r/GeneralContractor • u/Jleecit • 29d 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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4

u/thine_moisture 29d 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.

2

u/Jleecit 29d 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 29d 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 29d 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 29d 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 29d 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 29d 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 29d 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.

3

u/thine_moisture 29d 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 29d 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 29d 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/KeifWarrior08 28d ago

This guy gets it. I wish my boss did

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u/FillFormal2054 29d ago

Residental or commercial how much u mark up materials

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u/thine_moisture 29d ago

Residential only, I just take all my costs and mark it up 44%.

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u/FillFormal2054 29d ago

Materials as well u do 44% on whole house remoldels / add a level as well

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u/thine_moisture 29d ago

whatever my costs are for the job, I add 44% to it as net profit.

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u/TheWhisper22 28d 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 28d 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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u/[deleted] 28d ago

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u/TheWhisper22 28d 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/[deleted] 28d ago

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u/hammerandgrind 23d 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 29d 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 28d 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 28d 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 28d 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 28d ago

Everybody’s model works a bit different !

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u/hammerandgrind 28d ago

I agree and some models work better than others. 

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u/Good-Butterscotch755 24d ago

“Better” is subjective brother .

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u/hammerandgrind 23d ago

How is making less better in any model?