Homeowners Versus Contractors

EBEBRATT-Ed

I see both side of this issue. The real problem is contractors charging for services done by unqualified technicians. I get that. No one wants to pay for unqualified help that can't fix a job.

What I have copied below is an estimate of business costs for a legit contractor I found on an electrical forum. Whatever type of contracting is involved (GC, Plumbing, heating, electrical etc) it is all the same as far as figuring costs.

I urge the homeowners to read this to understand why contractors' prices seem so high. If the homeowners went into business for themselves, they would quickly find they have to charge these prices or go out of business. Been their done that.


I don't want to get into the specific prices this guy used in his example. I may or may not agree with them. This will vary depending on where the business is operated. This is just an example of the costs incurred when operating a business in any location.

Obviously costs are different in NYC then they would be in Mississippi.


"I am a General Contractor as well as an Electrical Contractor, and as you will see, it was more geared towards the General’s, but I think it would apply equally to any type of Contractor.

Many ways to skin the cat, this is mine. 👍





HOW TO PRICE A JOB!!!!

There is a lot of confusion about how to price jobs, what markup is, what it’s for, figuring profit, figuring overhead, etc.

I have another post here about figuring markup for overhead and profit.

First, terminology is vitally important. “Profit” is not owners salary, does not go into covering overhead, does not pay for direct or indirect job costs.

Profit is purely an amount that the COMPANY makes, primarily for future growth, surviving downturns, emergencies, etc.

Profit, in the construction industry, is around 8%. That is what most should be shooting for.

Overhead, on the other hand, is a far greater number. As I explained in the other post, the two methods of figuring it are time-based, and percentage-based. I went into detail about why I, and many other successful contractors, use a time-based approach to figuring overhead, so I won’t rehash it here.

Overhead covers possibly hundreds of items. Every single thing that you must spend money on, to run your business, must be recouped. Taxes, licenses, insurance, vehicle replacement, maintenance, tools purchases and repairs, shop and office space, paper, computers, cell phone, work pants and boots, on and on and on.

You need to total all your overhead for the year. This is a constantly moving target, and you will need to constantly be revising it, monitoring it, and working it.

Take every figure you have, some will be monthly, some yearly, some bi-yearly. Come up with an amount by the year.

Here a small sample:

Truck payment: $900/month (multiply this by 12)

License: $470/ every 2 years (divide this by 2)

GL insurance: $1,500/ every 6 months (multiply by 2)

You get the drift. Now, you should have a yearly amount for overhead. Let’s say, with all this figured, you find that your yearly overhead is $76,489/year.

Now, determine how many working days you will have per year. 253 is Monday through Friday, every week, with 8 holidays off.

There will be vacation days, and many days, as a business owner, that will not be billable. If you plan to recoup overhead every single day of the year, and you end up having billable work for 200 days/year, you will find yourself woefully short at the end of the year.

I use a figure of 200 days/year.

So divide your $76,489 by 200, and that is what you need to add to your bid for each day you expect to be on the job.

That’s about $382.50 per day, just to recover overhead.

Now to figure labor: Labor for yourself needs to be figured based on what it would cost to replace you. So if a lead would cost you $45/hour, that’s where you start. Then, there is labor burden. This is payroll taxes, payroll service, and workers comp. In my area, this is about 50%. So we have $45 x 1.5. Now, you, as the business owner, spent uncompensated time selling, bidding, and running the company, so you need to make more than what a lead carpenter would make. So if you would pay a lead $45/hour, add in an extra $20/hour for you to do all the admin work. That is an amount that would pay a part time office helper.

Then your helper: If you pay him $30/hour, multiply that by 1.5, then figure an additional amount that you want to make, for having an employee. Personally I want $20/hour per employee. If I didn’t make that, it wouldn’t be worth it to me to deal with employees.

So $30/hour times 1.5 + $20. That’s your figure for your employee.

Multiply both those figures by 8, to come up with a day rate. Remember, we want day rate figures, not hourly.

So your day rate for you is $700 and the helper is $520.

Now this number is low, because we haven’t put overhead and profit in yet.

Overhead is $382.50/day. Add that to your figure, and you’re at $1,082/day. You can round that up to $1,100 if you want. That’s what you have to make every day you go to work, to break even and pay yourself.

So let’s put this all together into a sample bid for a deck.

