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Contractor Markups: How Much Is too Much?

A reader sent in this question regarding contractor markups on a kitchen remodel:

“A contractor submitted a bid for cabinetry (at full cost) plus electric, plumbing, etc., plus charges for supervision, overhead, and profit. The last three categories added up to 35 percent. With the cabinetry at full cost, the contractor must have expected a net (over invoices to him) over 50 to 60 percent.

Should one expect the contractor to pass the contractor discounts on to the customer, if he is charging for profit separately? I am told that in commercial construction the markup on a job is at the 10 to 12 percent level, not the 50 percent we were quoted. We did not accept the bid.”

My perspective: Home remodeling is a messy, confusing endeavor, much more so than is new commercial construction. The remodeling company employees have to work around a family and pets, act as therapists sometimes and deal with the existing home, which may be substandard, in addition to getting the materials and installing them properly. The most troublesome contracting companies are those that do not charge enough and who struggle running from one job to the next to keep the paltry funds flowing.

There’s a common joke in the remodeling industry: Q: What would you do if you won the lottery? A: I’d keep running my remodeling business until I used up the money. In my opinion, you don’t want to work with an underfunded company whose employees are underpaid, whose employees don’t have benefits or training or pension plans, a company that can’t afford to pause and improve its systems. I think the primary focus on saving money is misplaced when deciding on a contractor. Save that focus for Costco and choose your contractor according to reliability, quality and trustworthiness.

What do you think?

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