Myths, Mistakes and Misinformation

Alan Hanbury Jr. Contributing Editor

Myth No. 1: I am the most expensive remodeler in town; I can't possibly charge more.

In most markets, there will be several hundred firms offering similar services to yours, and I guarantee that you are not the most expensive. Few contractors tell you what they actually charge; the people telling you you are expensive — your potential clients — are comparing you to only three or four other bids, hardly a scientific sample — and I guarantee the average buyer is a liar. They smell blood and know you will drop your price to get the job.

Raise your prices 10 percent tomorrow, and you will see profits soar. You will gain the ability to truly service a client and provide superior quality. Then you might be the most expensive, but you will be worth it.

Myth No. 2: I will lose money if my crew works overtime.

What a pile of sheep dip that is! We have 800 billable hours and do $1.6 million in annual volume, which means that for every hour we work, we produce $200 of billable sales. That sale has a 40 percent margin attached to it, which means that after paying labor, burden, materials and subs we create $80 gross profit. Every hour that we incur overtime costs us only about 6 percent more than regular hours because most of our worker's benefits (workers comp, health insurances, vacation and holidays) are not applied to overtime premiums. With a $40-an-hour cost of labor on regular hours and $42.40-an-hour on overtime, we lose $2.40-an-hour on jobs for those few overtime hours. We created $80, and we lost $2.40 of it for overtime hours. It is not much of a sacrifice to get a job done quicker, on schedule and have a better paid and more beholden workforce.

Myth No. 3: I don't have time for job costing and bookkeeping.

A healthy appreciation for cash is a necessity because if you run out of cash and don't have credit, you will be out of business. Most companies die from indigestion and not starvation, so they are still working hard when they "die."

You need to budget and then project job costs to see which ones actually make money, what margins are created, which should be avoided and how long they take to complete. Job costing shows which areas of a project you should do in-house; which to sub out; which carpenters take more than your budget for drywall or siding; which lead can complete a particular job for the profit that you envisioned before it started. Anything less is just guesswork, a recipe for failure.

There are 35 more myths on my list, but these should get you to realize that the common thinking and consensus of the industry will barely get you to average. And how many of us wake up each morning just hoping to be average?