Chapter 1
Looking at Markup in the
Construction Business
For years I've looked for a good book on how
to establish markup for a construction company, or on how to deal
with problems I've had with markup. The books I needed didn't exist,
so I decided to fill that void. I wrote this book simply because
this information is needed. Yes, you may be able to find an
occasional article in a trade magazine that covers markup and its
associated problems, but you'll never find one that goes into any
depth or covers the theory that I'll cover for you here.
I chose the title of this book with care. When
you've finished reading it, I guarantee that you'll thoroughly
understand what markup is and how to arrive at it. And more
importantly, you'll know how and why you should apply it to your job
costs to arrive at the right sales price for your work. The
information in this book can all be backed up with simple
mathematical principles or formulas. Although some of the material
may seem like it's nothing more than my opinion, believe me, it
isn't. I haven't been standing in a college classroom lecturing
about something I've never done - I'm a mud-on-my-boots contractor.
I've probably crawled further under a house than most contractors
have traveled away from home. I have, along with a number of other
very good contractors, paid the high tuition fees at the School of
Hard Knocks to learn the information that you'll find in this book.
Construction contracting as a business has the
highest failure rate of any business in America today. According to
Dun & Bradstreet, the U.S. Dept. of Commerce and all the available
statistics, the odds for success in this business are stacked high
against you. If you're under the delusion that statistics only apply
to the other people in this business ... you'd better keep reading.
I wrote this book specifically to enlighten those of you with that
attitude.
Does this mean you're bound to fail? No! You
don't have to be a victim of this high failure rate. In fact, you
can avoid it altogether if you have the discipline to learn a few
commonsense things that the professionals in the construction
business do on a daily basis.
I used to feel sorry for contractors whose
businesses failed. But I don't feel that way anymore, and I'll tell
you why. There are statistics readily available that show clearly
why those contractors failed or went bankrupt. The facts, figures,
and information about business failures are there for anyone willing
to invest a little time and effort to evaluate it.
In this book I'm going to tell you how
successful contractors work. You'll hear their stories: we'll
discuss their triumphs and their occasional failures. You may be
surprised by some of the clever approaches these con- tractors have
taken to solve the same problems that you've faced. You'll learn
their methods for success, and when you finish this, you should be
able to apply those methods to aid in your own success.
Speaking of learning, you'll find that
continuing education is one of the key elements that all successful
companies have in common, whether they're contracting businesses or
other businesses. So give yourself a pat on the back for taking the
initiative to better yourself by reading this book. You've already
crossed the biggest hurdle of any learning process - get- ting
started. Statistically, if you're already a contractor, you're one
of approximately 4 to 5 percent of all contractors that work at
improving their companies through an ongoing process of education.
We'll talk some more about that later on. Right now, let's begin
that education.
So You Want to Be a Successful
Contractor
Some of you may not be contractors yet, but
you think you'd like to be. That's admirable. It shows energy,
initiative and hope of self-determination - all very good qualities.
You want to get out of the daily grind of working for other people,
and direct a good company that does lots of business and puts the
profits in your pocket. You want to make some good money!
The goal (the fancy phrase would be "the
mission statement") of this book is to review the basics of what it
takes to survive in the residential construction business. More
specifically (and more importantly), you'll learn how to think your
problems through, get paid, and make a profit. You can sell
all the jobs available in your area, remodeling or new home,
residential or commercial, but if you don’t get paid adequately
when the jobs are completed, your efforts are wasted. Making a
profit is what this book is all about.
I've gathered the information, problems and
solutions used in this book from people in the same business
situation that you're in. They get up every morning to face the same
problems that you do. I've made about every mistake anyone can make
in this business - and several more than once. Unlike many of the
so-called "industry experts" that are quick to tell you how to run
your business, you'll find that the help offered here is both
practical and timely. It works in today's business world.
In 1988 1 had the opportunity to talk with
Dave Sauer, the former owner and CEO of Qualified Remodeler
Magazine. During our conversation he said, " . . . the American
public today is getting the biggest bargain in history when they
contract with most contractors to have work done on their homes.