Materials (from your take-off, everything from footings to fasteners): Your cost with sales tax: $22,498

Add 20%: This covers your knowledge of what materials to buy, mis-cut materials, the supply house being out of stock and you needing to make an extra trip, etc. $26,997

Concrete pump: $800 + 20% = $960

Subcontractor for deck stain: $5,500+20% = $6,600

Permit: $436 permit fee, + 20%, plus time to draw and submit. Let’s say 1 day. So the permit is $1,623.

Labor: you and the helper for 10 days each: 1,100 x 10 = $11,000 + 520 x 10 = $5,200, so total labor is $16,200.

Disposal costs for old porch: $200 + 20% = $240.

Let’s put it all together:

$26,997 + $960 + $6,600 + $1,623+ $16,200 + $240 = $52,620.

But we’re not done yet. We haven’t added profit. This one IS a percentage, unlike our overhead. Remember that we are shooting for 8%. So $52,620 x 1.08 = $56,819.60

Personally I drop the change. I round either up or down to the nearest $5, but that just my personal choice.

So I would submit a bid for $56,820.

I would not break anything down, I would not show overhead or profit figures, or markups or costs on materials, etc. I have done the work to figure out what it takes to run my business, and what it’s worth to me to go build your dream house, and that is proprietary information. It is my “business” alone, both literally and figuratively.

The price to do the job is $56,820. The price to not do the job is $0.

Hope this helps.

Intplm.

A very good example. Thanks for posting.

Jamie Hall

Excellent example. Do I see insurance in there? Don't know about contractors, but I can tell you from when I was a practicing engineer that my errors and omissions premium was based on a percentage of my annual gross income, and was a hefty fraction of that gross, right off the top. I always figured a rough figure for our work (we didn't have supplies, but we did have equipment and office space to depreciate) was between two and a half and three times the salary...

ethicalpaul

Why the "versus" ?

Mad Dog_2

I have my Invoice/contracts from Frank Blau from the 1990s.  It lays out ALL the hidden costs we business owners have to cover EVERY day, whether a job comes in or not.  Ill take a pic in a minute.  Mad Dog 🐕 

EBEBRATT-Ed

@Mad Dog_2

I remember the name Frank Blau from some where. I think he wrote magazine articles???

@ethicalpaul

Versus. Didn't mean to offend.

I just think a lot of HO complain about contractor prices. I get it. And no one should have to pay for incompetent or inadequate service or installation that we see on here every day.

But most HO I feel (and this is just my opinion) that contractors are way overpriced. But the HO doesn't in most cases have a clue about what a contractor has to dish out just to break even.

They feel like he just puts it all in his pocket. According to the above once expenses are covered in the construction world the average "profit" is only 8%.

I will say in the service end of the business the profit is much higher.

@Jamie Hall Insurance. Liability is figured into the overhead. Workmans comp is in the Labor.

Yes, when I was in business the insurance company want to know how much business we would do in a year. At the end of the year, they came in and would audit the books. So now the year is finished, and you did a little better than expected so they you have to pay them more.

realliveplumber

Well said. Bravo.

I cant tell you how many times I have explained this to a homeowner.

I recently had a guy who just hung up his shingle state that he had no overhead. Boy is he in for a rude awakening.

The problem is that most people have no idea what they MUST charge per hour when they start in business, if they want to remain in business, let alone succeed. All they know is that the shop they used to work at charged $XX.00, so they will charge less so they can win the bids and get the jobs. .

It is TERRIFYING when you are a new business owner just starting out, and you happen to get a hold of Frank Blaus books, and you read them, and implement them in calculating your hourly rate. Ask me how I know. It is literally almost unbelievable.

Then you double check the math and do the calculations again. And again.

You eventually realize that the shop that you used to work for doesn't have a clue, hopefully before its too late, and you wonder how in the heck they are surviving. Chances are they are working for wages, and barely able to make ends meet.

The cold hard truth is really hard to digest when you are excited to be going out on your own. I am very lucky to have found Frank Blaus books when I started. It should be mandatory reading for new business owners.

Additionally, Ellen Rohr should be mandatory reading as well. @hot_rod

I wouldn't be where I am today if it weren't for those 2 people.

SlamDunk

That is a great lesson for anyone thinking of going into business. That is why I try to get three or more estimates. Estimate numbers can be all over the place. As can the attitudes of estimators!

