Joe Percario General Contractors, a New Jersey home improvement company set up to do both replacement and full-service remodeling jobs, had a problem. The company sometimes sold work, especially large jobs, at a price that failed to yield the desired and necessary gross and net profit margins.
"We've had situations where reps brought back $35,000 jobs that were missing a few things and were short," says owner Joe Percario.
"They thought they had everything covered." So the company completely changed and computerized its estimating system so every item that could possibly be included within a described scope of work is there, and salespeople know the price needed for the company to make money on that job.
In The Scope
Systems, such as remeasuring windows to ensure no mismeasures, are common at window companies. Still, a single estimating error can wipe out the profitability on a job. For instance, a recent window job at Norton Quality Exteriors, in Salt Lake City, failed to take into account wall thickness. The ensuing $900 worth of additional work in drywall repair, among other things, took "a big chunk of the profit" out of that $10,000 sale, according to owner Ralph Feurer.
"The window, siding, and roofing business is easiest from this perspective," says Ken Moeslein, CEO of Legacy Remodeling, in Pittsburgh, which this year began taking on full-service general contractor jobs as well as fiber-cement siding. Such work, the company has found, requires more thought and consideration in the estimate. "The design/build is where it gets scary," Moeslein says.
But he feels confident that including a full scope of work and having salespeople double-check every line will enable the company to get the number it needs to always make a profit, even on something like the $90,000 addition it just completed.
A Function of Training
Jeff Head, owner of Head Construction, in Evansville, Ind., suggests making sure that every possibility for mishap is covered by insurance and that you build flexibility into your contracts. For instance, if Head's roofers find rotten sheathing, the company replaces the first two panels for free but charges for other panels.
Other contractors build a 1% "fudge factor" into their pricing, to cover unforeseens. Norton Quality Exteriors has everyone in the company go over every job at a group meeting. "We want the group to learn that everybody makes mistakes and how not to make mistakes," Feurer says.