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Removing The Con From Contractor - Why Your Home Remodeling Or Building Project Is Putting Such A Strain On The Pocket B

Updated on August 5, 2013
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It never fails, when a potential customer receives a proposal from a contractor, the first thought is always, why is it so expensive. Well to clear the air a little, and with any luck take some of the heat off of construction contractors, I'm going to fill you in on a few things. The information I'm going to share with you should give you an idea of where all your hard earned money is going.

When determining the cost on a proposal there is no common or set price that the contractor takes from a book, there are in fact many different aspects to figure in to each individual bid, before the overall cost is decided. The contractor or sales rep. is most likely spending several hours, if not days, working out the specific details of your contract and coming up with the estimated cost of each service performed.

When choosing the proper materials for your job, the chances are that your contractor has either chosen high end or a good mid grade product, very few contractors will buy low budget materials when it is their name at stake. So with that being said, your projects materials will probably account for 30% - 50% of the final cost of the project.

Another material related cost to keep in mind is that the higher quality the product the more expensive installation usually becomes, due to the product damage risks involved.

COMPANY VEHICLE AND INSURANCE PRICES

The company vehicle and business insurance costs are a majorly overlooked factor when seeing your out of pocket expense.I have seen contractors insurance range from $2,000 dollars to $10,000 dollars a year, in some cases even more, and that doesn't even include the workers compensation insurance that has to be paid for all employees. The cost of compensation insurance is based on the total amount your employees have earned the previous year or quarter.

EMPLOYEE WAGES AND TOOLS

As long as we're on the subject of employees lets talk about their cost to the contractor.$10.00 dollars an hour is usually the bottom of the totem pole pay rate for construction workers, and for good reason it's hard work, yearly that averages around $21,000 dollars a year, each. The actual rate is usually closer to$15.00 - $25.00 dollars an hour for any competent professional, giving you an average of $31,000 to $52,000 dollars a year per employee.

Then of course you have tool rental/purchase and maintenance, though you may not feel it's your responsibility to cover a percentage of these costs the bottom line is that if your project requires a specific tool then it has to be figured in to your contract.

OFFICE AND TRUCKS

Then of course there are the office/shops and trucks your contractors business is operated from. An average sized shop with an office can easily cost $20,000 a year to keep up and that really is keeping it quite simple without many of the luxuries you see in some businesses of the same nature.

Company vehicles can cost as much as your willing to spend but a nice average for a simple work truck can easily average $6,000 dollars a year, and considering how much abuse the trucks endure it's safe to say a highly reliable truck is a necessity, not an option.

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So how did you hear about your contractor or know how to contact them? Most likely it was through some sort of advertisement as in TV, newspaper, phone book,fliers, business cards or even more recently the Internet.

The amount a company is willing to spend on advertisement really depends on the companies size and how aggressively the are able to expand, for example a certain remodeling company I know is quite modest (less than 8 employees) and still spent $4,000 dollars last year on advertising. Yet another contractor I know runs a larger scale roofing company and spent over $23,000 dollars in aggressive advertising, to keep his employees working year round.

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STATE AND FEDERAL TAXES AND THE CONTRACTORS PROFIT

Now on to good ole Uncle Sam's Federal and State taxes. Depending on what deductions your contractor is eligible for, these combined taxes can eat up anywhere from 15%- 30% of his annual profit, making a pretty big dent in the bank account.

Last but not least comes your contractors profit, and any self respecting contractor, just like you or I, expects to be paid well for his services. Keep in mind, if this company is always working then chances are they are worth the price tag that comes with them.

The only other thing I can tell you is if your still convinced your contractor is to high then get bids from other quality contractors, just keep in mind, there is always gonna be that guy who beats the price of every one else and most likely, you will get just what you paid for.

I hope that I was able to give this consistently asked question the answer that it deserves. If there is anything else you would like to know concerning this subject, just let me know in the comment section below.

D.S. Duby

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    • DS Duby profile image
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      DS Duby 5 years ago from United States, Illinois

      Thank you for taking the time to read and comment. It's nice to hear from people who understand that not all contractors are evil, we have no control over material and overhead costs we're just trying to make slicing like everyone else. Thanks again

    • Mom Kat profile image

      Mom Kat 5 years ago from USA

      My grandfather & his brother started a roofing company about 40 years ago. (my grandpa died about 18 years ago) The company is still owned & run by my great-uncle and 1/2 of my extended family works there, plus a bunch of other employees. The company is huge!

      Even with my awesome family discount :) it's still crazy expensive, but I know how hard they work & how much equipment they need to make it work.

      This is an awesome hub - thanks for sharing it with us

    • Angela Kane profile image

      Angela Kane 5 years ago from Las Vegas, Nevada

      Thanks for creating this hub because I have always wondered why the construction costs were high and sometimes increased during the construction of a project. This hub sheds a little light on what the company is paying for and what they have to go through to get the job completed.

    • profile image

      iamaudraleigh 5 years ago

      You should try out for some show on HGTV! You would be great! You can be that Holmes guy! Make a video of this...would be great! It is nice to see you are doing well in the groups and on the hub!

