# Customer asking for bill of material?



## Sonny Lykos (Mar 11, 2006)

I agree that you are being set up, for a fall, but I have a more serious concern.

If you refer to a typed and detailed Proposal as a "quote" - something I write on the back of my card, I can't help but wonder what other improper terminology you use with your customers that are making them suspicious of you.

At any rate, I'd run this situation by your attorney. If you are being set up, he will get him and you prepared for when the sh*t hits the fan. and start documenting ever single conversation with them, date and time, where, etc.


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## Forry (Feb 12, 2007)

Hey... Lot's of good posts on this topic.... Good stuff to think about.

I like to provide my clients with any information they ask about, from questions on the way I do things, to who my suppliers are, to how much I pay for items. Sometimes it's unnerving and weird, but my business is honest, and I have no qualms about sharing stuff with clients. Sometimes maybe I even learn something from those exchanges. At the very least, it helps build the reputation of having integrity which is make it or break it in this industry. If a contractor hesitates to show his/her pricing system, it shows something about that contractors integrity. Charge for the service if you want, but show 'em where the numbers come from. You still have a contract, and they can't back out of it, and worst case scenario, they won't call you back for more work. At least not right away. If your work is good enough, they'll hire you again after a few substandard jobs and a few lessons learned. Then you'll look like the gem you are. If you are. If you're not, get better at what you do.


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## Sonny Lykos (Mar 11, 2006)

Forry said:


> Then you'll look like the gem you are. If you are. If you're not, get better at what you do.


That is, just until you tell them that you mark everything up 30 - 40 - or 50%, and try to explain that in order to recapture your 25% over head, plus add on a 10% net profit, requiring you to use a 50% markup. 

Of course, since you feel that way, I think it's safe to assume that you expect your subs to do exactly the same for you. That is to bare every single aspect of their business financials to you, to justify what they are about to charge you.

I'd say you're new to the industry as a business owner. If so, you'll wise up soon enough and start acting like a business owner instead of like your customers financial consultant who are about to become investors in your business.


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## Forry (Feb 12, 2007)

Sonny! Sounds like you're tryin' to kick my a$$!!

I'll explain my thinking later, and I only asks subs about their invoices when they run over an estimate, and only so I can explain to my client where the numbers are coming from.

Gotta go, and stay tough Sonny!


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## Sonny Lykos (Mar 11, 2006)

Sorry, but sometimes one has to kick an azz to get people to stay out of trouble. And yes, after almost 45 years of dealing with the public, one does get a little toughened up. But with peers, as with our kids, it's called tough love.


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## realpurty2 (Aug 18, 2005)

Sonny Lykos said:


> That is, just until you tell them that you mark everything up 30 - 40 - or 50%, and try to explain that in order to recapture your 25% over head, plus add on a 10% net profit, requiring you to use a 50% markup.


Just as you admonished improper terminology earlier, I think you are confusing "markup" with "cost". 

Markup is the amount in addition to your cost... thus "Marked Up". 
The 25% overhead mentioned is part of your cost and is usually recovered in the labor rate. The markup is the amount over your true cost and is where your 10% net profit is fed. If 10% net profit is your goal, your markup must be 10%.


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## Sonny Lykos (Mar 11, 2006)

realpurty2 said:


> Just as you admonished improper terminology earlier, I think you are confusing "markup" with "cost".
> 
> Markup is the amount in addition to your cost... thus "Marked Up".
> The 25% overhead mentioned is part of your cost and is usually recovered in the labor rate. The markup is the amount over your true cost and is where your 10% net profit is fed. If 10% net profit is your goal, your markup must be 10%.


All "costs" are "marked up, otherwise there would be nothing to markup. A "markup" is the dollar amount calculated via a percentage. If I sell a shirt that costs me $10, I mark it up so that I can get back not ony my initial $10 cost, but all associated overheaad costs involved, plus a markup for a net profit. If there were no costs, direct or indirect, there would be nothing to markup.

On another note, if my son decides he will spend a day with me working on a job, do I havve an labor costs to markup, and if not shuold I have him work for the customer at no charge?

Markup: An amount, stated either in dollars or as a percentage, added to the estimated cost of an item in order to determine it's selling price.

So, "costs" are "marked up" to obtain a desired "gross margin", which includes overhead and net profit.

There is a difference between costs, overhead, and net profit, "net", not as in not to be confused with "gross" profit. Product or service "Costs" are static. Overhead contains both the variable AND fixed "operating" costs expended to sell the product or service.

I used the correct terminology.


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## dirt diggler (May 14, 2006)

heck with terminology

how much net do I charge per square foot?


:laughing: :laughing:


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## farrellpainting (Feb 24, 2007)

sonny, i believe the correct term for what your insinuating is "RETAIL SALES" i dont think that any of us sell our service as an item or product, labor is too much of a fluctuating variable to be able to contentedly sell that way. i do understand what your saying, but for the sake of ease, our overhead is covered by a precisely calculated # that is added to a desired labor#.... so, we estimate how many approximate labor hrs are available/yr then, all we have to do is cover those hrs/yr and overhead is mildly covered. now pure net mark up comes by two ways, marking up materials, and or tacking on unnecessary labor hrs to each job! if you tack on your company rate(labor&overhead) as labor hrs then your really bankin!

i know you are a remodeler, but that is a rough idea of how myself and most other contractors operate. this was just a slightly more elaborate explaination of what purty posted, hope it helps!


