By REMODELING Magazine Staff. Large jobs demand smaller margins We're wrapping up a $1.2 million job. Our normal size is $400,000 to $600,000, but we get jobs less than $100,000, too. With that mix, I need different programs for different projects. I'd love to say no to this question, but the reality is when you get into upwards of $600,000, the homeowners--lawyers, bankers, all tough negotiators--are looking for deals. It's the American myth, volume buying. If they have a large project, they expect a better deal. That's also set by competition. We aim for a 40% markup to produce a 28.5% margin, but there's no way I'm getting a 1.4 markup on an $850,000 job in my market. I did a $1.3 million job at cost-plus. If I had been doing it with a fixed bid, 20% gross profit wouldn't give me wiggle room to cover unseen contingencies. But on cost-plus, I don't have contingencies. What we're billing is what we're making. Other benefits help recoup profit With about half of my clients, I work on a cost-plus basis. I have a fixed labor rate, which is loaded, so I get back a couple points on the margin. The markup is explained and could be negotiated, but it never is. We mark up at 1.33 to 1.45. Smaller jobs get a higher markup. The lowest I would charge would be 1.2 for a large job. The main reason I'm comfortable with larger jobs carrying less markup is the marketing leverage I gain. With big jobs, the crews get pride of ownership, transforming a house over eight months. Then it's there for the community to see. When Client A speaks to Client B and they're in love with my lead carpenter for X and Y reason, it's because he formed a relationship over that job. You can't discount the value of that. --Don Strobel, CR, Strobel Building, St. Petersburg, Fla., Big50 1999 Size doesn't matter My jobs range from $500 to $500,000. Gross profit margins need to be 35% to 38% on average, and go up to 40% or more. For larger jobs, if you go in at a lower margin, you're already down, because you're lucky to produce at those margins. On bigger jobs, there's always the slippage factor. There's a greater risk with bigger jobs. The exception would be if I got a subcontracted job for a $30,000 roof. Then we might go with a lower margin, because there's no real oversight and not much risk. But when you're doing a remodeling job that's multi-trade and you have your own people running it, that's when you really need to be quoting those jobs with markups at 50% to 60%. You have to get so much for the sales function, the design function, the lead carpenter. Your margin is really a personal business decision based on your business plan and your break-even numbers. Stick to your guns Not only does your company's financial health depend on your gross profit, but when you have salespeople whose compensation is based on hitting a 35% margin, that salesperson may be looking at making less money if you charge less. Plus, my production manager's compensation is tied into gross profit, as well. If someone says they can do it for less, they have a different business plan or setup. Some guys mark up materials and subs 20%, mark up labor 100%, and still average out at "X" margin. A lot of margin setting is looking at the client and the job, the complexity or simplicity of it, how much you will be there, and how much service you'll provide. If there are obstacles, I need more margin. --Tim Englert, CR, Tim Englert Construction, Wadsworth, Ohio, Big50 1991