Contractors simply do not charge enough for what they do." Those
words are just as true today as they were then. And, contrary to
what many people think, this applies to commercial construction as
well as residential construction and remodeling.
If you read this book cover to cover, and
work the problems, when you finish you'll know what you should
be charging for your work. Additionally, you'll have had the benefit
of my advice as well as that of a number of other successful
contractors on what it takes to survive in this business. The
construction business is very demanding, but it can also be very
rewarding. Do you have what it takes? Let's take a look.
Five Basics for Survival
In my opinion, there are five basic criteria
that you should meet before you venture into your own construction
business. This applies to anyone who wants to build new homes or
commercial buildings, do residential or commercial remodeling, or
develop a specialty contracting business like electrical, plumbing,
drywall or roofing. If you don't meet the criteria out- lined, then
you'd better have a very compelling reason to pursue a goal as
difficult as starting your own construction company. As Michael
Gerber says in his great book The E-Myth (the next book you
should read), there's much more to being in business than simply
being a good technician.
If I were going to lend you the money to start
a new construction business, here are the business basics that I
would expect you to have:
- A journeyman’s level of competency
- An understanding of the sales process
- A commitment to education
- An understanding of markup
- A readiness and willingness to work
hard
A Journeyman’s Level of Competency
Although not mandatory, you should have at
least a journeyman's level of competency in one or more building
trades. That means at least four solid years working at a particular
trade with people who have been well trained and know what they're
doing. As a company owner and employer, you should be good enough at
what you do to teach others. You want them to be able to rise to, or
exceed, your skill level. Part of being in business is being a good
teacher. But if you're not competent at what you do, no amount of
teaching skill will overcome that deficiency.
What about those who attempt to get into
construction without a trade background? While it's true we get many
construction workers who are also teachers, firefighters, janitors,
college students, lifeguards, and from other professions that don't
require them to be on the job 9 to 5, few of them survive if they
attempt to become contractors. They may have strong backs and good
business management skills, but they don't have the necessary
practical work experience behind them to succeed as contractors. So
i you re among those ranks, review your assets carefully. It'll take
a ton of them to make up for your deficiency in good trade skills.
An Understanding of the Sales
Process
"Nothing happens until somebody sells
something." When you start your own company, you're in sales
whether you like it or not. You need to have a good understanding of
the sales process. I've taught sales to literally hundreds of people
involved in the sale of construction services, either in new homes
or remodeling. Working with and watching those people has shown me
that it takes at least five years of full-time selling to really
under- stand the sales process.
Zig Ziglar, noted sales and motivational
trainer, says that selling is the highest-paying hard work and the
lowest-paying easy work that you can do. If you start a company of
any kind, you have lots of sales work ahead of you. In order to make
money, you must be able to sell your product. When you combine the
energy that you need for sales with the work involved in starting
and/or running a business, you have your plate full!
A Commitment to Education
You should have an ongoing commitment to
education. Knowledge, like the pursuit of perfection, is a lifetime
endeavor. To be a successful con- tractor, you must be a student of
both construction and business. If you haven't read at least one
book in the past 30 days (not counting this one) on a subject
related to your particular trade or business in general, you
probably haven't yet made this commitment.
An Understanding of Markup
You should have a thorough understanding of
good accounting procedures and how they apply to your company. Even
more important, you need to really understand how to establish and
maintain the correct markup for your company. If you don't know the
fundamentals of how to arrive at the right sales price for your
work, you probably won't survive in the construction business.
It's now time for the first of many gut checks
that we'll do in this book. How do you establish your markup?
Right now, in one simple sentence, write down the correct
formula that you think you should use to establish your markup.
Let's see if you know as much about markup as you think.
Even if you're not sure of the correct
formula, write down your best guess. After you've written it down,
set your formula aside. We'll check it a bit later. Few contractors
know the best way to establish their markup. But if you're not using
the right method, don't worry - at least not yet. You're reading
this book to learn how, and that's good. By the time you finish,
you'll know the subject inside and out.
