BOB PETERSON Associates in Building & Design
Fort Collins, Colo.
Big50 2005

We list our allowances in our contract without markup included, or in many cases we simply list them at retail cost. The reason we use the retail price is because many clients today are shoppers, and when they shop they are comparing retail prices. We want them to compare retail to retail and not get fixated on markups. If we send a client to a plumbing wholesaler they get a retail price from that retailer, and we base our allowance overage on that difference.

We do mark up allowance overages. The amount depends upon three things: Is the additional cost just administrative? Does the additional cost require a lot of additional installation and supervision? And, finally, what is the timing of the change in the allowance — has a product already been ordered? I believe there must be additional markup. You will ultimately be held responsible for any warranty items and will have to replace them with like materials.

BOB CONNELLY R.L. Connelly & Co.
Big50 1999

Our allowances are presented to the client at full face value with the markup on the allowance added “below the line.” If the client exceeds the allowance, then a margin is added only to the overage. This is spelled out in the initial agreement. If the client does not use all of the allowance, then no margin is extended in the credit.

DEBRA MOORE Custom Design/Build
Ann Arbor, Mich.
Big50 2005

Since jobs and clients vary so much, the key for us is to have a flexible system.

Our basic method is to show a 20% to 30% overall markup (depending on job size) on all costs and labor as a separate line item at the end of our budget, where all line items above are marked up equally. This allows clients to be clear on what the overall job markup is and to feel that they're being kept in the loop. If we're in competition with other builders, the markup we show is consistent with or close to what the others are using.

Since some allowances are shown at cost, to get us to a reasonable overall margin for a job I mark up other selected individual line items — namely labor, material, and subs — as needed. These individual line-item markups can be anywhere from 0 to 100% depending on the item, the client focus, and what the market will bear.

Allowances that we typically show at cost include plumbing and electrical fixtures and cabinetry. This simplifies the selections process and allows me to show clients our quote directly from the supplier.

DENNY CONNER Conner Remodeling and Design
Big50 2005

We do not mark up allowance numbers that are stated in our contract, but we do mark up any amount over the allowance by a formula stipulated in our construction contract.

GREG HARTH Harth Builders
Spring House, Pa.
Big50 2004

We have struggled with this issue off and on for the past five years.

Recently we elected to only mark up the original allowance in the contract and to charge customers cost only for actual selections. This change was prompted by a recent client who expressed a lot of heartache over what finally amounted to $100 of total markup after all selections. We realize our processes are somewhat exposed for someone choosing a high-end product over basic products under our warranty, but we feel that by showing our true costs the client can be more confident understanding the selections process and have less reason to distrust our business model.

MARC RIDENOUR Natural Breeze Remodeling
Lawrence, Kan.
Big50 1990

I do not show a markup amount in the allowance figure that the client gets. I do, however, include the entire allowance when I mark up the overall job — usually by 67% to 75%. The allowance amount is then easy to understand; if the homeowners go over, they pay the difference without any additional markup. If they run their allowances way over, I figure there are other areas —such as change orders — where I can recover the lost markup. If they are under, they get the difference back, but without any refunded markup.