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## Sonny Lykos (Mar 11, 2006)

I also use the "Proof Managment System" - overhead on labor. But I go one better, IMO, and put my net profit on labor as well. Yet I still markup my materials and subs to obtain additional net profits.

However, most remodelers stil use the system where they total their labor, including labor burden, materials and subs, and then "mark up" a certain percentage to recapture their overhead and net profit. That is also the way Michael Stone recommends.


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## skyhook (Mar 17, 2007)

ScotR said:


> Hi guys, I'm new to the site, it looks very informative and helpful to share experiences we have all had. For the very first time in two years Ive got a customer requesting the bills for material on a quoted job. I don't feel I should have to reveil that info...what do you guys think?


You got 50% upfront, you did 50% of the work. You get 50% to do the second half of the work. If that's the agreement, stick to it. The invoices and write offs are yours, never give up your originals. They can have copies showing a 25% mark up to cover your expensives. Sure, why not. Some people are like that. If they don't pay, shake hands and leave, YOU are right where you were when you started. They will come around, or settle for less.
Don't leave money on the table.


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## Forry (Feb 12, 2007)

Yep, that's how I do it, I'm just not shy about sharing the system with my clients. So far no one's complaining, and 100% of my work is word of mouth and repeat business, and I stay busy, so I'm assuming it's working out ok. I do get the warning signals of a client butting into my business, but instead of getting scared or mad, I just show 'em what they want to see. I charge alot for my area, and have a standard markup, and tell the client what it is up front. No one seems to mind. I get concerned with subs or other contractors when I see them getting secretive about "their" business. I think it's crap. I think good work and integrity are enough without "secret" markups or padded costs or any other type of pulling the wool over a clients eyes.

Sonny- Do you think lying or hiding facts from clients is what it takes to be a business owner? I don't. Grrrrrr..... Angry.......


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## farrellpainting (Feb 24, 2007)

WARNIG THIS IS HI-JACKED, sonny in my eyes adding your desired net profit to your labor/overhead rate is just demanding a higher labor rate. i find its more beneficial to start with a competitive labor rate for your area then add on to that your hourly overhead #, obviously the contractor that has the more overhead is more expensive /hr but he/she can take on the bigger jobs that the cheaper co.'s cant.why is this method more beneficial? two reasons, it gives you more room to play around with pure profit hrs competitively, and you have more control of your #'s when doing so!
for an example, i know how many hrs a job is going to require for labor, i know have room to decide how many additional hrs i think i might be able to get out of the customer vs. having net added in to my company rate were i wouldnt be able to see as clearly what and how much extra i can or try to charge.see what im saying you have much more control to be able to bid accordinly, instead of just being to exspensive.and if you wanted to bid competitively with your method, when you take off an hour your losing your labor/ovhead/net!!!!!

i dont know who micheal stone is, they way you speak of him he sounds like a very sucessful contractor, but from your explaination of his business model i can 99% say that your missing something there, if not alot of somethin! 

what is the diff of labor and labor burden??????

sorry for hi-jackin, i gotta work on that!


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## realpurty2 (Aug 18, 2005)

Sonny Lykos said:


> That is also the way Michael Stone recommends.


Which could be exactly why he's selling marketing services instead of his construction services.


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## skyhook (Mar 17, 2007)

Sonny Lykos said:


> I also use the "Proof Managment System" - overhead on labor. But I go one better, IMO, and put my net profit on labor as well. Yet I still markup my materials and subs to obtain additional net profits.
> 
> However, most remodelers stil use the system where they total their labor, including labor burden, materials and subs, and then "mark up" a certain percentage to recapture their overhead and net profit. That is also the way Michael Stone recommends.


Profit on Labor is better than the alternative.


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## farrellpainting (Feb 24, 2007)

what do you mean sky hook?the method sonny stated?


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## North Country (Jan 14, 2006)

farrellpainting said:


> what is the diff of labor and labor burden??????]
> 
> The word labor in the contracting business can encompass many different meanings. You have bare labor which is exactly what you pay your guys per hr, then there is burdened labor which covers taxes, employer taxes benefits and insurances, there is the hrly labor rate which covers all of what the burdened labor covers plus a fixed percentage of the fixed overhead rate, the labor billing rate which covers the burdened labor rate plus a percentage of the fixed overhead rate plus profit.


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## skyhook (Mar 17, 2007)

farrellpainting said:


> what do you mean sky hook?the method sonny stated?


Any profit, no matter how small, beats breaking even or showing a Loss. Hospitals make a profit on staples, so should you.


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## farrellpainting (Feb 24, 2007)

no s**t skyhook, how u doin?lol

north country, thanks for the info on the term labor burden.now what im a lil hung up on is the net profit # or % that is added to the hrly labor rate? i understand that its a certain % that is added to make the company profit on labor. what i dont understand is, every guy gets paid a different hrly, so when you bid do you have to calculate how many men and what each individual cost/hr? that seems like a guaranteed way to make your set profit off labor, but my concern with that would be calculating each individual mans hrly all the time, is that how you roll?

i would really like to talk this over with ya, its getting too late my brain needs a rest, hope to hear from ya tomorrow


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