A Readiness and Willingness to
Work Hard
The final building block to making your
business a success is simple hard work. You'd better be ready and
willing to put in at least 60 hours a week for the first three to
five years. That's right: 60 hours, minimum. Of course, you
might be good enough that you do everything right the first time.
Then you can cruise through 40 hour weeks. But don't count on it. In
my 30-plus years in this business, I've yet to meet anyone who's
started and developed a successful company by working less than 60
hours a week. You think having your own business means you sit back
and watch the money come rolling in while your employees do all the
work? Dream on!
Honesty and Attitude
Those are the five basics for a successful
start in the construction business. But there's more to it when
you're working with people in a service capacity. You also have to
have some good people skills. So if you add honesty and the right
attitude towards people to the list you're ready to make a good
beginning.
Honesty
In contracting, as in other businesses, there
are always a small percent- age of people who don't do business with
candor and honesty. We read or hear about home improvement scams on
a regular basis, and you can drive through new subdivisions almost
anywhere in the U.S. and find owners suing builders because what was
"promised" wasn't what was delivered.
Briefly and to the point: To be successful,
you must conduct yourself and your business in a manner beyond
reproach at all times. For peace of mind, for the acceptance of the
people you work with and the people in the community that you work
in, there's simply no other way to do business. You've heard the old
saying, "You can fool some of the people some of the time . . ." and
so on. It's true. I've never, in all my years in the business, found
any individual or company to be successful if they were anything
less than completely honest.
This is the second gut check. Only you know if
you're using a completely honest approach to your business and your
life. As Zig Ziglar says, "honesty is what you do in the dark." Make
sure your business practices can stand up to the light of day.
An Example of the Attitude of
Success
Now I'll give you an example of the "attitude"
that I think you need to make it in the business world. This is a
very short story about a beautiful lit- tle lady who owns a bakery
in the seaside community of Lincoln City, Oregon.
Recently, my wife and I took our two daughters
to the coast for the weekend. I have this belief that every good
contractor, husband, father and lover should have a sweet roll on
Saturday mornings. It gets you going, keeps you sharp, freshens your
breath and helps put you on top of things. On this particular
Saturday morning, I was up at 6:00 a.m. so I could read a bit as I
do most every morning, and then I jumped in the car and drove down
to the local bakery. I arrived at the bakery at 6:45 a.m. (please
note the time) and was greeted by a charming lady with a radiant
smile. "Good morning! How can we help you?" She obviously wanted to
help me get my day started right. I paid for my rolls, received a
nice "Thank you!" and went back to our motel room and the eager
appetites of my family. We had a fine day, with walks on the beach,
shopping at all the junk and antique shops in town, a short nap, a
nice run on the beach, and dinner out!
"Education is one thing
that successful contractors have in common."
We drove by the bakery on our way back to the
motel after dinner. I decided to stop to see if they'd be open on
Sunday morning. The sign said they were open 6:00 a.m. to 6:00 p.m.,
Sunday through Saturday. Without my knocking or in any way trying to
attract attention to myself, the woman who had waited on me that
morning noticed me and came to the door. Even though it was 7:15
p.m. and long after closing, she opened the door and asked if she
could help me. I told her I was just checking the store hours, and
that I'd be back the next morning to get more sweet rolls. She
invited me in. "Come on in and get your rolls now. It'll save you a
trip here in the morning." She'd probably been there since before
6:00 a.m. that morning and it was after 7:00 p.m., but she still had
the same smile and the same beautiful attitude. That's what it takes
to be a success! This is a business owner with the correct mindset:
she loves her business and enthusiastically serves her customers
without even thinking about it. There's no way that she or her
business can fail.
The question is, can you run your
business and serve your customers in the same way?
This is another gut check. By the way, a gut check is a kind of
yardstick that you can measure your own work and your own company
against. I'm simply giving you an opportunity to see where you are
in the general scheme of things. So how do you measure up? You're
the only one who'll ever know if the measurement is accurate and
acceptable. If you're 100 percent honest with yourself, you already
know the answer.