I have been lucky. I am mostly happy with the contractors I hired.

jesmed1

The good news is that heating, plumbing, and electrical work can't be outsourced to China. There will always be a demand for skilled tradespeople. But I get that running a business is challenging, and there will always be customers who don't understand why it costs $300 to change an electrical outlet.

For us homeowners, the challenge is to weed out the dishonest and the incompetent who give everyone else a bad name. Fortunately the Internet makes it a lot easier these days for us to sort out the good, the bad, and the ugly.

EBEBRATT-Ed

I had sort of a clue when I started my business.....at least I thought I did. My accountant told me when I started that you have to charge 3x what you want to pay yourself. I thought he was out of his mind!! he wasn't.

We (my partner and I) started our business out of my house with $10,000. After the first month I sat in the cellar (where my office was) staring at the books. The 10k was gone and we had customers owing us money (obviously) and supply houses that wanted to get paid. i was pulling my hair out.

We made it and did pretty good for 6 years until the recession hit. I was just working too many hours and wanted out. Plus, with the recession the phone stopped ringing, but the insurance and all the other overhead does not stop, and I was sitting there watching the money we saved going out faster than it was coming in. So we got out of it and closed up shop.

We had some money left to split up and we didn't owe anyone a dime. We both got jobs right away and actually ended up working for the same company together .....25 years later

jumper

Jamie Hall said:

Excellent example. Do I see insurance in there? Don't know about contractors, but I can tell you from when I was a practicing engineer that my errors and omissions premium was based on a percentage of my annual gross income, and was a hefty fraction of that gross, right off the top. I always figured a rough figure for our work (we didn't have supplies, but we did have equipment and office space to depreciate) was between two and a half and three times the salary...

Mandatory insurance encourages litigants. Insurance company simply settles for deductible. Industrial clients like SUNOCO or UnionCarbide don't ask for outside professionals to compensate for bad stuff. A work around is to pay one guy for applying bird stamp. Rest bill as "specialty service".

trivetman

In any business theres almost always an aspect of business vs client when it comes to the price.

clammy

The funniest part of it all is no matter what you charge everybody wants a deal and could care less if you lived in a van under a bridge and also want you to be chained to there equipment for life lol but in the same breathe they pay larger contractors or better yet general contractors what they want and ask no question and get completely shoddy work that usually is completely wrong but will live w it . As I get older I see that very few look for quality they think that every installer is providing that one would hope but w the drastic sliding scale of what is acceptable and what is garbage all depends on who looking at it and who is going to try and service something that zero though was giving to being they just wanted the money and really had zero plans of ever return which is fine as long as the customers aware of it which most are not . Remember perception and the eye of the beholder to which beauty is also a sliding scale said the blind man .
As for home owner I’ll deal w them over any general contractor being gc are always loaded w excuses and tales that made them unable to pay like floods locust family issues plus they want the cheapest price going being there making more then there subs are and of course they make the mark up being they do so much for there contractors . Sliding scales just like evolution amobia to chimps not much difference just some hair but the basic instinct is always the same .
Always like stirring the cauldron of jelly substance called grey matter .
Peace and good luck clammy

dko

The average customer doesn't care about any of this. You can take a loss and go out of business for all they care. They are special.

Mad Dog_2

ethicalpaul

dko said:

The average customer doesn't care about any of this. You can take a loss and go out of business for all they care. They are special.

I know! They want professional work done correctly for the quoted price, the nerve!!

Mad Dog_2

I first saw this in 1996 when I went to work for "Uncle Richard" R.S English, All Island Radiant, the most progressive shop on all of Long Island 🏝,.   His invoices were from Frank Blau (Flat Rate) Seminars which was a Watershed time for the professionalism of our industry.  This pamphlet covers it ALL. Gives homeowners alot to chew on and justifies your rate.  It also has a comment card and Coupon...7 part CC.  These puppies are about $2 bucks  apiece but worth EVERY penny. Mad Dog 🐕 

Mad Dog_2

ethicalpaul

Nice but you should ask your brochure designer for a discount for that typo 😉

KC_Jones

jesmed1 said:

The good news is that heating, plumbing, and electrical work can't be outsourced to China. There will always be a demand for skilled tradespeople. But I get that running a business is challenging, and there will always be customers who don't understand why it costs $300 to change an electrical outlet.

For us homeowners, the challenge is to weed out the dishonest and the incompetent who give everyone else a bad name. Fortunately the Internet makes it a lot easier these days for us to sort out the good, the bad, and the ugly.

