# Mark up on Larger Projects



## AllanE (Apr 25, 2010)

pcplumber said:


> The deciding factor for the price you charge has to be based on the time you personally put into the job, your worth and the amount of time the job takes to complete.


I do not want to be paid for my time, because that is limiting. I want to be paid the highest % I can get based on my talents and marketing ability and the amount of work I can do. Total $'s are about volume, and the higher my volume the more I make. Contracting is about leveraging.


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## Dr D (Jun 14, 2015)

This has been an informative discussion. I have to say that Allen brings up a valid point about using percentage as leverage, a return on all the time, money and other that owners put in the business on a ongoing basis. The question is, at least for me, what is that number or range. One that maximizes return vs market conditions. Thanks again


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## CarpenterSFO (Dec 12, 2012)

Joasis said:


> ..... I did not keep certificates, pay bills, use my credit, or expose my general liability.....


Great reasons to expect to receive a lower percentage.


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## pcplumber (Oct 12, 2008)

AllanE said:


> I do not want to be paid for my time, because that is limiting. I want to be paid the highest % I can get based on my talents and marketing ability and the amount of work I can do. Total $'s are about volume, and the higher my volume the more I make. Contracting is about leveraging.


How can you choose a percent that is based on your ability and talents. You can say that you are worth $10 per hour or $500 per hour, but you cannot say that you are worth a percent of a job when every job has too many variables. The amount you want to earn hourly, weekly or annually has no variables.

Pay yourself a percent and you will lose. I just finished installing a file line valve for $23,000 the job cost me $9000. My gross profit was $13,000 which is 60%.

If I used the formulas I see in this thread I would have marked up my $9,000 job by 8% and my earnings would have been $720. Are you crazy.

The contractor called me on the phone and asked if I came up with a price. I said, "yes, the price is a little high. It i s $23,000". 

The contractor said, "can you start right away?"

I did not use a percent mark up. I used the formula mentioned in previous posts. I calculated my exact cost, added 10% for error and then I added $10,000 for myself for 5 days of work. I don't work for less than $2,000 per day and that is what I earn on only my personal crew. That does not include the earnings I get from my other 7 crews.

Then, after the job started the inspector requested additional work and I earned another $3,000 with one change order.

You have to be crazy to take $720 over $13,000 and then tell me that you are getting what you are worth by charging a percent vs. charging for the time you are worth. Only you know what you are worth. I know that I am worth $13,000, not $720 and I earn that type of money on every job my company does.

The most important things a contractor needs is good marketing and sales, but making the business successful hinges on knowing how to bid jobs for the highest amount of money so you get paid for your time and worth.

I did a government job a few months ago. The materials cost me $6,000. I did the job during 3 evenings with two laborers and my labor cost was $1,200. That means my total cost was only $7200. If I used a percent markup so I could get paid what I am worth, like you say you do, let us say I am greedy and I mark the job up by 30%. That seems to be a fairly high markup according to the posts I've read.

If I mark up the $7,200 by 30% then I would get a total of $9,369 and I would earn a whopping $2,100 for my 3 nights of work.

Thanks to having brains from my mother's side of the family I did not use a percent markup. My father was a terrific worker and he made $millions, but he was a horrible business person. He made his money only because he worked hard like a dog. My mother made more money than my father because she started two of her own businesses that were more organized and run like businesses should be. 

My intelligent brain told me that the government job was the type few contractors could do and the building engineers already had bids in the $60,000 range. I bid the job for $39,000 and earned $32,000 for working only 3 evenings. Pure logic! No percent markup and I think I was well-worth the $32,000 I earned for working only 24 hours.

You are shooting yourself in the foot every time you think a percent markup is telling you what you are worth.


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## TNTRenovate (Aug 19, 2010)

pcplumber said:


> I think the answer is the same as in the thread I answered earlier today.
> 
> I don't look at pricing a job for what it is worth to the customer. The only thing I care about is how much I can earn from the job and I want to squeeze every penny possible.
> 
> ...