Do You Have a Great Future?
If you don't measure up to these standards,
what are you going to do about it? The first thing is to finish
reading this book. As you read, map out a course of action to learn
the things you don't know so that you'll meet those basic standards.
Then follow up and take that action. Finally, when you're
really ready, get your license and get to work. You'll have a great
and profitable future ahead of you.
If, on the other hand, you insist on getting
into the business without meeting the standards, be prepared to join
the ranks of contractors that fail. You'll have plenty of company.
Why? Because too many contractors go into business without the
proper preparation and background. In a nutshell, they don't know
enough to charge the right amount for the work that they do. Knowing
how to build something is less than half the knowledge
you'll need to do business and make a profit in construction. You'll
do fine working for someone who does, but the odds are against you
making it on your own.
Education
Education is one thing that successful
contractors have in common. It's something they all pursue. And the
older I get, the more I believe that it applies to all aspects of
life, both personal and business.
There's more to education than sitting in a
classroom at a school. You're in a classroom every day of your life.
Unless you're independently wealthy, the grade you get in that
classroom is the money you take home from your job. I've often had
salespeople ask me how they'll know when they've become a "good"
salesperson. The answer is very simple - you look at the W-2 you get
at the end of each year. Your taxable income says it all! That's the
number that counts. That's how good you are. You can apply that same
measurement if you own and run your own business.
I believe it's almost impossible to read a
book, or a magazine, or a newspaper article and not get at least one
idea that you can use in your business. Not all the ideas are great,
but if you find just one good idea that you can use, your time will
have been well spent. We'll continue to talk about education as we
go along. By the end of the book, I hope you're convinced of the
importance of education.
And If You’re Already a Contractor?
If everything were perfect in your world, you
probably wouldn't have bought this book. So let's be honest here.
You've reached the conclusion that you need some help, and made the
decision to seek it out. Good for you! You may not find all your
answers here, but you're on the right track.
Build on the experience of the contractors
we'll discuss in this book to help you solve your problems.
Make no mistake, everyone has
problems! So what's the difference between those who succeed and
those who don't? It's simple. Successful contractors know how to
think through a problem to get to the root cause, and then they
deal with it. Those who become statistics try to deal with the
result of the problem without effectively eliminating the cause.
They get by, often thinking that if you ignore something long
enough, it'll go away. And it will - along with their business.
Keep an Open Mind or "Attitude
Adjustment Time"
The attitudes and dispositions of contractors
are fairly typical. Would you find it surprising if I told you that
most of the folks in contracting have strong egos, are independent,
and want to be self-directed in their business? It's true, you know!
Some of us might even be accused of being stubborn! This is neither
good nor bad, it's just the way we are - and I'm just as guilty.
This attitude of ours is the very thing that makes us want to have
our own businesses. It gives us the go power that we need
to make things hap- pen. However, it can also work against us.
In any situation, you must constantly check to
be sure that you're keeping an open mind, especially about any new
information you're taking in. And this book is full of new ideas.
All I ask is that you're open and receptive to something new. Give
yourself and this book a chance.
How do you know if you're keeping an open
mind? Here are few things to watch for:
- If you immediately start to debate my
ideas in your mind, that's a sure sign that you don't want to
let go of your thinking on that subject. Save your debates for
later, and continue on through the book. Get the whole picture
before you jump to any conclusions.
- If you find your arms folded, fists
clenched, or your -legs crossed tightly, again you may be
resisting the new idea. Keep loose, unfold and unclench, go
for a walk and then come back to it. Stay open.
- Last but not least, don't just read,
get involved. Fill in the blanks, do the problems, compare the
ideas outlined in this book with what you are doing within
your own company.
Allow yourself some time to get used to new
information. Give your subconscious mind a chance to work on the
ideas. Some of this stuff takes a while to soak in. I've been in a
state of soak for over 30 years. When you start feeling like a
sponge, then you're getting there!