Could you elaborate on your perspective on that?

I've had this discussion many times. The only way a homeowner can properly vet out a contractor is to have the amount of knowledge required to do the job on their own. Yes the internet can assist with that. Is that what you are talking about, or are you talking about reviews? If reviews, they are a slippery slope on the best day as, in large part, the people making them are not educated on the subject matter and we are back to my original point, the homeowner needs all the knowledge.

dko

You would also be surprised that googling and searching the internet is an actual skill. All that knowledge in the palm of your hand taken for granted.

Like I asked the guy which aquastat he has, was a young guy so I didn't elaborate. Posts picture of circulator and gauge. You can't be arsed to google one word and see what it looks like at least?

Intplm.

ethicalpaul said:

Nice but you should ask your brochure designer for a discount for that typo 😉

Uhh, Or that might not be a type-oh?? LOL
Whoops.

Intplm.

Mad Dog_2 said:

Wow....hey there @Mad Dog_2 Which book of Frank Blaus' is this from?

And its really nice to see these names come up again.

Ellen Rohr, @hot_rod "rocks" along with Frank Blau.

I haven't seen these names like this since the P&M magazine was coming to my door.
These folks have been a great source of information and help.

KC_Jones

dko said:

The average customer doesn't care about any of this. You can take a loss and go out of business for all they care. They are special.

No one on the planet cares how much profit any business makes, contractors aren't "special" on that front.

The profit, margins, expenses are all the responsibility of the business owner. I really don't understand why anyone thinks the customer needs to be responsible for your profits. Seriously, do you want me to run the business for you too? That's literally what you are talking about.

I work in the industrial refrigeration and HVAC market. We manufacture the equipment, we get beat on constantly over pricing, and we are competing globally for the business. We aren't just competing with who's in our region, our "region" is the planet, seriously.

It is our responsibility to have a well run company that is profitable, and as an employee owned company we all take that seriously, very seriously. We have sold 8 figure jobs with such tight margins the president of the company was sending emails to "watch the costs on everything", "review job packages carefully" so there are zero errors as anything would be unacceptable. And yet, we still get it done, and no one complains about it, because that's just business. If I didn't like it, I'd quit, I have that option.

My next point is to address the fact that everything in life is a two way street, so let's travel the street in the other direction, that no one on this thread has gotten to.

Do you guys care if I can make next months house payment? Do you care if my kids eat next week? Do you care about that for your customers the same as you are implying they should care about you? Do you care that most, if not all your customers work just as hard, and some even harder for their money?

It's not a lack of care on the part of the customer, in fact, it's quite the opposite. It's that we care if our kid eats next month. It's that we care we have a house payment due, an insurance payment, utility bills, and all the same things you have to pay for, and we have a fixed budget to work from. We care because that is our personal responsibility, not yours. So when something goes wrong unexpectedly we have to figure out where the money is coming from, but, apparently, you take issue with us trying to run our house to the best of our ability. At least that is how this comes across. Yes, I will try and shop for the best value for my dollar, not always the cheapest, but the best value. If I can spend a bit more, but know it will last longer, I will do that. If I think you will do the best, of course I may suggest a better price, you can say no, I can take it or leave it. It's nothing against you on your business, it's business, it's not personal.

I'm guessing any of you that buy a vehicle pay the price on the sticker, new or used? I'm guessing none of you use coupons? I'm guessing you make sure to never shop store sales? Because all of those things are indeed trying to get the same thing for cheaper. Which, I do not have issue with.

We need more WE in this world and a lot less Us vs. Them.

dko

nvm, I can see how that comment was taken. it was a pretty big rationalization without any seriousness.

jesmed1

KC_Jones said:

jesmed1 said:

The good news is that heating, plumbing, and electrical work can't be outsourced to China. There will always be a demand for skilled tradespeople. But I get that running a business is challenging, and there will always be customers who don't understand why it costs $300 to change an electrical outlet.

For us homeowners, the challenge is to weed out the dishonest and the incompetent who give everyone else a bad name. Fortunately the Internet makes it a lot easier these days for us to sort out the good, the bad, and the ugly.

Could you elaborate on your perspective on that?