If your costs are truly 100k then you are already figured in as you are a cost to the job. If you didn't figure you in (your personal time as you put it) then you didn't figure all your costs. Pretty simple


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## TNTRenovate (Aug 19, 2010)

The first factor is your budgeted revenue for the year. How much revenue do you plan to make in a year.

Next how much you plan on spending on expansion, upgrades and growth. Then how much play money (fun money) do you want? You take that number and your target revenue and determine your profit margin. From that number you determine your markup. Keep in mind that you need to constantly measure your progress and may need to adjust some numbers through out the year.

Now you have a solid % to markup for profit.

So when I sit down to figure a job I first start with my subs. I have a markup for those numbers. It covers any small adjustments to the plan. It's my cushion so I don't have to nickel and dime my customer for every little thing.

I then add all my costs together and then add my markup. If the numbers look good I run with it. If I think it looks too low I add if it looks to high I look at it from another direction to test my numbers. If they jive then I know I'm where I need to be.


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## LI-Remodeler (Feb 3, 2015)

Somebody on this thread who is making a million dollars a year has not a clue what NET PROFIT is.

OP, nobody can tell you how much money to make.. You need to be comfortable with that amount and that's all that matters. But I will tell you you better walk away with a NET PROFIT and that profit is different for every business because every business requires different amounts of money to stay healthy. For me 8-12% is fine and I'm very happy if I actually get 8%. That means the project went well and my estimating is pretty darn good, anything above is icing on the cake.


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## Joasis (Mar 28, 2006)

Nicely put, but, if you are a GC, your profit line would need to be higher to be doing well in the business. Just saying. 

We could run a great discussion on "profit", and all of us have a different take on it. My accountant and the IRS certainly have a different view then I do....


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## AllanE (Apr 25, 2010)

In construction accounting as I understand it generally there is gross profit, which is total revenue - hard costs. Gross profit - overhead, marketing expense, financing expense (if any), indirect costs = Net Profit (before taxes).


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## pcplumber (Oct 12, 2008)

LI-Remodeler said:


> Somebody on this thread who is making a million dollars a year has not a clue what NET PROFIT is.
> 
> OP, nobody can tell you how much money to make.. You need to be comfortable with that amount and that's all that matters. But I will tell you you better walk away with a NET PROFIT and that profit is different for every business because every business requires different amounts of money to stay healthy. For me 8-12% is fine and I'm very happy if I actually get 8%. That means the project went well and my estimating is pretty darn good, anything above is icing on the cake.


Nobody is telling anybody how much money to make and the answers to the questions should not be about earning money within a comfort zone. If someone doesn't care about maximizing their earnings then don't give opinions that are counter-productive to improving business sales and profits. I don't come to this forum to learn how not to make a lot of money.

The bottom line is this thread is; while many contractors may be using a percent markup to arrive at their price I say that there are too many variables to use such a method. I agree with TNT that you can markup your subs, material prices, etc., but at the end you have to consider all the variables before you can arrive at the price that suits what you want to be paid for your time and what you are worth.

If you are happy with what you are earning then don't tell me how not to make more money. I already know how to decrease my income.


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## LI-Remodeler (Feb 3, 2015)

pcplumber said:


> at the end you have to consider all the variables before you can arrive at the price that suits what you want to be paid for your time and what you are worth


I 100% agree with that statement and that's exactly what I do when I price out a job. I'll never take the raw cost of a project and just add a percent. Dissecting projects cost by cost to include time required for those costs are necessary to determine the overall sale price which also includes Net Profit. 

I'm not really sure what the OP was looking for but hopefully he found something helpful within all these posts.


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## Dr D (Jun 14, 2015)

What I was looking for was a understanding of mark-up rates on projects of this size & type. I certainly get that you have to figure you hard costs for the job, including owners & crew time doing over site and gap filling. Once all costs have been figured, it's that rate that is added on for overhead and profit. I also understand the math of determining ones own mark up rate, but it seems to me that the market willl be a major arbiture on what one can realistically expect to add on, in most cases.


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## AllanE (Apr 25, 2010)

Dr D:

Market conditions will always influence one's pricing. Your work load might also be a factor, if you have several profitable jobs in process and your phone is ringing off the wall, then you would probably raise rates or markup. If you are starving for work, you would be aggressive in your pricing. Another factor is your sales and marketing ability, some contractors are just more adept at selling. 