Review Your Company Policies
In the best-run companies, policies are
analyzed and fine-tuned on a regular basis. Every well-run company
has a Method of Operation Manual (M.O.M.) that clearly outlines how
the company is to be managed. You may call your manual by some other
name, but if you have one, it will dictate how your company
operates. However, while working with contractors on business
management problems over the last 18 years, it's been my observation
that fewer than 6 percent of all construction company owners in the
United States have taken the time to write a M.O.M. for their
business.
Write a Method of Operation Manual
If you haven't completed a M.O.M. for your
company, you'll find it's no small task. When you try to put your
ideas in writing, you have to give them a lot of thought. Start
thinking about how to compile your M.O.M. as you go through this
book. As you come across new ideas, you can analyze them and decide
if they should be covered in your manual.
Begin the process by making an outline of your
company and how it operates. Then expand the outline to describe
exactly how each part should function. Cover all areas of your
business. Include your employees, your jobs, your customers and your
service and supply companies, and how you interact with each of
them. As you build your M.O.M., have the people in your company
review it. Everyone should be able to give you some feed- back,
especially on sections that concern their particular job areas.
A manual written in this way will give you and
your company direction and show you how to approach all aspects of
your business. You're creating a goal for your company that you
should make happen on a daily basis. It's like a road map that shows
where you've been, where you are, and more importantly, where you're
going. If it's done correctly, a stranger could take your manual and
find the answer to any question about your company or how to handle
any given situation. In short, they could run your company from your
manual.
A M.O.M. is well worth the time and effort
that it takes to put together. What kind of time are we talking
about? If you're starting from scratch, it'll probably take you up
to a year to write. If you're revising an existing M.O.M., plan on
two to three months of work.
Set Goals
Only 4 to 6 percent of the contractors I've
ever met have bothered to set goals, either for themselves or their
company. There are all kinds of excuses for not putting your goals
down in writing, and frankly, most people find them. If you've never
set goals for yourself or your company, it's time to start. There
are countless books, audiotapes and videotapes on how to do goal
setting. Just like your M.O.M., goals are a road map of where you
want to go.
Over 20 years ago, I decided to write down
everything that I could think of that I might ever want to do in my
life. I worked on this over a period of about six months, putting a
lot of thought into it. I didn't, however, put any judgments or
criteria on the items I listed; if I thought it might be
interesting, fun, challenging, dangerous, or whatever, I wrote it
down. Then I com- piled all of the various lists into 186 goals of
things I wanted to do with the rest of my life. Some years I've
accomplished two or three items and checked them off the list. Some
years I haven't completed any. But talk about fun! I even got a box
of little gold stars to put by each one of goals that I completed.
When every goal on a page is completed, I transfer the page to the
"Goals Completed" section of my Goals book. Completing one of those
goals gives me almost the same feeling as selling a remodeling job
for $350,000 and knowing I'll make at least a 10 percent net profit
on it no matter how the job turns out.
Set your goals, at least for your business. It
will be the best investment of your time you'll ever make.
Start a Checklist for Making Money
You wouldn't think it's necessary to develop a
checklist for making money, but it is. And you have to do it
yourself No one else can do it for you because you're the only one
who knows what your motivation is. Your checklist should be
a list of reminders of what you need to do to stay focused on your
business - and you should review it each day. It's easy to fall into
the trap of doing the things you like to do instead of doing the
things that will make you money.
I read recently that one of the habits of
successful people is to make a point of doing those things they
need to do, whether they like to do them or not. That's what
sets them apart. Other people avoid doing things that they don't
like to do. Successful people don't like to do those things either.
The difference is that they do them anyway. Your checklist
will help keep you focused, and keep you doing all those things you
need to do to make money.
Here are some examples of the items I suggest
for your daily money- making checklist. Depending on your
personality and what makes you tick, I suppose you can come up with
five or six, maybe as many as nine or ten more items to add to your
list.
- I will accurately estimate each
job and apply the correct markup for that job.
