How Much Do You Markup Your Remodeling Costs?

How Much Do You Markup Your Remodeling Costs?

Dan Baumann

Are you tracking your costs so you know exactly how much money your making?If you're in the building industry, you're faced with this question every time you look at a new project. Depending on how well you know your "True Costs" of doing business you may understand what that markup needs to be.

But I believe in many cases contractors don't know what their markup should be.

The other day I had the opportunity to have lunch with a very nice young man that's been a remodeling contractor for 13 years. He made it through the doldrums of the economy but is extremely frustrated because he's working so hard and not making much money.

He does about $500k in remodeling per year and is very proud of the work he does. But he's very disillusioned about his business.

Here's a comment he sent to me:
I'm well versed in most areas of the trades. I was a talented trim carpenter, have three college degrees, and my existing customers are happy with my work. But I still feel like a "blind squirrel".

I wonder how many others out there feel like a "blind squirrel"? That's what prompted me to write this post.

As a former remodeling contractor (for over 20 years) I do understand what the real markup should be. I knew what my overhead was and what it took to run my business. Every one of my project had detailed estimates, and all costs were tracked and documented. I knew how much I made (or lost) on every project.

I knew my markup had to be at least 45%, but I would usually try to go for a 50% markup on everything. My last year doing remodeling was 1996. I did about $750k in sales and ended the year with a 28% gross profit. Didn't quite make the 33% gross profit I was after but was close.

But those numbers are massively successful compared to the 18% markup he was adding to his time and material agreement. Someone was winning in this arrangement and I guarantee it wasn't the contractor. 

Remodeling is a very tough business. You will be challenged by everyone around you every step of the way. But it can also be very rewarding if you know what you're doing.

My advice to this young man was this: Decide if you want to go work for someone and make about what you're making now with less stress and risk. Or, decide if you want to do what it takes to succeed in the general contracting business.

No matter what path you choose, you need to learn more about how a profitable remodeling business works.

Being involved in the construction industry for many years the number one source of real and palatable information about how to succeed as a contractor continues to come from my good friend Michael Stone at Construction Programs and Results.

I told this young man to go to Michaels site and immediately purchase two books. I mentioned to him that these books should be required reading by every person that is applying for a contractor license. I'll call these books "Contractors Bibles' for lack of a better term.

Here are the two books that should be on the desk of every contractor (and their employees as well).

Michael Stones Markup and Profit Book

Markup & Profit Revisited - A Contractor's Guide

Learn More at MarkupandProfit.com

In order to succeed in a construction business, you have to be able to price your jobs to cover all labor, material, and overhead expenses, and make a reasonable profit. This book by Michael Stone covers the business basics of running a construction company, whether you're a general or specialty contractor working in remodeling, new construction or commercial work.

Here, you'll find tried, and tested formulas that guarantee profits, with step-by-step instructions and easy-to-follow examples to help you learn how to make your business a success.

Profitable Sales, A Contractor's Guide

Profitable Sales, A Contractor's Guide

Learn More at MarkupandProfit.com

Michael Stone's 30+ years of experience in residential remodeling and specialty sales are shared in this book, Michael explains how to:

  • professionally represent your company
  • determine if a lead is worth your time
  • establish ground rules with a potential client
  • address the fears of every potential client
  • navigate through design agreements, letters of intent, and other documents
  • help clients make selections
  • turn a cancellation into a positive event
  • find, train, motivate and compensate sales staff
  • and much more

If you're feeling like a "blind squirrel" or are just looking to sharpen your skills in this industry you should stop what you are doing and immediately purchase, read and re-read these two books. And spend as much time as you can at Michaels site. It's an awesome resource.

Learn how you can master Chief Architect

 Comment below about your experiences in this industry and how much
markup you need to keep your business going and make a fair profit.

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