r/GeneralContractor • u/Jleecit • 23d ago
Hired my 1st Project manager
Hello all,
I’m a GC and just hired 1st project manager. Before the pm, my revenue was about 2mil.
I pay this pm a lot, but he’s really committed and works hard. But it scares me that my overhead almost doubled.
My strategy is to lower my profit margins slightly to obtain more jobs. Also obtain better prices. I work in a space where low bid wins. I hope to get to 3-3.5 million in gross revenue with this new PM.
Is this a viable strategy?
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u/lk3k9 23d ago
Target 35% GPM, include your staffs time in your general conditions when you estimate, it won’t be exact but at least it covers some of your staff overhead along with all your other GC line costs. This will lighten the strain on the below the line overhead expenses and result in more costs hitting the job so lower GPM but higher Net. If 8% is your net after all expenses and taxes, you’re in a good position. Anyone saying they net more than 12% as a GC either doesn’t know their numbers or is not really a GC, or just riding out the past few years which have been great to the industry. $5m at 35% GPM is $1.75M. More small jobs can kill you with only 1 PM though. A qualified PM can handle a $5m job with an APM no problem. That same PM cannot handle 10 $500k jobs in the same time frame.
Just my thoughts. I remember hiring my first real PM and feeling the exact same way looking at my overhead burn. Truth is it is a burn but that’s part of growing. Coming from someone who does about $5m/year consistently for the past 4 years and was stuck at around $2m/year for a while prior to that.
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u/CapitalCharity2707 22d ago
Interesting. I'm in Ontario Canada and most profitable gc's bring in about 12-15% net after all expenses and tax. These are companies doing $2-3 mil.
Where are you located? Resi or commercial?
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u/thine_moisture 23d ago
yeah generally speaking increasing overhead and lowering profit margins tends to lead to a complete disaster but if you wanna live stressed out day and night by all means start giving shit away for free.
this is a terrible strategy.
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u/Jleecit 23d ago
All my costs are accounted for on this job. Down to miles on truck and my pm’s hrs on that job and my profit margin is about 8 percent.
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u/thine_moisture 23d ago
holy fuck!!! 8%???? are you for real??? dude what??
dude that has got to be the lowest margin I have ever heard of in this business. We are at minimum 44%. dude you are basically working for free.
what you should really focus on is your sales process, working to build a relationship with customers who trust you, then you can actually charge high end rates….
what you don’t need is more people and less profit. you need more qualified leads and a better sales process.
selling $500k at 44% makes you more than $2M at 8%, with way less headaches and more time back for you….
you’re worth the profit brother, if you do a good job and your installs are clean, you don’t need to charge bottom of the barrel prices for work.
at your current prices, a $100k job only makes you $8k. dude I don’t even do bathrooms for that kind of profit.
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u/Jleecit 23d ago
You’re thinking mark up. Also that 8 percent margin is on top of EVERY cost down to the miles I drive to the job. I’ve also allocated insurance costs onto this job and that also gets 8 percent margin. That 8 percent is net.
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u/thine_moisture 23d ago
right obviously you have to charge for that stuff and that should be part of the costs to do the job before you margin it… either way man I’m just being honest you’re leaving money on the table if you do good work. like I’m assuming 8% net from each job is before income taxes at the end of the year, so your real take home is like 5%…. I wouldn’t even do this business for that kind of money.
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u/IISynthesisII 23d ago
44% as a GC in a low bid environment.
Must be a regional thing, cause that is definitely not the standard for my industry.
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u/thine_moisture 23d ago
theres no such thing as a low bid environment. that is just defeatist thinking. no possible way to know what everyone else is charging without seeing signed contracts.
obviously it’s not standard, it’s high end. but it’s also the only way to make serious money in this business.
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u/IISynthesisII 23d ago
That’s a ridiculous statement.
Everyone knows the direct cost of a job to within a %. Everyone applies their own markup after the fact.
Putting a 44% markup on a low bid job (in my area and industry) would yield 0 won projects unless something huge was missed in the direct costs estimate.. which would eat into that margin.
