Residential Remodeling Tips: How Remodelers Can Make a Profi



in residential remodeling it's pretty common to find business owners wearing several hats it's also common to find those contractors constantly chasing projects and cash flow even though work seems to be steady hi I'm Jeff Lancashire for build TV in those instances remodelers often get themselves in the trap of not compensating themselves enough to cover their overhead and generate enough net profit to grow in many cases they think there's no way they could realistically charge what it would take to do that but what if I told you that you could charge at least a 50% markup on your hard costs and come away with a minimum 33 percent gross profit that's the advice and practice of some of the industry's leading firms including stripe design remodel in Boise Idaho in fact Jim stright speaks to and mentors other remodelers on how to calculate and get paid for their costs and time here's how straight and other successful remodelers calculate minimum markup and margin let's take an estimated job cost of $10,000 just to make it easy that's just your cost for labor and materials stright advises a 50% markup which means adding 50% to the job costs or $5,000 to those costs to determine the price of the job $15,000 presented to the client now let's pretend everything goes well in your hard costs come in at your estimated $10,000 once you get paid you have a $5,000 gross profit which equates to 33% or 1/3 of the sales price the bottom line a 50% markup equals a 33% gross profit seems like a lot right well here's where it goes or supposed to go if you're keeping track of all of your overhead costs and want to achieve a reasonable net profit 33% will cover the overhead in most cases we're going for a 10% net profit after that 33% so in other words overhead would be 23% however what they forget is the fact within that overhead you're talking about your accounting expenses your advertising expenses your computer expenses and I could just go on and on there are several items in the overhead area in which the remodeler tends not to include within there their overhead achieving a 33% or any planned gross profit is easier said than done as any remodeler knows things can and will go wrong once the project starts especially if the contractor fails to win a job he was sure he'd get and scrambles to get another project into production what generally happens when we try to expedite a job into production is we have a much higher probability of missing several items within the direct cost so consequently our pricing is as off plus we won't serve the client as well now the client is going to start asking more questions more clarification on taking up more time with the owner/operator with production which is going to drive up the the hours on it and then the materials that we forgot and then the subcontractors that we didn't have out to the jobsite to look at the jobsite prior to making that proposal because we had to push it into production it's going to tell us that we knew it like the electrician that we need a new electrical panel which we did not have in the bid and another fact that we can't go back to the client because were the professional and we should have known this being in with profit is further compromised if a key employee leaves in the middle of a job adding to cost that can't be recouped it's not something we can charge a client for so we're gonna have to absorb the cost and again we're gonna produce a project at a at a loss jim's practices of slowing down selecting the right job for the company and making sure jobs are estimated thoroughly and precisely help others who are struggling with the concept to get back on track well not only showing the the money but actually show them actual job cost and a standard profit and loss statement in the industry and then also share with them if you're the mentor share within what sort of markup you're doing and once they see that other people are doing it their confidence will will build to find that mentor whether it's straight or someone else Jim encourages remodelers to attend industry conferences and events tap into the vast resources of Mary and the NAHB remodelers Council and seek out networking opportunities to gain a better perspective and confidence about what to charge for their work my thanks to Jim stride for his insight and thanks to you for watching bill TV tune in again for more ideas to help build your business for bill TV I'm Jeff Lancashire

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