But to answer your original question, in general the larger the job the smaller the mark up %. A $500,000 job does not take 10 times the time or effort to manage as a $50,000 job, there are some economy of scales at work.


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## TNTRenovate (Aug 19, 2010)

AllanE said:


> Dr D:
> 
> Market conditions will always influence one's pricing. Your work load might also be a factor, if you have several profitable jobs in process and your phone is ringing off the wall, then you would probably raise rates or markup. If you are starving for work, you would be aggressive in your pricing. Another factor is your sales and marketing ability, some contractors are just more adept at selling.
> 
> But to answer your original question, in general the larger the job the smaller the mark up %. A $500,000 job does not take 10 times the time or effort to manage as a $50,000 job, there are some economy of scales at work.


If the only factor that changes is volume you should have already raised your rates.

And yes, a 500k job isn't 10x's more effort but it 10x's more risk. my markup would not decrease based on price. I should make the same on 500k as I did on 10 50k jobs.


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## AllanE (Apr 25, 2010)

TNTSERVICES said:


> If the only factor that changes is volume you should have already raised your rates.
> 
> And yes, a 500k job isn't 10x's more effort but it 10x's more risk. my markup would not decrease based on price. I should make the same on 500k as I did on 10 50k jobs.


Not sure what kind of risks you are talking about, but I would argue that one $500,000 job is not 10 times the risk of 10 $50,000 jobs. 10 jobs you have 10 clients, each a potential lawsuit. With a $500,000 job, you only one client. 

I would much rather do one $500,000 job than 10 $50,000 jobs. 

At some point it becomes total $, would you rather make 10% of 10 million$ or 15% of $3,000,000.


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## pcplumber (Oct 12, 2008)

AllanE said:


> Dr D:
> 
> Market conditions will always influence one's pricing. Your work load might also be a factor, if you have several profitable jobs in process and your phone is ringing off the wall, then you would probably raise rates or markup. If you are starving for work, you would be aggressive in your pricing. Another factor is your sales and marketing ability, some contractors are just more adept at selling.
> 
> But to answer your original question, in general the larger the job the smaller the mark up %. A $500,000 job does not take 10 times the time or effort to manage as a $50,000 job, there are some economy of scales at work.


I am not so sure that larger jobs have less markup. I always found that the larger jobs required much more management, time and the largest jobs netted the lowest percent of profit.

My ex-short-term partner (happy he is gone) estimated jobs near $1 million and we landed one $800k job and a few for $500k jobs. Just before two $500k jobs were suppose to commence I was lucky enough to be able to back out. My partner always asked me why I was not excited and I always told him that large amounts of money don't get me excited, large profits do get me excited and large jobs virtually always caused me to lose money in many ways. Large jobs have many times more risk, variables, mistakes and the unforeseen. Large jobs cause you to lose money when you deduct all the small jobs you cannot due because you are tied up and dedicated for an extensive period of time.

Larger jobs can have many times more risk because everything about the job is huge. If the contractor files bankruptcy or the job gets shut down you can lose several hundred thousand dollars. Our $800k job was supposed to be completed in 45 days. This July 4th will be one year since we started and the job will not be completed until March of 2016. We estimated that we had to haul 44 truckloads of dirt and the real total was 112 loads. 80 loads times $500 per load was a $40,000 mistake we made. My ex-partner installed a manhole too low, a sewer too high and a sewer that was running in the wrong direction. That was another $25,000 mistake. We had shoring and equipment sitting on the job that was costing $10,000 per month when the job was shut down. The job got shut down due to water table problems and engineering problem several times for up to 30 days each time. There are too many problems we had to mention and the cost for every problem was huge. 

Larger jobs have larger risks and far more problems of every type because you have engineering problems, coordination with other trades, waiting for other trades to complete their work, larger amounts of money at risk and a lot more.

I always found that the owners and generals offer a lower percent of profit for large jobs, but I still stick with my $2,000+ per day that I want regardless of the size of a job and $2,000 is only the minimum I will accept. Therefore, there is still no way I will plug a percent markup into my calculations when bidding.