    • DS Duby profile image
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      DS Duby 5 years ago from United States, Illinois

      Thank you Hady Chahine.

    • Hady Chahine profile image

      Hady Chahine 5 years ago from Manhattan Beach

      You nailed that summary! Good job.

    • DS Duby profile image
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      DS Duby 5 years ago from United States, Illinois

      Excellent comment GrayGhost last year a lead license law was passed and all remodel contractors were required to take the course and get the rather expensive license. Thank you for all of your great input and for reading my article.

    • grayghost profile image

      grayghost 5 years ago

      One cost to the small contractor you might add is that unlike Government and larger Corporations, small contractors usually have no retirement plan to draw from at retirement and no health plan either, unless they provide for those in the cost of doing business (becoming a part of every job cost). Many must forgo this due to the highly competitive nature of the business, just to have work.

      Another hidden job cost is excessive Government Regulation. There were many, the most recent occurring just before my retirement. With very little prior notice, we had to send EVERY field employee and supervisor (including our sub-contractors) to "Asbestos" class at a cost of over $!25 per employee, over $400 for the company, and lost income for the business for all of the down-time. There is no place to put costs like these but back into Job Cost.

      I started my first remodeling company when I was 22. My partner and I had to borrow $600 from his mother-in law just to finish the project (a big sum in 1972, not to mention the mother-in-law thing). But we did learn a hard lesson in job costing. And it's far more important to be counted among the BEST in the area, not the CHEAPEST. As the saying goes, there are two ways to buy oats: before the horse eats them, and after the horse eats them. They are cheaper the second way, but you get what you pay for.

      Seriously, I stayed in business nearly 40years by giving an excellent product at a fair (and real) price. We didn't get (or want) every bid, didn't get rich, but we made a fair living and made a lot of folks happy.

      Thanks for the great Hub. It's great to see positive articles about a sometimes very difficult business!

    • Maren Morgan M-T profile image

      Maren Elizabeth Morgan 5 years ago from Pennsylvania

      Ok - much of this information also applies to consulting, accounting, and other service providers. I did like the mention that a businessperson who cares about reputation will use medium- to high-end quality supplies. Nice article.

    • Pamela99 profile image

      Pamela Oglesby 5 years ago from United States

      Congrats on your Hubnugget win. This is a very good article and explains some of the extra costs. I had a miserable experience when we had an addition built so my mother could move in. One of the more major problems was they didn't tie in the add on to the existing roof properly, then in rained. Over 1/2 of my living room ceiling fell in. The idea of hiring any contractor is not very appealing after that experience. LOL

    • DS Duby profile image
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      DS Duby 5 years ago from United States, Illinois

      Thank you very much Kelley, that's very kind of you.

    • profile image

      kelleyward 5 years ago

      I wish I had read this before using my contractors! Great tips you provided here. Congrats on the Hubnugget nomination! This is a winner in my eyes! Take care, Kelley

    • DS Duby profile image
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      DS Duby 5 years ago from United States, Illinois

      Thank you very much Ripplemaker.

    • ripplemaker profile image

      Michelle Simtoco 5 years ago from Cebu, Philippines

      My family is also into construction business so I know what you mean. Writing it all down here will give people a glimpse that it does cost a lot putting a house up and to value what contractors can do.

      Congrats on your Hubnuggets nomination! This way please to read about it http://pattyinglishms.hubpages.com/hub/HubNuggets-...

    • profile image

      Old Poolman 5 years ago

      Just Ask Susan, I know the feeling, I ate a few cost over runs myself. I have sometimes found things I bid for replacement and did not have to replace, and I subtracted them from the final price. Honesty is the best policy in contracting if you want to keep getting work.

    • Just Ask Susan profile image

      Susan Zutautas 5 years ago from Ontario, Canada

      My husband has been in the building business for years. When he gives a customer a price he does the job for that price. If something happens or goes wrong he eats the cost.

    • DS Duby profile image
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      DS Duby 5 years ago from United States, Illinois

      Very well put Old Poolman.

    • profile image

      Old Poolman 5 years ago

      Austinstar - I hear what you are saying. New construction is fairly easy to bid with a firm price. A remodel project can easily end up with extra charges because of all the strange things which may be encountered as the job progresses. These are things that were hidden from the contractor when he made the original bid.

      I agree with you that the final price on any job should be pretty darn close to the original bid.

    • Austinstar profile image

      Lela 5 years ago from Somewhere in the universe

      I wish construction bids would go ahead and include the total price up front. I hate the back end charges.

      Just give me a price for labor per hour and I will pay by the hour and keep track of the worker's hours.

      Give me a price for the supplies and products which includes the retail markup - but make it a fixed price.

      Bill me for mileage and insurance costs. Just do it up front.

      Do you see what I am saying here? Don't lie and don't pad the prices beyond what is reasonable.

    • DS Duby profile image
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      DS Duby 5 years ago from United States, Illinois

      I can understand that, I'll never give up construction completely.

