If you already think a remodeling contractor is entitled to an item titled “Markup and Profit” in the bid, you can skip this post.
But if you cringe at this concept, and try to negotiate markup and profit out of the bid, keep reading.
As far as I can tell, there are three major types of remodeling contractors:
1. Excellent and ethical contractors who really know how to run a profitable business. These are the ones you should hire.
2. Good-hearted and ethical contractors who are not good at business, who tend to lose money on jobs. You want to hire these guys, but you really shouldn’t.
3. Scoundrels. Of course, you should stay far, far away from these guys.
It’s that second group that I want to discuss. Many times, remodeling contractors get into the business because they truly like people and like pleasing people. But sometimes, perhaps oftentimes, they are not very good businessmen. And they sometimes bid way too low just to get a job, and then struggle to finish it.
This is what you want to avoid. You want to avoid a contractor is working at such a low margin that when anything goes wrong, there’s no cushion to make things right. If your contractor gets no markup and profit, and is basically working for wages rather than building a strengthening a company, you can be sure there will be troubles. They may not have enough credit to buy materials. They might struggle to pay subcontractors, who then revolt by not showing up.
In my opinion, you are much better off hiring a company who makes a profit, who pays employees well, who provides some kind of benefits to them, and who has enough breathing room to come back to your job to fix anything that has broken or failed.
You might want to hire the cheapest guy, but I don’t recommend it, for your sake.
For contractors, get this book Markup and Profit: A Contractor’s Guide, and read it several times. I recently met the author, Michael Stone, and he is your advocate and champion for running a good business and not giving yourself away cheaply. Because that doesn’t help anyone in the long run, especially not your customers.
See a video of Michael Stone here and read his blog.