In the link below is my software I use for bidding. I calculate my costs and then plug in contract amounts until I get the total contract amount I will be happy with and the contract amount I think the contractor or owner will be happy with. On large jobs, I always add 10% for errors and the unknown and I always add no less than $10,000 to give the negotiations some wiggle room. After you send in a bid you can always negotiate for a lower price and never and virtually never add more money. 

I think many people need to change there mindset. I like to think that I am a movie star when bidding jobs. Like a movie star, I won't take crappy low-paying gigs that make me look cheap and ruin my lifestyle. I don't worry about losing when bidding and I only worry about getting a job where the bid is too low. I don't want people to do business with me because I can make them happy with a low price so I can get more jobs with low prices. My mindset is to milk every penny from my customers that I possibly can to a point where I have maximized both the company's gross sales and net profit at the same time.


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## TNTRenovate (Aug 19, 2010)

AllanE said:


> Not sure what kind of risks you are talking about, but I would argue that one $500,000 job is not 10 times the risk of 10 $50,000 jobs. 10 jobs you have 10 clients, each a potential lawsuit. With a $500,000 job, you only one client.
> 
> I would much rather do one $500,000 job than 10 $50,000 jobs.
> 
> At some point it becomes total $, would you rather make 10% of 10 million$ or 15% of $3,000,000.


I'd rather make 15% of $100,000,000. See how silly those strawman arguments are. Those aren't real numbers.

But I'll play your game. I would rather make 15% on 300k and do three of them. I'll have over 1.3mil and you'll have 1mil.

Again, see how silly these what ifs are?


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## AllanE (Apr 25, 2010)

pcplumber said:


> I am not so sure that larger jobs have less markup.


Sure they do. Would you do a $5,000 job for an 18% fee, $900? Of course not. Would you build a new $5,000,000 for 18%, $900,000? Of course you would


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## griz (Nov 26, 2009)

TNTSERVICES said:


> I'd rather make 15% of $100,000,000. See how silly those strawman arguments are. Those aren't real numbers.
> 
> But I'll play your game. I would rather make 15% on 300k and do three of them. I'll have over 1.3mil and you'll have 1mil.
> 
> Again, see how silly these what ifs are?


15% on 300k is 45k....x3=135k

AllanE is a very successful high end builder.....

I'll take his advice all day long....:thumbsup:


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## TNTRenovate (Aug 19, 2010)

griz said:


> 15% on 300k is 45k....x3=135k
> 
> AllanE is a very successful high end builder.....
> 
> I'll take his advice all day long....:thumbsup:


I meant 3mil as in his example. 

Pcplumber is a successful plumber with terrible business advice. Allen' logic doesn't pan out.


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## Jaws (Dec 20, 2010)

TNTSERVICES said:


> Whether it is a separate line item or not you are still marking up there cost to you. It still falls under markup. You are marking up the cost to you.


If you mean PM or superintendent time, its a line item, like framing labor, not part of my mark up.


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## TNTRenovate (Aug 19, 2010)

Jaws said:


> If you mean PM or superintendent time, its a line item, like framing labor, not part of my mark up.


I'm so small that I have a daily overhead percentage and then an overall profit percentage. When I add subs to the mix, I add my "markup" which was management fees. The profit is always added to the entire project. I just never called it markup. Always saw markup as the total amount I marked the project up from my cost (invoiced amount).


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## TNTRenovate (Aug 19, 2010)

So in the end I don't disagree with Allen at all. Just an not as sophisticated as you chaps.


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## AllanE (Apr 25, 2010)

TNTSERVICES said:


> You wouldn't catch me building homes for a 10 or even 18% markup. Now profit is a different story. I suspect he's been talking about profit not markup.


If billable costs, which is hard costs, supervision, insurance, any costs associated with what contractor furnishes on a job, is say $1,000,000, you would not add an 18% markup ($180,000) and build someone a house? 99.9% of home builders I know would.