    • profile image

      Old Poolman 5 years ago

      DS - After 25 years, I just sold my business down to the last nut, bolt, and screw. It is kind of nice to eliminate all the headaches and worries, but I kind of miss working.

    • DS Duby profile image
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      DS Duby 5 years ago from United States, Illinois

      Oh, don't get me wrong my business does well and I have a long line of repeat customers but it's taken away all of my family time and I've been offered a decent amount for the business name and tools and equipment and lose the headaches. Remodeling just isn't as profitable as many other forms of construction in my area, so if I end up regretting my decision I'll just start over in new construction. I have plenty of connections in that area, but I'm gonna try out some other things I have lined up first. Thanks for commenting, I do value your opinion.

    • profile image

      Old Poolman 5 years ago

      DS - I found that as long as I was honest, did what I said I was going to do, and did it on schedule, I didn't have a problem. It is difficult competing with all the unlicensed competition who don't have all the additional overheads to pay, but your reputation will get around this. At times I even had potential customers tell me they had gotten cheaper bids but decided to go with me because I was licensed, bonded, and insured. I also had a long list of happy customers who were willing to give me a reference. Just stick with it and you will do OK.

    • DS Duby profile image
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      DS Duby 5 years ago from United States, Illinois

      absolutely, to be completely honest when I opened my own company I told myself I was going to be different and not take advantage of the customer with high prices. Then I quickly found out I was only taking advantage of myself. Part of the reason I'm leaving construction is because of the overall view most people have on contractors, it's just not the kind of image I want regardless of how good the money is. Thanks for reading and commenting

    • LetitiaFT profile image

      LetitiaFT 5 years ago from Paris via California

      Really timely for me. I'm getting some estimates at the moment which seem so high compared to the work to be done. But I see now that it's not so much the work that runs up the bill, it's all the other stuff the contractor him or herself can't even get around. Thanks.

    • Suelynn profile image

      Suelynn 5 years ago from Manitoba, Canada

      Hi Poolman, I have a pretty good idea what kind of adjustment it takes to being retired. It's important to find things one enjoys doing if possible... people are used to working, not sitting too idle. :)

    • profile image

      Old Poolman 5 years ago

      Suelynn - I am trying to get accustomed to being retired but it is not as easy as you might think. I'll keep working on it though. :)

    • Suelynn profile image

      Suelynn 5 years ago from Manitoba, Canada

      :) Very glad to hear it, Poolman. Enjoy your retirement, you have more than earned it!!

    • profile image

      Old Poolman 5 years ago

      Suelynn - LOL, Things have greatly improved for me. I sold the business and retired.

    • Suelynn profile image

      Suelynn 5 years ago from Manitoba, Canada

      Wow, Old Poolman... you'd think people would give you a break. Won't it work to pay a set amount for mileage and record your odometer? It's a shame that people don't have more respect and understanding. It always boils down to communication, I think. I hope things improve for you. Take care and all the very best. :)

    • profile image

      Old Poolman 5 years ago

      Suelynn - No, quoting driving time would be a bookkeeping nightmare, and these days travel time is almost impossible to estimate due to traffic conditions. We tell them it will be a Service Call that covers up to 1 hour of labor and no parts. That is the minimum charge to start the truck and leave the shop. I actually have had to explain to some that fixing broken pool equipment is not my hobby, this is how I earn a living. On the simple things I even show them how to diagnose the problem and fix it themselves next time it happens. Some have actually said "You didn't do anything, why should I pay you?" I carefully explain that it was not working before I arrived, and now it is working the way it should, so I must have done something.

    • Suelynn profile image

      Suelynn 5 years ago from Manitoba, Canada

      Old Poolman - do you tell your customers upfront that the drive each way will be included in billing? Maybe that way they get their head around it first and aren't that nonplussed when the fix is made... reminding them, of course, that it takes a Master Poolman to know how to fix in the most cost-effective way. :) Just a thought...

    • profile image

      Old Poolman 5 years ago

      A very interesting hub. I just sold a business where I installed and repaired swimming pool equipment. Many times I would drive 50 miles one way to a customers home, find a simple problem within a few minutes that didn't require any parts or tools to fix. Many would get extremely angry when I handed them a bill for a service call. Despite the fact that it took me over an hour driving to get there, they only looked at the fact that the "fix" only took a few minutes. They also don't consider that they are paying for the knowledge and experience of the person who comes out to repair whatever is wrong. It would have been very easy to sell them some parts they didn't need which I guess would have made them happier? The truth is considering all the hidden costs you described in your hub, this type of service call was a nearly total financial loss for the repairman. I suspect that is the very reason some service companies replace parts that didn't need to be replaced so the customer feels they got their money's worth.

    • Suelynn profile image

      Suelynn 5 years ago from Manitoba, Canada

      Interesting points you bring up there, DS Duby. I am sure you cover many of the hidden reasons why costs escalate and which many people are most likely unaware of. Well done. Voted useful and interesting. :)