Why a Plan?
A little while back I spoke to a prospective client about finishing their basement. They have about 750 sqft of unfinished space and they wanted an estimate for finishing it. Granted, a simple inquiry in the client’s eyes as it’s just an empty space they want to turn into something usable. After some basic questions such as how long they have lived in the house, the approximate age of the house came the all important question…‘Do you have a set of plans or drawings outlining what you want?’. A brief pause was followed by “No. Why would we need plans?”.
After some brief discussion, I analogized it this way. Imagine you sell apples. A customer asks you ‘How much for apples?’. You will ask two questions. What variety and how many pounds? Would you give the customer a price for apples without knowing the answer to those questions? Of course not. After all, how else are you able to determine the cost and thus the price? Pretty simple, right?
Here’s a simple scenario that you can put yourself into the client’s shoes. For the purpose of the example, we’ll say both are finishing a basement of the same size and finishes. To keep things simple building permits and taxes are left out.
Contractor visits the clients in their home to see the space, take some measurements and asks some questions about the desired finished living space, bathroom, finishes, etc. Using an approximate cost per square foot, the contractor provides the client with an estimate of $55,000 for time and materials.
Construction starts and progresses at a good pace. The location the clients eventually choose for the bathroom required plumbing work involving breaking up a portion of the concrete floor and the overall electrical requirements of the project dictated that the electrical panel be upgraded. A couple of other items the clients wanted in the bathroom were sure to make the space something they can be proud of.
At the 80% finished mark the bills are up to $66,000, the clients are scratching their heads wondering what happened and are beginning to feel that they are being taken advantage of. This was supposed to be straight forward and don’t understand that they have paid $66,000 without being close to the substantial completion point. The clients call the contractor to discuss their concern and ask what happened to the original $55,000 estimate. Not a comfortable conversation for the client or the contractor.
Did the contractor mislead the clients? No. All the costs were justified and the work done properly, but it was a ball park estimate without a plan. Are the clients at fault? No. They made choices and knowingly proceeded on a pay-as-you-go basis, but without a plan.
Contractor visits the clients in their home to see the space, take some measurements and asks some questions about the desired living space, bathroom, finishes, etc. The contractor talks to the clients about providing them with an accurate estimate for their project. Suggests that if the clients are truly serious about the project the investment in drawings/plans will give them a complete picture of their project, establish more accurate costs and provide piece of mind.
The contractor offers to provide the design/drawing/plans services to the clients with the fees being credited to the job should the client wish to proceed with the project with the contractor. The clients agree. Total cost for the services ends up being $750 and the estimate for the project is $68,000
Construction starts and progresses at a good pace. The location the clients chose for the bathroom required plumbing work involving breaking up a portion of the concrete floor and the overall electrical requirements of the project dictated that the electrical panel be upgraded. A couple of other items the clients wanted in the bathroom were sure to make the space something to be proud of. Since these items were outlined on plans/drawings and trades consulted for estimates for electrical, plumbing and HVAC these are not surprises.
The clients did make one change to finishes in the bathroom which added $1200 and an electrical defect was discovered behind an existing wall which added $450 to the electrician bill. However, these items had change orders properly completed. In total, the cost of the project: $69,650 ($68,000 + $1200 + $450)
If you had a similar project, would you prefer to be in the shoes of Client A or Client B?
What should it cost?
I was picking up some supplies at one of our local hardware stores a couple of weeks ago and it wasn’t possible to not hear two gentlemen talking who were obviously friends. One had gotten a quote to paint three fair sized bedrooms in his house and was clearly astonished that a painter gave him a quote of $925. He found it way too high and though it should have been more around $500. Was the $925 job price too high?
First, we’ll star with you. Let’s say you run a painting business. You also earn an income from this business and it’s your primary source of income. You need an income to probably pay a mortgage along with a host of other expenses such as food, utilities, insurance, property taxes, retirement savings, etc., etc., etc. just like everyone else. For the purposes of example, I will use the average annual pay in Ontario for 2016 (according to Statistics Canada). That number is $50,589 per year or $24.32/hr based on a 40 hour work week. (I should mention at this point that the average annual pay for 2016 in the construction sector in Ontario is $62,461/yr)
Three rooms, you expect a day and a half to do all the other activities such as shopping, prep work, clean up, travel, administration, etc. That’s 12 hours or $291.84 pay. Quality paint and materials, about $300. That’s $591. All done, right? Nope.
What about the expenses to run your business?? Insurance, vehicle, fuel, payroll taxes, accounting fees, marketing just as a very short list. This is called overhead and you need to account for it or your painting business will be in the recycling bin within six months.
And…are you in business to run it as not-for-profit? I didn’t think so. Profit of 8% to 12% of revenue is not unrealistic.
Add your pay and materials and that comes to $591. Let’s circle back to the $500…that would be a financial LOSS for you. Let’s include the overhead. For a painting business, about 40%+/- of basic job costs. Now we’re at around $827 (that’s the break even amount). You’re not running a not-for-profit business so you need to add 12%. $827 x 1.12 = $926.24 job price.
Your average pay, materials paid for, overhead covered and a $99 profit. The price the painter quoted the gentleman was a fair price.
If you were running a painting business would you do it for less?
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