This statement keeps me focused as I sit down at my computer to
compile a particular estimate for a given job. It helps me
follow our company rule that any item on the estimate sheet that
exceeds $300 must have a written quote from a specialty
contractor or a supplier. If I do that, then apply the correct
markup to the job costs, I'll arrive at a sales price that
covers all our job costs and overhead expenses and gives the
company at least an 8 percent net profit. I've estimated over
3,600 jobs, and even with that background I must guard daily
against getting lazy and taking shortcuts.
- I will focus on those things I
can control, and ignore all other distractions.
This is some advice that I've heard from several very
good contractors over the years. We've all spent a lot of years
and money learning about staying focused.
- I will focus on and do the most
productive thing I can do at each moment.
This is another one that's used by many folks in the
business. It's a favorite of Tom Hopkins, the noted sales
trainer. He recommends it to all his disciples.
- I will work a full eight-hour
productive day today.
Keep track of your time on a half-hour basis for the
next 30 days. I think you'll find that you waste a lot of your
time on nonproductive activity. I tried it once. What an eye
opener! I was spending more than half my waking hours on totally
unproductive activities. Plain and simple, I wasn't staying
focused on making money. I was doing all the fan things I liked
to do, and not the things that put bread on the table. Try it
yourself
It might take a couple of months, or even
longer, to arrive at a final checklist that's right for you. The end
result, however, is that you'll start making more money. And that's
what we're all about in this book - making money.
Fall in Love with Your Business!
One of the things that you must do to survive
in this business is to "fall in love" with your business. I don't
mean the remodeling you do or buildings that you build, but the
business of being in business. Another way of saying the same thing
would be "marry your business, not your work."
Too many people in construction get all caught
up in the "quality" of their work. They want to build their business
based on the "great work" they do. While this may be admirable, it's
nonsense! Your objective should be to provide your customers with a
good job, the job that you contract for at the quality that you've
said you'd give them. In short, you give them what they pay for.
That's a good-quality job - no more, no less. Don't be tempted to
add that little piece of trim molding around the cabinets or full
extension drawer guides to the kitchen drawers if they aren't
already in the plans and budgeted for. Sure they'd be a nice
addition to your kitchen remodel, but who's going to pay for them?
You've got to keep your eye on the budget for the job. There's only
so much money estimated for each job; when you know it'll cost more,
you have to stop! It doesn't take too many of these little "extras"
to eliminate any profit you may make on a job. If you have a good
idea for a modest improvement and you take it to the owners and
they want to pay for it, that's fine. If they don't want to pay
for the change, leave it at the quality you've agreed on, and move
on. When the job is complete, assemble the final job costs, analyze
the job, and then make any adjustments to the way you'll estimate or
build similar jobs in the future. Next time you may want to build
those little improvements into your estimate.
Many company owners pick up on this approach
quickly, while some employees don't. Watch your employees carefully
to make sure they don't spend too much time on any phase of a
particular job. They also tend to "fall in love" with the jobs
they're building. That's why it's so important to give your job
superintendent a list of the hours you estimated for each phase of
the job before you start. They need to know where they should be at
any given point of the job. That's how they know the time investment
and the dollars available to complete that particular job phase
correspond.
This tendency to spend too much time
perfecting the job is one of the reasons that I subcontract out most
of the work that's done by my own construction company. I have one
employee (my job superintendent), and he knows to the penny and to
the hour the dollars and time I've estimated for any given job. He
checks all my estimates and we resolve any and all price issues
before we give the quote to the customer. But first we get a firm
writ- ten price quote for every job cost that exceeds $300. That's
why almost every job we do comes in right on or below the budget.
If subs working on a job for us run over their
quotes, that's their problem. I'm not being mean or malicious or
unfair to our subs. We expect them to conduct their business in the
same professional manner that we do. When they give us a written
price quotation, we expect them to perform that work according to
the specifications we gave them and at the price they gave us. We
have a good working relationship with the subs we use. Normally, we
only get one quote for each specialty on each job. We don't shop
around, get three estimates, or any of the "we don't trust you"
routine that so many general contractors waste time and effort on.
