The most popular questions asked is "How Much is it Going to Cost?" Well, that's what estimates are for. Every project is different with different materials, square footage, room design, and therefore needs a separate estimate.
This article by Michael Stone is fantastic:
"We realize that many of our website visitors aren't contractors, they are the clients of a contractor. They are generally either looking for help with their Cost Plus project that's gone wrong, or they're trying to figure out if the price they were quoted (or charged) is reasonable.
They frequently confuse Markup with Profit, and we want to set the record straight. Markup isn't profit.
Markup is a general term that applies to the overhead and profit that any business needs to realize if the business wants to stay in business. It is the amount a business charges above their direct cost.
If your contractor has a 1.50 markup (which is reasonable for a remodeling contractor), that means that if the estimated cost for a job is $10,000, they'll multiply the $10,000 x 1.50 and arrive at a $15,000 sales price.
Now many people who know little about business and even less about the costs of running a business will say, "Oh, look at that crook. He is making $5,000 profit on my job." Nope, not true.
Your contractor gets $5,000 to pay their overhead expenses (which includes salary) and make a reasonable profit. I just heard those same people say, "But wait, contractors don't have any overhead!"
Guess again. They have overhead. Advertising, sales commission, job supervision (which isn't usually a job cost), office expenses (even if they work out of their home), insurance, accounting and legal fees, licenses, taxes, employee expenses, and their own salary are just a few of their overhead expenses. The typical remodeling contractor will have overhead expenses ranging from 25% to 54% of their revenue – that means every $15,000 job could have overhead expenses of $3,750 to $8,100.
Somewhere along the line, people started believing that a 10% overhead and 10% profit is the industry standard for construction jobs. Or that a 20% markup is all a contractor needs. Armed with that knowledge, owners try to get their contractor to reduce the price of the job they want done.
If you think it through, it's not a smart move. Would you ask your surgeon to reduce his price before doing open heart surgery? Would you ask your auto repair shop to reduce their price before rebuilding the engine on your car? Do you really want them to go cheap? For most homeowners, your home is your largest single investment. Why do you want to use a cut rate contractor to improve or repair your major investment?
Every business must make a profit or it will go away. It must price the work or services to include the cost of its goods or services as well as cover its overhead expenses and make a reasonable profit. It needs a reasonable profit to build and maintain the business, keeping it viable during the down times. Profit is what insures a business's longevity – if it doesn't make a profit, it might not be in business in six months. If it can't cover overhead expenses and make a reasonable profit, it might not even be in business long enough to finish your project.
The National Association of Home Builders published a report a few years ago that stated that their "best" remodeling contractors averaged something under 4% net profit. I can tell you that in my experience, too many contractors make no profit at all. That's why so many construction-related businesses fail.
So, if you're focused on finding the cheapest contractor to do your job, you have a very good chance of selecting a contractor who will go out of business while trying to build your job.
There's an old saying, "A fool and their money are soon parted." Any owner who selects a contractor based on their price has no one but themselves to blame when things go sideways. Markup isn't profit, it is the money needed to make sure the contractor can complete your job, pay his bills and if he's doing things right, make a profit on the job as well. Just like your doctor, your mechanic, your grocer and every other business.
Just when you thought it couldn't get more difficult, there's a new game in town. Ready to profit off contractors and give homeowners ammunition making it harder for you to sell jobs.
The new game is called Porch.com and it's aiming for you if you own a construction-related business.
From CrunchBase:
Porch's mission is to change the world one home at a time by making home improvement easy for homeowners.
The Porch marketplace spans all 250 home improvement, maintenance, and repair categories across the nation. It allows homeowners to get inspired by viewing neighbors' home projects, get educated by seeing their actual project costs (emphasis ours), and decide on the right professional by reviewing friend endorsements.
This helps homeowners make an easy and informed decision when it comes to improving their home and selecting the right home professionals. Today, Porch accomplishes this by organizing and connecting exclusive insights from over 1.4 million professionals and 60 million projects. Every day, Porch continues to aggregate more data about homes to build the connections and insights that fuel its data transparency and social approach.
By understanding work history and which professionals' friends and neighbors endorse, Porch is able to provide homeowners with free, personalized, and trusted word-of-mouth recommendations to make home improvement easy.
This isn't a small company. Investors in Porch.com have already decided that you're worth $6.25 million just to get started. They say they've already gathered data on more than $2 trillion in projects over the past 15 years, with data on 75 percent of US homes.
Don't miss the "seeing their actual project costs" part of the description of what Porch will offer, because that's a big part of what will make your life more difficult.
That means that when you go on a lead for a kitchen remodel, you'll hear about the beautiful kitchen remodel across town they saw online that cost $15,000. Three years ago. Of course, the photos will have been taken right after the project was complete. They won't show how it looks now, three years later, with wear patterns in the cheap flooring, chips and warping on the particle-board cabinets, and the low cost kitchen faucet dripping.
In business, it's all about the money, which will come from you. From this article, you can read that Porch "will make money by charging professionals for market insights and promotional exposure, at a rate of $35/month for specific geographic areas within a city, with the ability for professionals to sign up for multiple geographic areas at a time."
If you own a construction-related business, you're the professional. You're the one who is going to pay $35/month. And note that it's $35/month per neighborhood, not $35/month per contractor. Neighborhoods as defined by Porch. When you pay them, you get the opportunity to give them even more data on projects, and hope that you'll get quality leads.
There are millions of construction-related business owners in the U.S., many of whom are talented, passionate tradespeople who love their work but aren't strong on the business side. And they are even weaker on marketing. So they hand their company identity over to others with the hope of a $35/lead (like from Angie's List or HomeAdvisor), or the chance to pay to display their job photos on someone else's website.