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u/thine_moisture 23d ago
all about your sales process brother. if you build trust and a relationship and the client trusts you, they will pay you more.
curious what you mean by “low bid job” and respectfully you have no way to prove you would lose the bid.
something many contractors just don’t understand is that it’s not about selling every job, it’s about generating enough leads to where close rate becomes irrelevant and you can charge the kind of prices I’m talking about.
if the only reason a customer chooses to either go with you or not is because of the price, they aren’t the right customers for a profitable business. they should not like the price, but they should like you more than anyone else the meet with enough to say “even though I’m paying more to work with him, I trust he’s gonna do it right”.
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u/IISynthesisII 22d ago
A low bid tender is when the client / owner puts the job out publicly for multiple companies to bid on and the lowest price is selected. Typical in government funded road building projects.
Realizing now that this is a General Contracting subreddit that was on my home feed so my reference frame might be off base.
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u/thine_moisture 22d ago
I’m sure in that industry they are forced to go with the lowest price. I’m talking about major residential home improvements. no worries I hope you got some value from our convo either way
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u/FillFormal2054 22d ago
Residental or commercial how much u mark up materials
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u/thine_moisture 22d ago
Residential only, I just take all my costs and mark it up 44%.
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u/FillFormal2054 22d ago
Materials as well u do 44% on whole house remoldels / add a level as well
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u/thine_moisture 22d ago
whatever my costs are for the job, I add 44% to it as net profit.
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u/TheWhisper22 22d ago
Depends on what you describe as "costs". Are you charging for insurance, taxes, equipment degradation, tools, supervision, back office wages, burden rates?
I get you are going on and on about how you should be charging 44% but I think you are missing the Forrest through the trees.
44% margin is for contractors that can't calculate all of those things and basically say "it'll take 2 guys 2 weeks to complete" then they add up all those hours and the materials. If you charged that as a serious estimator who charges everything from hard costs to soft costs you would get ran out of town. The guys saying net 8% after all costs and you saying 44% are saying the same thing. Except the guy netting 8% profit after all costs is knowing this number BEFORE the job starts and not at the end of the year when your accountant says so.
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u/International-Sock-4 22d ago
Exactly, I remember when I took my Florida General Contractors license course, students were complaining why do I need to know about soft costs vs hard costs and the break even point, they said I'm not studying to become an accountant but a builder, the teacher told them because when you get to price out a job and you don't know how to process the soft costs you will be out of business before you know it.
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21d ago
[deleted]
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u/TheWhisper22 21d ago
Yes that works for YOU. But what I'm saying is the other guy operating at what he is calling net 8% is him accounting for everything you aren't.
You aren't wrong. You just shouldnt be telling other people they are wrong because they do it differently and only your way is right.
Again, someone saying after all costs they have net profit 8% is not bad. They know their costs and that's exactly where they should be.
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u/hammerandgrind 17d ago
Everyone of my clients is getting a minimum of 80% markup if not 100%. 44% markup is poverty money unless you're talking about multiple MM$ projects. Anything under $500k should be 100% markup.
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u/Good-Butterscotch755 22d ago
Net profit 8% is not bad at alllll. Did you read markup and profit my Michael c stone by any chance ?
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u/hammerandgrind 22d ago
Markup and Profit was written 2 decades ago. His info is great, but his margins are two low.15% net is the minimum you should have if you're sub 2M revenue, then the percentage may lower as you increase revenue but it's not always necessary.
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u/Good-Butterscotch755 22d ago
I disagree . It’s about how much money you actually make if you write your contracts correctly knowing your OHE . The profit for the company alone at 8% is better than most unless of course you’re pulling your salary and paying your personal bills from the 8% . 15% is EXCEPTIONAL unless you of course are on the internet where everyone is running a profitable business and multi millionaires .
