours estimating a two-day job will eat into profit, while those same 10 hours on a three-month job will give you a better return on your investment.

"If a small project is to be successful ... involve as few people as possible." =- Ed Roskowinski, co-owner and general manager, Vujovich Design-Build

Photo Credit: Travis Anderson / WpN

Dale Nikula, owner of Encore Construction in Dennisport, Mass., took on small jobs for years only to stop because he didn't have the right systems in place for estimating and quickly turning those jobs around to get them into production. “We had unhappy clients,” he says. Nikula began sending people to local handymen. But at some point he realized that he was giving too much away. He also felt that he was losing touch with clients, “getting away from ‘once a client always a client,'” he says.

Because he had systems for his larger jobs, he was able to streamline those practices to make small jobs possible and profitable. He created a separate small-jobs section in his company. Called the “property management division,” it focuses on jobs under $75,000, not including kitchens and bathrooms. “With those, you have almost as many subs as you would with a full-scale remodel,” he says.

Jobs under $20,000 are usually done on a time-and-materials basis. The company uses a 2-page contract as opposed to the 15-page contract it uses for larger jobs. On large jobs Encore Construction holds a production manager meeting, a turnover meeting, and a pre-construction meeting. “Those meetings don't happen on the smaller jobs,” Nikula says. “Instead, our small-projects manager meets with the salesperson to review the project folder, which includes the proposal, the budget, and other relevant information.”

Limiting the number of meetings to “one and not more than two prior to starting the work,” is important, says Ed Roskowinski, co-owner and general manager of Vujovich Design-Build, in Minneapolis. Like Encore Construction, VDB uses short-form contracts, and although the company uses Sage Timberline software for estimating and accounting, it cut down on data entry and other administrative work by hand-writing the estimate and scope for small jobs and sending out only one bill for a final payment. (Clients give a down payment up front.)

"And for every eight hours we're going to be there, [we add] in one hour for extras." -- Alan Hanbury, co-owner House of Hanbury

Photo Credit: Peter Svarzbein / WpN

In terms of production, at Encore Construction, one project lead oversees all the jobs, maybe eight at a time, with two or three carpenters from the property management division doing most of the carpentry. Because there is a separate division, with dedicated staff, Encore Construction is able to schedule small jobs independently of larger ones.

VDB, which doesn't have a separate division for small jobs, uses a lead carpenter who manages the job in the office and on site. “If a small project is to be successful, you need to involve as few people as possible,” Roskowinski says. VDB's lead/project manager goes on the initial sales call, puts together a work order, gets the contract, orders material, does all carpentry-related work, and collects payment.

Although efficiency is necessary, it's not enough to look at these jobs as smaller versions of larger jobs. Ten $5,000 jobs don't really equal one $50,000 job. To send out 10 times the number of bills or pay out 10 times the number of accounts payable receipts is a lot of work. You have to build in all your costs, and margins must be higher than they are on larger jobs. Otherwise, there's slippage.

“We spend maybe 18% of our time staging jobs — bringing stuff from our office, setting up, and cleaning up,” says Alan Hanbury, co-owner with his brother Bob of House of Hanbury, in Newington, Conn. “There's also premises protection either every day or for the duration of the job. A dust wall, maybe. Fans in the windows. Dumpsters and trash hauling. Demolition disposal can be a huge fee. If we deal with architects or engineers, we'll put in extra for the costs involved for downtime in which we're waiting for decisions to be made. And we include a small fee for the amount of time it takes to do the estimate,” says Alan, whose company doesn't have a separate small jobs division and works those jobs into the regular schedule. “Customer conversations, that's a cost. You need to put in three hours a week for client consultation. If you don't put that in your estimate, that's slippage. There are seasonal costs, too,” he adds. “Sometimes we have to shovel snow. We have to put down wood on the grass each day and pick it up at night. We may put in extra flooring on a second-floor job or we have to buy [an expensive new] blade or bit.” Everything needs to be accounted and paid for. But you also have to follow through. “Make sure you're actually holding their hands for three hours if you're putting it in the estimate,” Alan says.

Usually House of Hanbury charges between $90 and $100 an hour for labor only, which includes burden. Everything else — materials and subs — is marked up. “And for every eight hours we're going to be there,” Alan says, “Bob adds in one hour for extras.”

