Hot Rods Denver CO builder who takes $ but doesn't build

Looks like there are as many payment/billing options as there are shop owners...good 'ol capitalism at its finest.

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31 Vickie with a hemi..........your math is correct in so far as multiplication and division is concerned, but I disagree with your logic. If the job is $100, all in parts and labor, and you want to make 30%, you simply add 30% of $100 ($100 + $30 = $130) to achieve that. Simple and done. all the rest is math gymnastics. And that assumes you actually priced your labor and parts at true cost.....overhead fixed and variable costs, wages, payroll taxes, etc.........with no allowance for net profit.

All the costs are there, and the need for reasonable profit.....regardless of how the financials are structured. The premise of this entire thread was how does a customer protect himself from getting cheated by either a well meaning and talented builder, but who is incompent or marginal as a business man; or by the unscrupulous builder who preys on naive' customers. So, it comes down to process. Costs exist regardless. Both parties need some security in the deal.

Ray

 

Ah, if only it were that simple.... Assigning a flat amount of markup to all bid prices may work, depending on the amount/quality of local competition, but may lose you some jobs too. Most customers (particularly new ones who haven't done this before) are fickle, looking for the best price on what they think the job is. Failure to communicate the job scope to the customer can be an issue. But generally, the bigger the value of the job, the lower you can go on your 'profit'. A quick example: Customer A comes in for a $100 job, you spend 15 minutes giving a price, etc. Your shop labor rate is $60 per hour. You've already 'spent' 15% of the job (1/4 hour @ $60 = $15) before doing anything. Customer B comes in for a $1000 job, you spend an hour with him. But this time you've only 'spent' 6% of the job ($60), you just 'gained' 9%. Add in all the other variables like a job with high material costs but low labor or vice versa and the 'final' price (including profit) can vary considerably even for two jobs with the same total 'costs'.

I estimated jobs for a number of years at work, and one thing I learned quickly is you don't bid a 'better' job than what the customer asks for; that will insure that somebody else (who bids it exactly the way the customer asks) will get it, not you. It's fine to point out any shortcomings you may see in the proposal and sometimes you can educate the customer into seeing the better value you're offering. But bidding to the specified work will allow an apples-to-apples bid comparison. Have a 'change order' procedure (for those customers who change their minds in mid-job) that clearly defines what those changes may cost. All this protects both the contractor and the customer.

 

There's no way to make it clearer,,,
but this is more for the others who may be reading along.

It's not math gymnastics is simple accounting at its most basic level

(Gross sales) minus (job cost) equals (gross profit.)
130 - 100 = 30
143 -100 = 43
Profit percentage (%) is (gross profit) divided by (Gross sales )
30/130 = 23% profit margin
43/100 = 30% profit margin.

It's a two step or equation process to find out what your profit margin is.
A business plan and budget lays out what profit margin is needed.
For quoting purposes and if you're capable of hitting the estimate on budget, that's exactly how you do it. If you want to run at 23% add a 30% mark up. But if you want to run at 30% you need to add 43% mark up.
Just remember who pays for it

Final words on the subject.

" Neither a borrower nor a lender be."
Is probably a better known saying and good sense, but here's why -

Prov 22:7 7. "The rich rules over the poor, and the borrower is slave to the lender."

Hummm, the Borrower is a slave.
So which party is the borrower and which is the Slave and who gets forced to be ruler over the poor?

When you have a deal that requires no money till completion, the contractor is the lender to the client who is the Slave.
The contractor is also ruler of the poor client but he is also the slave as he is using others money or maximizing the XX days till net payment, he is a Slave just the same but lower slave to many many many and the client is subject to shit rolling down hill as he, the client IS the last slave in line who has slave for a ruler.

When you have a deal that requires up front money from the client, the contractor is the Slave here, because he now owes the client something. and the comtractor is slave to only one, the client. If its you who are the client, you better not be a incompetent ruler.

 

I think some people here need to back up and take a look at what they're discussing. All this talk about how to price work in your shop, when the thread started about a guy who wasn't getting the results he felt he should after paying out a large sum of money for a ground up build that isn't progressing at what he feels is a reasonable rate. Then it evolved somewhat reasonably into what should be paid or not paid in up front money on a big job.
But all this back and forth about how to price a job, is IMO, a hijack of the thread and prolly why we haven't heard from the OP in awhile.

 

Threads do take on a mind of their own, and its its alot like sitting in the garage talking with the guys. That's my
Opinion.

Now the OP might need you as an advocate here since he wanted to hear from Denver area people, but you pushed eloquently for a change of his original intent.

 

It is a bit, but hopefully it will give some insight to potential customers on what questions to ask before committing to a shop. A shop that can't clearly explain their billing may not be very clear on how/when they're doing the job....

 

Here is what I mean about "math gymnastics" Example: a parts house buys a part for $60 (dealer cost) that retails for $100. What is the % markup and what is the % gross profit?

The markup is 66% ($60 + $40 = $100. $40 is 66% of $60)
The gross profit is 40% ($100 - $60 = $40. $40 is 40% of $100)
Same part, same price - two different percentages.......what you are trying to calculate
determines which formulas are employed.

And I agree with Crazy Steve. Pricing and allocation of expenses is far more complicated than my, and other, examples would suggest. But a thorough dissertation of that subject would be lengthy and a sure cure for insomnia.

While a well done business plan (pro-forma financial statement) can be predictive of gross and net profit (or loss), in the everyday real world of business, the gross and net profits are often variable and depend on many factors, only some of which are readily controllable.

Ray

 

I'm getting a headache-Too much math; find the guy, get something back of monetary value ( preferably cash ),and break his legs.
"It's not personal, it's business." Don Corleone