construction company profits

[rh71]

Anyone have any insight as to how much profit a construction company can make on a typical dormer taking 2-3 months for instance? When we received our permit for work, it had a figure from the town for "estimated cost of construction". This of course was much less than what we're actually paying the contractor. I'm sure no labor was figured in, but the discrepancy is huge. Is it common for a company to make a 45% profit on a single project? Or is the town being extremely conservative somehow, for some reason? I'm not even sure why they put that on there.

All I know is we interviewed a handful of contractors and they were all in that ballpark for bids.

 

[Glayde]

Tony Soprano has to take his cut.

 

[rudder]

what is the ratio of illegal to legal workers? 10:1 is a great ratio.

 

[vi edit]

Hard to say. Really just depends on the area, contractor, cost of house/addition, and any unforeseen issues that they have to account for.

My general contractor was very transparent in my home construction. He actually had a line item on the contract and payouts for "contractor overhead" that was his fee. On a $345,000 contract my "contractor overhead" was $26,000. But that's not really that acurrate because there were a number of things he ate out of pocket that went over budget that weren't our fault. He underbid the basement by almost $6,000 and ate that. He also had to get some engineering permits and inspections for another $2,000 that weren't part of the original contract that he paid for.

So after it was done, at least on paper he was making around $18,000 on my place.

 

[dfuze]

They probably pad it more in times like this where they may not have a lot of work lined up in a row and want more money in case their workload decreases.

 

[jupiter57]

Yes, it depends.
On a lot of things.
One Contractor I worked for did a lot of Federal Projects, pretty much demanded we make a MINIMUM 50% profit.
The last Contractor I worked for did State projects, we liked to keep profits at 25-35%.

When I was in business, my "Rule of Thumb" was to figure in 50% profit on bottom line, but as vi edit said, you nearly always have unexpected costs.

For most residential work, any good Contractor will pretty much get material costs + Labor estimate (unless it is a small job he will do alone), then double that for the final price, gives him room to cover overruns, etc.

You must realize that a legitimate Contractor will carry Liability Insurance, and Workmans Comp., if applicable, and believe me, these are not cheap. Not to mention overhead, Truck, Fuel, tools, advertising, etc.
So when you get a price, don't assume the Contractor is pocketing everything above Material, like most people do.
That 45% profit will likely only net 20% when all is said & done!
Just like you, we like to eat & live comfortably also.
Been there, Done that!

 

[Tim]

I work at a mechanical company (hvac,plumbing,electric,security) and I know our goal is at least a paultry 10%. I know during the rough times, we did jobs near cost just to keep people working.

 

[DrPizza]

Yes, it depends.
On a lot of things.
One Contractor I worked for did a lot of Federal Projects, pretty much demanded we make a MINIMUM 50% profit.
The last Contractor I worked for did State projects, we liked to keep profits at 25-35%.

When I was in business, my "Rule of Thumb" was to figure in 50% profit on bottom line, but as vi edit said, you nearly always have unexpected costs.

For most residential work, any good Contractor will pretty much get material costs + Labor estimate (unless it is a small job he will do alone), then double that for the final price, gives him room to cover overruns, etc.

You must realize that a legitimate Contractor will carry Liability Insurance, and Workmans Comp., if applicable, and believe me, these are not cheap. Not to mention overhead, Truck, Fuel, tools, advertising, etc.
So when you get a price, don't assume the Contractor is pocketing everything above Material, like most people do.
That 45% profit will likely only net 20% when all is said & done!
Just like you, we like to eat & live comfortably also.
Been there, Done that!

Just because you reinvest your profit into tools, vehicles, etc., doesn't mean it's not profit. Your net worth as a company is growing as you do so.

Also, concerning the OP: 2-3 *MONTHS*?? They build entire townhouses in 2-3 weeks. Is this just one contractor working by himself or something?