I've had this discussion many times. The only way a homeowner can properly vet out a contractor is to have the amount of knowledge required to do the job on their own. Yes the internet can assist with that. Is that what you are talking about, or are you talking about reviews? If reviews, they are a slippery slope on the best day as, in large part, the people making them are not educated on the subject matter and we are back to my original point, the homeowner needs all the knowledge.

I was referring to online reviews like Google reviews, Angie's List reviews, etc. There are also online services that do referrals like Build Zoom, and I've gotten a number of good contractors through them.

Yes, there are some fake reviews, but overall, Internet reviews and referral services have been a net positive for me as a homeowner. The number of good contractors I've found through (not fake) positive reviews is significant, and I can't think of any bad experiences I've had in the last 10+ years of hiring plumbers, painters, general contractors, and electricians based largely on their online reputations. Most of the positive online reviews I've read for the people I've hired have been spot-on, and every one of them has done quality work for us at a fair price.

Jamie Hall

You all are writing my sermons for me... more seriously, we do need more "we", as @KC_Jones said. The bottom line, surely, is that, as contractors -- or for that matter, any other person offering a service or labour -- need to be sure that we are offering an honest day's work or product for an honest price -- and we -- or for that matter any other person requesting a service or product or labour -- are willing to pay an honest price for whatever it might be. From the customer side, we must be very careful that we can actually afford what we are asking for -- otherwise, we must do without, rather than whine. On the contractor side, we must be sure that we can provide what we say we can, without asking more than our due from the customer -- or making do with less, and cutting corners.

jumper

There was a guy who serviced roof top ventilators. He came when he decided, usually once a year, mailed invoices and was always paid no questions asked. When he decided to retire nobody was interested in his niche. Building owners had to scramble.

SlamDunk

trivetman said:

In any business theres almost always an aspect of business vs client when it comes to the price.

Price, presentation, reputation, attitude. Price is certainly in the top four aspects this client looks at but the other three things determine whether or not the client feels the business can deliver everything that is needed and will respond to any problems after the final payment. I can't tell you how many contractors I have passed over because of the last, but not least, aspect of attitude.

And, because many contractors don't understand the economics of their own business, it pays dividends to get several estimates. You learn more about your own project and appreciate the person that ticks all the boxes.

$58000 for a porch? That must be some porch!

RollCNY

So I am a homeowner, so not in the contracting business, but I run factories, do industrial accounting, and have been responsible for P&L in multiple different businesses. I guess I have two things to share:

First, if you go through the whole pricing rationale, it is know your costs, including burdens, mark them up 28%, and because most good businesses are about 85% accurate in estimating, you will clear 8% profit. If you think the 85% is made up, try it with any sample set of numbers.

Your think your cost (time & matl & burden) will be $100, so you quote $128 (28% markup). When you get paid and chart your real costs, you find you actually spent $117.65 ($100/85% accuracy), leaving you a profit of $10.35. That is an 8.085% profit.

These aren't contracting numbers, they are market numbers. Some markets are super tight (automotive suppliers with 8-10% markup) and some are super loose (defense contracting 300% markup) but most American manufacturing with some level of market differentiation will have a markup of 30-35%.

Also, if you think the 85% is arbitrary, there is a ton of reading material on it, going back to Deming and Juran. There is an entire field of engineering dedicated to it, and the belief is that world class manufacturers get to 92%, maybe 93%, but there is a ceiling.

Second point is that the overwhelming majority of contractors I have encountered, especially in heating, don't know their costs + markup, they quote what they think the market can bear. I started following this site because I needed to address an old boiler + natural gas stand alone water heater. I had four contractors look at the project, tell me not to address the water heater, replace the boiler, and the price would range from X to 1.4X. I was told ODR was worthless, I was told I had to have a mod con, I was told I couldn't have a mod con because of my floor joist direction, I was told that I would have to have a chimney liner that was out of scope and would add another 50%. All advise was to break the water heater out separately, and deal with it later.

So I stalked Heating Help, replaced controls on current system, added ODR, installed an indirect tank myself. With that done, I found a contractor to just do a boiler install, and a separate contractor to do a chimney liner. I didn't apply any price pressure, I didn't ask for a deal, I just gave a very defined scope, they told me their price, and I paid it.

All in, with all controls, indirect tank, new boiler, insulated stainless chimney liner, my costs are 1.05X. The only labor I saved was 12 hours of me doing the controls and indirect install. I wouldn't count the 2 hours of online shopping as cost cause it was a blast! So I had 4 separate contractors quote me not what was cost + 30%, but what they thought they could get if everyone was charging the same rate.