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## TNTRenovate (Aug 19, 2010)

AllanE said:


> If billable costs, which is hard costs, supervision, insurance, any costs associated with what contractor furnishes on a job, is say $1,000,000, you would not add an 18% markup ($180,000) and build someone a house? 99.9% of home builders I know would.


Allen have you not kept up with the thread? I would suggest catching up.

I wasn't referring to markup as profit.


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## kevjob (Aug 14, 2006)

TNTSERVICES said:


> Allen have you not kept up with the thread? I would suggest catching up.
> I wasn't referring to markup as profit.


Dude, you have some serious issues. 

Allan knows what he is talking about and I would suggest using both your ears instead of your mouth for a change. 

Carry on knuckles.....


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## TNTRenovate (Aug 19, 2010)

kevjob said:


> Dude, you have some serious issues.
> 
> Allan knows what he is talking about and I would suggest using both your ears instead of your mouth for a change.
> 
> Carry on knuckles.....


Another from the peanut gallery.

Dude, read the whole thread.

I already agreed and admitted it was my confusion on terms. You knuckle daggers should use your eyes before your mouth and read a thread in its entirety.


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## TNTRenovate (Aug 19, 2010)

TNTSERVICES said:


> So in the end I don't disagree with Allen at all. Just an not as sophisticated as you chaps.








kevjob said:


> Dude, you have some serious issues.
> 
> Allan knows what he is talking about and I would suggest using both your ears instead of your mouth for a change.
> 
> Carry on knuckles.....


:whistling:


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## TNTRenovate (Aug 19, 2010)

It's things like this that make it super confusing concerning terms.

http://www.markupandprofit.com/blog/how-much-should-contractor-charge


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## AllanE (Apr 25, 2010)

TNTSERVICES said:


> It's things like this that make it super confusing concerning terms.
> 
> http://www.markupandprofit.com/blog/how-much-should-contractor-charge


Been out of touch for a few days. Yes, huge difference between markup and profit. Markup is general a % applied to $ amount of costs for a particular job. So if your cost on a job is $100,000, and you have a 25% markup, then of course your markup is $25,000. If you charge a client $100,000 + $25,000 = $125,000, and your costs was actually $100,000, then your gross profit on that job is $25,000/$125,000 = 20%. If you do 5 jobs that size in a year, your annual gross profit is $125,000. If you have other company overhead or admin expense, truck expense, insurance, etc of $25,000, then net profit for your company is $125,000-$25,000 = $100,000 (before tax). For those (5) $125,000 jobs, you have gross sales/revenue $625,000. Total gross profit = $125,000 - $25,000 = $100,000 net profit. Net profit $100,000/$625,000 = 16% new profit (before tax) for your company. 

One key is to charge as much indirect costs to a job as possible and have client pay, sometimes called General Conditions. Usually General Conditions includes supervision costs, insurance, portacans, construction fencing, maybe field office for larger job, etc. So by doing this you the contractor are having these costs included as a job cost, they are not coming out of your gross profit. I do this and actually markup these costs. 

Someone said a large job takes more time and therefore you should charge a higher %. I say no, that a larger, complex job incurs more costs. So your markup % applied to higher costs means higher total $ for you because your costs are higher. As an example, I am currently building an extremely complicated 22,000 sq ft house along the lines of a Guy Drier home (Google him). It really takes a lot of my and project manager time because of its complexity. But I charged the same % as a smaller home. The framing labor was $400,000 for this house, so the added time it took us to manage that process was covered because our mark up applied to a large $ amount.


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## LI-Remodeler (Feb 3, 2015)

AllanE said:


> One key is to charge as much indirect costs to a job as possible and have client pay, sometimes called General Conditions. Usually General Conditions includes supervision costs, insurance, portacans, construction fencing, maybe field office for larger job, etc.


Allen I do exactly that and that's why my gross profit appears to be low, but my net profit is good. 

If somebody looked at my gross profit they would immediately tell me it's much too low, but my net (true net after taxes) tells a different story.

It really becomes a shell game 

Some people will fool themselves into thinking they made a great profit at the end of a project but in reality they never treated themselves as an employee and compensated themselves as they would have been if they worked for somebody else on an hourly bases.


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