“It's easy to lose money [on small jobs] because you'll underestimate how long [jobsite tasks] will take,” Nikula says. “Someone will inevitably show up and not have what they need. Something will be missed in the estimate and have to be picked up at a lumberyard. You need a higher markup than usual to make up for these inefficiencies.”

To avoid extra trips, the Hanburys have “a truck loaded with lots of little things,” Alan says. “If you have to make [and charge for] frequent little trips, people won't want to pay you,” says Alan, who has his crews save small leftover items from other jobs to leave on the truck.

Overall pricing for small jobs is difficult because there is a fear that marking up a project to a level where it pays as much as a larger job will scare off clients. But you must have higher margins to absorb more infrastructure. “The trap that many remodelers fall into is that they're shy about charging what it takes to support the infrastructure required to build a small project,” says Matt Plaskoff, owner of Plaskoff Construction in Tarzana, Calif. Yet Plaskoff's clients readily pay his fees because they want the customer service his company offers. “If the clients aren't willing to pay, they run the risk of working with someone who doesn't have the infrastructure to do the job properly, and that's where you hear the horror stories,” Plaskoff says.

"It's easy to lose money [on small jobs] because you'll underestimate how long [jobsite tasks] will take." -- Dale Nikula, owner, Encore Construction

Photo Credit: Rick Friedman / WpN

Several years ago Derek Reijnen, owner of The Reijnen Co. on Bainbridge Island, Wash., broke away from the usual method of adding markup. “Looking at markup in the conventional way — volume for the year and overhead expenses and how much profit we need — doesn't speak to the time-value of money. We thought it would be more functional to look at the most significant resource constraint we had, which was the super's time, because of the way we're structured,” says Reijnen, whose design/build company assigns one superintendent to one job at a time.

“The thinking is that a given markup should be the same in all cases,” Reijnen says. “But job ‘A' may be more efficient and may be being produced more effectively than job ‘B.' You need to figure out the duration of a job and how much of your resources it consumes. Jobs of shorter duration end up being a bit cheaper than jobs with longer duration.” Reijnen calculates pricing by dividing the gross profit he is aiming for by the number of superintendents to learn how much gross profit each superintendent must earn per year. He takes that figure and breaks it down by working days. “Each day is an effective day. If jobs take too long, we lose margin; it thins out billables through the month,” he says.

Most remodelers will do small jobs for existing clients but not for new clients. Yet there is potential for small jobs to generate more business down the line. “For past clients it's more of a service or marketing thing. We'll do a job as small as $500 for a past client,” says Roskowinski, adding that his company will do jobs as small as $5,000 for a new client who lives within VDB's key market area. “We're full-service. They'll probably have some projects down the road and will consider us when something bigger comes along.”

But it's important, Plaskoff says, not to try to be all things to all people. “When I tried to be a small-project guy with a large-project business it was unsuccessful,” he says. “To try to manage small projects the same way you manage large projects is a recipe for financial disaster.”

Like Nikula, Plaskoff found that he needed to develop a separate infrastructure for small jobs (not those jobs that he slips in for previous clients). In his case, it is a completely independent one-week bath company, which completes nearly 20 projects each month. “The small projects require different pieces, more people in the sales team, more front-end stuff. If a job runs for six months you don't have to replicate it as often,” Plaskoff says. His business prospers because he has trained teams of employees to follow processes and systems that can be repeated.

Plaskoff also knows his limits. “Projects that range from $30,000 to $150,000 or so are in the no-man's land for us,” he says. “I'm not geared for either of those. Baths start at $10,000 and go up to $30,000 or $40,000.” His large projects range from $200,000 to millions of dollars.

At VDB, Roskowinski says they've talked about creating a small-jobs division, but “it's not something we necessarily want to build a portion of our business around,” he says. “As long as we can successfully pull off these projects, and do so profitably, we don't feel there's a need for it. We don't want [small jobs] to be that significant an amount of our prodfit margin.”

Fortunately, or unfortunately, Nikula points out, “the more small jobs you do, the more small jobs will come your way.” And in the current economy, remodelers are seeing their average job size decrease. “We're getting fewer calls for really big jobs, and more calls for small jobs,” Nikula says. If that's truly the case for the next few years, it's time to prepare to do what you can to make those small jobs profitable.