 

[vi edit]

Also, concerning the OP: 2-3 *MONTHS*?? They build entire townhouses in 2-3 weeks. Is this just one contractor working by himself or something?

From what I remember he's effectively adding a 2nd story to his house. Renovations can be pretty crazy and difficult. You have absolutely no idea what you are getting into until you start ripping down walls. There's a lot more "gotchas" than building from scratch with prefab trusses, an army of undocumented workers, and doing a plan you've built a hundred times before.

 

[Mike Gayner]

Why would an estimate from the town be meaningful in any way?

 

[highland145]

Why would an estimate from the town be meaningful in any way?

I assume they are calculating for the amount that your property tax is going to go up for "improvements."

Gotta pay the man for your richness.

Has nothing to do with the actual costs. IIRC, county appraised our house at $165K but, actual ~$220K.

 

[iGas]

Yes, it depends.
On a lot of things.
One Contractor I worked for did a lot of Federal Projects, pretty much demanded we make a MINIMUM 50% profit.
The last Contractor I worked for did State projects, we liked to keep profits at 25-35%.

When I was in business, my "Rule of Thumb" was to figure in 50% profit on bottom line, but as vi edit said, you nearly always have unexpected costs.

For most residential work, any good Contractor will pretty much get material costs + Labor estimate (unless it is a small job he will do alone), then double that for the final price, gives him room to cover overruns, etc.

You must realize that a legitimate Contractor will carry Liability Insurance, and Workmans Comp., if applicable, and believe me, these are not cheap. Not to mention overhead, Truck, Fuel, tools, advertising, etc.
So when you get a price, don't assume the Contractor is pocketing everything above Material, like most people do.
That 45% profit will likely only net 20% when all is said & done!
Just like you, we like to eat & live comfortably also.
Been there, Done that!

Where do you live?
I want to move there and bid at 1/10 that profit and still rake it in.

My mechanical contracting bidding guideline is 1.2~4% profit on man hour when time is really good, and profit margin on hardware is 5~15%. When time are tough we bid at 0.6~0.9% on man hour and less than 5% profit on hardware (a slight problem/delay and we lose money), hence many company that don't have a deep pocket or poorly organize go out of business when tough time come.

Industrial/commercial type jobs. I'm not sure of the profit margin for residential.

 

[iGas]

Just because you reinvest your profit into tools, vehicles, etc., doesn't mean it's not profit. Your net worth as a company is growing as you do so.

Also, concerning the OP: 2-3 *MONTHS*?? They build entire townhouses in 2-3 weeks. Is this just one contractor working by himself or something?

It is a small job hence it is not a priority, therefore it will take longer to finish the job.

I have seen houses built within 1 week after the foundation pad harden.

 

[iGas]

I work at a mechanical company (hvac,plumbing,electric,security) and I know our goal is at least a paultry 10%. I know during the rough times, we did jobs near cost just to keep people working.

10% profit, where do you live?
I'm moving there.

 

[SearchMaster]

Has nothing to do with the actual costs. IIRC, county appraised our house at $165K but, actual ~$220K.

That's just so they can raise taxes without raising the millage rate. Your assessed value will probably continue to rise even though its actual value may be flat.

 

[highland145]

That's just so they can raise taxes without raising the millage rate. Your assessed value will probably continue to rise even though its actual value may be flat.

True. At least, we're capped at +5% every 5 years(?). He's making an improvement so he gets to pay for the whole thing next tax bill.

 

[OCGuy]

I would say about $21,532.72

 

[vi edit]

Just because you reinvest your profit into tools, vehicles, etc., doesn't mean it's not profit. Your net worth as a company is growing as you do so.

People confuse revenue with profit. There's a whole pile of overheads a contractor has to account for out of his own income before he gets paid too. Sure you might hand over $25,000 to him for the job but what he actually pockets net out of that is likely a much smaller number.

Most people don't work to break even.

