Sub contractor markup

[Kristiansen-E]

Long time reader and first time post.
I’m an estimator for a California Bay Area remodeling company. As a fairly new company, we try to operate within the letter of the law and require the same from our subs.
Here is my quandary. When the office breaks down a completed job, they expect the material, labor, and the subs will have a 50% markup.
So the labor ends up at about $75.00 hr and the material is what is, but could someone please give me some input as to how the subs should be dealt with? It seems to me that each individual category of the bid should be allotted it’s own percentile.

[Mark G]

Re: Sub contractor markup

The bottom line is how much you need to make in order to show a profit, not industry practice or "what everybody else does". You can get as complicated as you want with different mark-ups for different costs. Personally, I try to keep things as simple as possible and mark up all items the same. If you are having a hard time taking work this way, then you may need to have a different mark-up for material, labor, and subs but I wouldn't make it any more complicated than that.
The law has nothing to do with how much you can make, only how you bill for it.

[AZ Contractor]

Re: Sub contractor markup

Markup 50% on a $1000 job that takes a month = $500 markup.
Markup 10% on a $150,000 job that takes a month = $15,000 markup.

In this simple example, you can see how the % markup means little. There are other factors such as time, easy, accesibility, dollar value, that affect the profit. How much money does your company need to make to show a profit you are happy with?

[Dick Seibert]

Re: Sub contractor markup

Kristiansen-E:

I am in your area and I don't understand your question. When you break down a "completed" job how do you know or care what your subcontractors' markups are? There is also no way in the Bay Area that you can markup a job 50% and have the labor come in at $75 an hour, non-union that would bring your subcontractors' hourly rate down to $38 an hour.

[Kristiansen-E]

Re: Sub contractor markup

Kristiansen-E:

There is also no way in the Bay Area that you can markup a job 50% and have the labor come in at $75 an hour, non-union that would bring your subcontractors' hourly rate down to $38 an hour.

Our in-house employees are billed out at $75.00 hr.
My question about the subs is this. Lets say we are in the bidding stage of a potential job. A sub gives me a bid for x dollars, is a 50% an excessive markup rate to tack on to the bid?

[Allan Edwards]

Re: Sub contractor markup

A sub gives me a bid for x dollars, is a 50% an excessive markup rate to tack on to the bid?

That is absolutely an unanswerable question. In an open market, free enterprise economy, what you charge (or markup) is a function of many, many factors, not the least of which is "what will the market bear" and "what can you sell the job for".

I think the best you can hope for is to find some numbers showing what the top remodeling companies (who are your size) make in terms of gross and net profit. From that, you can set benchmark goals and try to achieve a similar high level of profitability.

[78_GMU]

Re: Sub contractor markup

My question about the subs is this... A sub gives me a bid for x dollars, is a 50% an excessive markup rate to tack on to the bid?

One way to markup a subcontractor bid is to determine your own cost of money, it could be 26% or more. If you collect the money (after the job is complete) then pay the sub (or had to pay the sub way before you got paid), then 50% may be the right number, or it may be too low. If you have a CPA ask her or him to give you an estimate of your current cost.

The other force you must recon is the market. If your competition is bidding much lower they may either don't know their costs, or they are very efficient. I know of a contractor in the East who marked up subs by 10%, but I know he was just guessing, he only used his CPA to do taxes, and then five years later to tell him he was out of money.

[jud aley]

Re: Sub contractor markup

Kristiansen-
Everyone I know in the business marks up differently, there is no standard. I suggest you get a copy of "Markup & Profit" after reading it you should be able to figure out what you need to markup and how to attach it to your bids.