So any talk about people shouldn't ask for quotes on things they can't afford is ridiculous. If you have no idea what market rate is, you won't know until you get 3 quotes.

I also have a 3rd point: The 20% markup on parts because the "contractor knows what to buy" is not consistent with every thread on this forum where the contractor has oversized the equipment. How does that get rationalized?

LRCCBJ

EBEBRATT-Ed said:

What I have copied below is an estimate of business costs for a legit contractor I found on an electrical forum. Whatever type of contracting is involved (GC, Plumbing, heating, electrical etc) it is all the same as far as figuring costs.






HOW TO PRICE A JOB!!!!


Overhead is $382.50/day. Add that to your figure, and you’re at $1,082/day. You can round that up to $1,100 if you want. That’s what you have to make every day you go to work, to break even and pay yourself.


.

He's not too good at the math. His total for the day is NOT $1082. It is 1602.50!

jumper

Fixed costs decrease as a percentage with increased gross.
So, if you don't have enough business, you'll be uncompetitive.
I think you guys have to consider your marginal costs.
When your order book is full then quote high.
And when it's depressed then accept anything.

GW

>>>I don't think homeowners care how contractors come up with their costs/pricing<<<

I think they just want to realize a perceived value for the money they are parting with

if it's 'too much', they will 'keep calling' until they can find someone to fulfill their expectations.

GroundUp

I read every letter of this whole thread and honestly have never been more enthusiastic about one single post here. Thank you for sharing!

With that said, this whole thing really hits home for me. I'm just a 1 man operation in the middle of nowhere which means I have some unlicensed nobodies as competition as well as some BIG companies bidding the same work. About 2 weeks ago I bid a boiler replacement nearby with my desired profit in mind to stay busy, which at this time of year is relatively low. The homeowner said I was too expensive which I happily accepted and went about my day after thanking them for the opportunity. I was beat out by one of those aforementioned unlicensed folks who went to the big box store and slopped in a 199k combi boiler with gas flex and non-barrier pex to heat a 900 sq ft slab home (the DHW was not connected). Maybe a week later I got the call to come and see if I could fix their brand new install because it wouldn't heat the home. Turns out the installer's bid was THREE HUNDRED dollars less than mine, and they just stopped answering the phone after several callbacks. I charged a fee to assess the situation, which they begrudgingly paid, and gave them a new bid for a new boiler which was more than the original due to what the first guy had hacked apart (he essentially stole all the copper and just ran one series loop through the combi and 3 loops of radiant floor using the internal circ and homemade pex manifolds). Of course they went nuts about the price, so I explained myself and what I stood to profit on this job, and that the original 300 dollar difference wasn't so bad in hindsight but I'd discount the service call fee if I got the installation job. They wanted to get more bids, which is great. Yesterday I got the call that they got 3 other estimates and they were all more than double mine, but they wanted it done today. I said it'd be 2 days before I could get there, but I'd be happy to oblige. This morning, I saw SEVEN vans from one of those big dollar companies parked in the driveway when I drove by on my way to today's job. I just got home about an hour ago, and there are still 4 of them there. This would literally have been a 5 hour job for me by myself, so this operation had at least 7 wages to pay on top of fuel, van expenses, and other overhead. Maybe their profit wasn't any higher than mine by the time all the overhead was paid, but it also cost the homeowner almost triple what I'd have charged to do it right the first time. Honestly, having seen quite a bit of their other work, I'm not convinced it'll be done correctly now either despite the higher cost.

As was said above, it's nearly impossible for a homeowner to be a good judge of who to hire unless they know everything about it already, in which case they'd do it themselves. It's a crapshoot and I feel for anybody who gets the short end of the stick because I'm also a homeowner and hire out services all the time when I don't know anything about them. I've been stuck with crappy contractors on both ends of the spectrum and I've also had excellent luck with contractors on both ends of the spectrum. Cheap doesn't necessarily mean bad, and expensive doesn't necessarily mean good.

I learned a long time ago after I started my lawn mowing business as a 5th grade kid, that there's a lot more to the overhead than just what's on the surface. I dented someone's car with a rock that got picked up with the mower in their own yard, and it cost me 2 months worth of mowing half the town's lawn to make that money back. I had half the town because I was cheap, but that made me find out that I was TOO cheap.

