Home Remodelers Survival Guide #5: There’s More to a Projects Cost Than Labor and Materials

Many people often think that when the cost seems out of proportion to the actual materials and labor required to complete the job, the difference is lining the contractor’s pockets.
Believe it or not, despite the fact that remodeling can seem expensive, it’s not a highly profitable business, especially when you consider the amount of risk a contractor has to assume every time he takes on a new project and the amount of effort it takes to keep a project on track.
In addition to the actual labor and materials, there are so many other expenses every successful contractor must figure into his price in order to survive.
Without having a basic understanding of this, you may simply disqualify one or more of the actual professional contractors you have considered simply by mistakenly believing that the price is too high.
The following is a list of some of the key elements that make up “overhead” in every successfully managed remodeling company. If one or more of these ‘essential elements’ is missing, the company’s ability to manage your project and provide quality service drops considerably.
Telephone, cell phones, pagers
Office rent
Office supplies
Stationery and printing expenses
Web site, hosting, and Internet
Worker’s Compensation & Liability insurance
Health insurance
Paid vacations, holidays
Staff meetings
Payroll expenses
Office administration and management
Time doing “free” estimates
Material price increases which may not be billable once a job is quoted
Estimating errors and omissions
Warranty repairs
Tools and equipment
Trucks, repairs & maintenance, fuel
Continuing education, training, and industry events
Computers and software
Business loans and interest
Accountant’s fees
Production supervision and management
Advertising, marketing, and sales costs
These are just some of the items that a professional contractor has to account for. When you consider that all of these items have to be paid for out of the money that’s left after paying for labor and materials, it’s hard to believe remodeling doesn’t cost even more!
This all adds up to a substantial amount of money. In order to cover his overhead, a contractor
typically must add between 40% – 60% (or more depending on various factors) to the actual cost of labor and materials required to complete your project. Again, this is just to cover overhead expenses. It doesn’t include profit. Most professional contractors try to maintain a 5% – 10% profit when all is said and done. Without a profit, the contractor will eventually go out of business.
The next time you receive a price from a contractor that seems too high, don’t automatically assume that he is trying to line his pockets. He may very well just be trying to pay for the very things that allow him to survive and provide a good, reliable service to you and a good environment for his employees.
Beware of the contractor that tells you his prices are low because he keeps his overhead down. Chances are high that there will be trouble ahead.