 

[Dirigible]

In my town the "estimated cost of construction" is an important number. Over $x and you suddenly have all these requirements to track and account for every bit of waste and how it was recycled and if it wasn't recycled, a complete explanation for why not with accompanying fines if the reason isn't good enough, plus a bunch of other red tape that has to be done.

Amazingly, all the work I've ever had done had an estimated cost of less than $x.

 

[Patranus]

Just because you reinvest your profit into tools, vehicles, etc., doesn't mean it's not profit. Your net worth as a company is growing as you do so.

Also, concerning the OP: 2-3 *MONTHS*?? They build entire townhouses in 2-3 weeks. Is this just one contractor working by himself or something?

2 to 3 months is a very accurate estimation on the amount of time it takes to build a house.

Hell, you are going to let the foundation cure for at a minimum of 7 days.

Anyways, profit isn't what most people think it is. Profit is what is left over after all is said and done INCLUDING the contractor paying him/her self their salary.

 

[alkemyst]

I am leaving a homebuilder, one of the Top 10 in the US. We TYPICALLY set for a 20-30% margin...that keeps us profitable.

During the boom and even now they take that 20-30% and tag on $100k usually on sub-million dollar homes.

We could deliver a nicely finished 2000 sq ft home in S. Florida for around $175k and make our 20% margin. If all the homebuilders did this I am sure they'd be ok.

However our CEO took $6.6 million in compensation and the company as a whole made 2.6million net on the whole enterprise. My division took on 11 million in profit.

 

[alkemyst]

Just because you reinvest your profit into tools, vehicles, etc., doesn't mean it's not profit. Your net worth as a company is growing as you do so.

Also, concerning the OP: 2-3 *MONTHS*?? They build entire townhouses in 2-3 weeks. Is this just one contractor working by himself or something?

Habitats for Humanity does a house in a week.

This is a very daunting task and 100's of 'extras' are usually involved.

A typical house can take up to 18 months depending on community. Almost all are working with skeleton crews now.

 

[sactoking]

OP-

Both governmental agencies and private contractors use "books" (sometimes books, usually charts/tables/databases) for their "take-offs" (estimated costs). It is inevitable that the books used by the government are out of date and grossly understate the true costs of materials and labor.

Back when subdivisions were going strong it wasn't unheard of for a city's estimator to be at 1/10 the price of the actual cost to complete.

 

[jupiter57]

Quote:
Originally Posted by DrPizza
Just because you reinvest your profit into tools, vehicles, etc., doesn't mean it's not profit. Your net worth as a company is growing as you do so.

People confuse revenue with profit. There's a whole pile of overheads a contractor has to account for out of his own income before he gets paid too. Sure you might hand over $25,000 to him for the job but what he actually pockets net out of that is likely a much smaller number.

Most people don't work to break even.

Exactly!
Tools, vehicles, etc. cannot be considered net worth!
They wear out, get lost, stolen, & destroyed & must be replaced at more cost to the Contractor.

We don't work to break even, we work, & we take the risks to live a better life than we would working for someone else!

 

[jupiter57]

People confuse revenue with profit. There's a whole pile of overheads a contractor has to account for out of his own income before he gets paid too. Sure you might hand over $25,000 to him for the job but what he actually pockets net out of that is likely a much smaller number.

Most people don't work to break even.

Where do you live?
I want to move there and bid at 1/10 that profit and still rake it in.

My mechanical contracting bidding guideline is 1.2~4% profit on man hour when time is really good, and profit margin on hardware is 5~15%. When time are tough we bid at 0.6~0.9% on man hour and less than 5% profit on hardware (a slight problem/delay and we lose money), hence many company that don't have a deep pocket or poorly organize go out of business when tough time come.

Industrial/commercial type jobs. I'm not sure of the profit margin for residential.

Should have explained it better: that 35-50% "Profit" is not actually profit, as it goes toward aforementioned Insurance, trucks, tools, overhead, etc.
Net profit is considerably lower.