He asked for help. We're honored that he asked us, and we're pleased that he followed Cardinal Rule 4 : You shall keep your ego in your pocket.
When you need help, get it. When you calculated your markup, you projected your job costs, overhead expenses, and profit. Your projected job costs were used to calculate your markup, so your markup needs to be applied to job cost. In a perfect world, estimated costs will match actual job costs. At the end of a perfect year, total job costs will equal projected job costs.
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If you applied your markup consistently, you'll have the funds needed to pay all projected overhead expenses and meet your projected profit goals. It's not a perfect world — that's why you need to review and recalculate your markup over time - but that's how it's designed to work.
7 Ways to Improve Your Estimates with Technology
So, when you aren't sure how to apply your markup, think about how it was calculated. Since it was calculated against job cost, it needs to be used against job cost. Taking it a step further, if you aren't sure whether or not something should be included when estimating a job, would it have been considered a job cost when you calculated your markup?
Then it should be in the estimated job costs. If it was considered an overhead expense, keep it out of job cost because it will be covered by your markup. You can glance at it and with a few quick calculations know if your markup is adequate or if something needs to change. That's why we believe that using one markup is smart. It's simple and quick, and keeps you focused on what you're supposed to be doing, which is promoting your business so you can sell and build more jobs.
When you see a quote that shows a markup only on materials, rest assured, the labor rate has been marked up as well. They'll call it the "going rate", and it's marked up.
They use the "going rate", then reduce the markup on materials so it looks good to the client. Maybe it is, maybe it isn't. If it isn't enough, we both know who will make up the difference. Their family. It's important to calculate your markup based on your business needs. The down side is they usually do these on the side so it may take longer to get it done. Don't be penny-wise, pound foolish and end up spending more in carrying costs than what you saved waiting to get the job completed. Let them know you do not pay for partial work so if they don't complete and you have to hire someone else they will get nothing as whoever else you hire will not warrant the work that has already been completed.
These are only a few things and undoubtedly you will have a contractor issue eventually but these few things should help you minimize issues Join the millions of people achieving financial freedom through the power of real estate investing. If you signed up for BiggerPockets via Facebook, you can log in with just one click! Log in with Facebook.
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CFW - Understanding Your Costs / Open Book Costing Models
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