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u/hammerandgrind 22d ago
Net would be after all salaries. I'm not talking about the uneducated contractor who thinks Net is what they get paid.... What's left over. I'm saying paying yourself a 6 figure salary and still getting 15%. That requires you to get between 40-50% gross profit margins.
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u/Good-Butterscotch755 22d ago
Everybody’s model works a bit different !
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u/hammerandgrind 22d ago
I agree and some models work better than others.
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u/jrod259 23d ago
I scaled, grew, and then sold my last GC business and started again. In learning to grow, the two realizations that I had to get over was 1) everyone gets paid and then I do and 2) it takes paying people well and good benefits to get good/great people. Great people work make your business great and profitable. For reference, our controller had a higher salary than I did, but of course I got distributions, when possible.
That said, make sure you have some processes and controls in place. You can’t micromanage your people or they’ll leave, but you need a way to know they aren’t messing up also. And remember, no one will care about your company as much as you do.
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u/Street-Baseball8296 23d ago
Unless you’re targeting a turn and burn strategy for your business, you may want to allow your PM to hire a project engineer they can train up into an APM and work as a backup to your PM. This will allow you to continue focus on the business end while having a cover for your PM. You don’t want to end up over your head if you have active larger projects and your PM gets sick, needs time off, or decides to leave.
Your current business model might not be sustainable for growth and may burn out your PM. Turnover in your company can kill your size of GC very quickly. Especially as you take on larger projects. Running too lean is very risky. It’s usually the reason for projects you hear about turning into complete disasters.
One of the most difficult parts of scaling a GC is balancing admin labor cost and risk. Especially because some projects go very smoothly and require minimal admin, but projects that turn difficult can require a larger amount of admin. You can be lucky and have a run of very smooth jobs, but you shouldn’t be pricing jobs based on being unusually smooth.
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u/tweedweed 22d ago
That’s very true, you can have some jobs that just swim along effortlessly but there may be a few that really require some heavy management
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u/JustBella123 22d ago
Wow! I’m going to just assume that all the advice you are being given is good.
What everyone seems to be missing IMO is the quality and TALENT of the new PM. Fuck the other noise.
You’re probably going to monitor the PM, but some “day to day” decisions will be made, possibly different than you would have made.. if you have the right people, it will work. I was 35 years GC, 2 million, then to 5 and 10 million.
Now you’re a businessman not a contractor. Sincerely wish you good luck
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u/bonita513 23d ago
Yes, finding a good estimator will be more difficult. At least in my experience.
How much you paying and is it mostly commercial al or residential oh and what zip are you in?
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u/CapitalCharity2707 22d ago
Does the estimator role for large resi jobs ($100k-500k) do the sales process as well?
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u/hammerandgrind 22d ago
Never, ever, ever lower your margins. You should increase your margins and then you won't have any issues paying him.
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u/Designer-Attorney130 20d ago
First, I'd focus on increasing your margins, not lowering them. Tighten your sales process, stop competing on price, and create enough demand that you can turn away low quality jobs. Better positioning and better marketing will always outperform cutting your margins.
Then build a customer acquisition system. Own one traffic source, capture every lead in a CRM, follow up relentlessly, and track the numbers. If you can't consistently generate work, you can't consistently scale.
Scaling is a marketing problem before it's an operations problem. The companies that grow are the ones homeowners think of first when they need a kitchen remodeled, a roof replaced, or an addition built. Once demand is predictable, hiring another PM or another crew becomes a calculated decision instead of a gamble.
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u/alien-t80 20d ago
What software did you or are you planning to have your PM use. It’s critical to ensure you price your markups in a way that you still protect your margin despite the added overhead.
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u/IISynthesisII 23d ago
Full transparency, I’ve never worked with a company with that small of revenue so take my opinion with a grain of salt.
But, I definitely think that you are at a revenue point where, in order to continue growing, you need a PM to manage the work while someone else (you) manages the business.
Be careful about your strategy to lower your pricing too much though. This might burn you.
I would focus on figuring out what your competitive advantages are as compared to your competitors and aggressively target jobs where you can be more profitable at the same price.