We get a firm price quotation from people we trust, go with that
number, and get on with the job at hand. That way, we can focus our
efforts on getting the jobs done right and on budget.
On the other hand, some not-so-reliable
contractors compile their estimates by the W.A.G. method. (If you
don't know what that is, I'll explain it in the next chapter.) They
figure they can always browbeat a sub down to recover any money that
they lose because their estimate was too low. Or they can save money
by using lower-quality materials than they sold the customer.
"They'll never know the difference!" they say. I've even heard of
contractors who've cut 31/2-inch insulation in half, doubling the
amount of wall space that a roll of insulation will cover. That
doesn't save a whole lot, but some of these guys figure "every
little bit helps." As a last resort, they'll go back to the customer
and ask for more money to complete their job. They might even
threaten to pull off the job if the customer doesn't come up with
the money. As you can well imagine, they don't get much repeat
business.
You can get your jobs done well and
on budget with your own employees. It just takes more planning and
supervision. But don't try the excuse that you use your own
employees instead of subs because that's the only way you can
control the quality of your jobs. That just doesn't wash. If you pay
a sub for work that's a lower quality than you'd expect from your
own employees, whose fault is that? If you specified what you want
on a particular job and the work isn't completed to your
specifications or satisfaction, don't pay for the work until it's
done right. The customer certainly won't!
"I have one employee (my
job superintendent), and he knows to the penny and to the hour the
dollars and time I've estimated for any given job. He checks all
my estimates and we resolve any and all price issues before we
give the quote to the customer"
What? You say you can't find a sub who'll do
the work the way you want it done? Then keep looking for the right
sub or rethink your expectations. Maybe you expect too much. Unless
you're getting paid for perfection (and I'm sure you're not), relax
your standards a bit and get the job done. Give them a good-quality
job, keep the job moving, get it done and get out, and your customer
will be happy. The longer it takes you to finish a job, and the more
problems that arise, the less happy the customer will be with the
result - that's human nature.
So, get excited about your business, fall in
love it, but not the work that you do or the people that you do it
for. The daily mechanics of construction are too time-consuming for
the owner of a construction company to get involved in. Hire good
people and trust that they'll do a good job for you. Now that's not
to say that you shouldn't work on any of the jobs. If you like the
physical work of building, by all means, get right into it. But
never forget that you have a business to run, and that takes top
priority.
Here's a good rule of thumb that works for me
if I'm tempted to get some hands-on involvement on one of my jobs.
Let's say that I set my value to my company at $45 an hour. (That's
not the real number, but a good one for this example.) If I can hire
an individual or subcontractor to do that job for less than $45 an
hour, I do it. If the cost of that particular job runs more than $45
an hour and I have the time, knowledge and ability to do that job,
then I do it. And I smile all the way to the bank with the savings
in my pocket. Easy enough!
And the Formula Is . . .
I asked you earlier in this chapter to write
down a formula for establishing the markup for your company. Did you
do it? If you did, you passed this gut check. If you're committed to
success, you'll have your formula ready to compare to my formula.
Here's the formula for markup:
Markup = Total
Volume Sold ¸ Job Costs
This formula isn't based on my personal
opinion. It's a time-tested mathematical formula that works every
time. You can check it with any CPA, and it'll pass the test every
time. And did you notice that I didn't list any particular number to
use for markup? There's a good reason for that. Every company must
establish its own markup, using its own overhead and profit numbers.
Using somebody else's numbers for your company isn't only foolish,
it's suicidal.
To establish an effective markup, you need
to:
- Combine your job costs, your overhead and
your profit into one final figure called Sales Price or Volume
Sold.
- Use that figure to come up with a markup
that's right for your company.
- Then actually use the markup number you
arrive at.
This last area is where most contractors fail.
They know, or should know, what you need to charge for their
services, but they just don’t do it. That’s where I come in. I’ll
help you overcome any objections that you to charging the amount you
need to be successful in the business.
Read on.
>>
Back to Markup & Profit
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