SlamDunk

@GW Or, they realize that what they thought a project would cost is really higher than expected.

I never got the impression that contractors care how I make my money when they scope out a job I need done. It isn't their business but I am a simple mechanic who turns a wrench for a living. I make mechanic's wages but I have to beware of estmates with zip code premiums.

I bought my house in a very blue collar neighborhood 32 yrs ago but the demographics changed radically and now I'm a blue collar worker in a white collar neighborhood. Sometimes, I get quotes a wealthy person wouldnt blink at.

RollCNY

jumper said:

Fixed costs decrease as a percentage with increased gross. 

I worked making industrial roller chain, and our plant manager's motto was:  We lose money per foot but make it back in volume.

trivetman

GroundUp said:

As was said above, it's nearly impossible for a homeowner to be a good judge of who to hire unless they know everything about it already, in which case they'd do it themselves.

This.  Ive learned 100 times more about my steam system than any typical homeowner, especially for a homeowner who works in an insurance office and not some adjacent trade.  I was still scared to death about hiring the right guy for a boiler replacement and probably just got lucky it turned out I got a good install.

GW

@SlamDunk yes we are all in the same boat. I had solar installed on my office-shop several years ago--tens of thousands. I don't think panels are 'that expensive'. Did I google the cost of these panels?? No, why would I put myself through that agony? They were reputable; virtually the same price as the other company I had out.

'nother topic--Somehow I managed to get a boat feed on my Facebook. Then I started googling what some of these boats cost. We are all in different income brackets. $xyz is peanuts to one man and astronomical to another. It's the American way, and I love that about our society.

Good for you--your house is worth some dough

SlamDunk

@GW

No, our house is 2.5 time less valuable than the 0.17 acre lot it sits on. I feel like I should be embarrassed about that.

My county went to four year tax assessments from 8 year assessment to ease the sticker shock. Last week, we learned our property is worth 82% more today than four years ago. Still have sticker shock .

hot_rod

An eye opening number for me was the owners salary.
Suppose you gear up to open a business and want a before tax salary of 150K as an owner assuming all the risk and with a family to support. Not an unreasonable salary.

Assume you are willing to work 2000 hours. 50 weeks at 40 hours per week, as a start up contractor.

Your selling price is $75.00/ hr just to pay yourself, now add all the cost of keeping the door open and profit.

The owners salary is what gets shortchanged often, the owner shouldn’t be the last to get paid.

What the market will bear is not a realistic way to price a service contractors selling price, mystery shopping your competition. It certainly doesn’t apply to pricing a cup of coffee theses day

Seems the market can bear coffee at 8 bucks a cup in any town USA, even across the street from a 7-11 at 2 bucks a cup. Which business tends to have a waiting line?

If the market can bear 300 dollar an hour plumbers, why would you charge 75?

This is why many small businesses fail, they don’t know how to establish a selling price that will keep them in business

Mad Dog_2

KC. I disagree with you. Many DO care how  much everything costs and want a break down: Materials, labor, so they DO know your profit more or less. If you're number.is low or in the wolf pack with others, they may not question it, but when you usually the higher priced bid...you bet they care AND ask "Why are YOU so much higher?"  This fact sheet quiets them IMMEDIATELY. The Great Frank Blau (RIP) designed it I believe.  It was part of his whole system   Richie English All Island Radiant could tell you.  When I moved on Richie, I simply called the Phone number on it. Back then it was BADGER DATA FORMS...another company now makes them.

I had that argument about my overhead with an obnoxious attorney once.
Atty: "Why are you higher than So and so?"
Well, Counselor, I have a professional shop, secretary that answers each call, office manager and we do 24/7 365 Service. Our guys are drug tested,  our trucks are fully stocked, et cetera." Me "Joe, So and so works out his house, has a van the leaked oil on your driveway, doesn't return your calls for days, and doesn't answer his phone at night or weekends...remember?  Thats how you found me...He put your boiler in, it leaked that night, and he never picked up and you had to call me.."  

Atty: "Yeah, but Your Overhead is too high, you have to bring it down to be more competitive!!" 

"Good luck, Joe, you two deserve eachother  ha ha 😂 😘 😆 😄 ."

Believe it not, Joe stills call here and there.

Me: "Hiya Joe...can't u get so and so??"
Maybe he should raise his overhead so he can offer YOU better & more professional service!  Good luck!"    Mad Dog 🐕