Understanding General Contractor Markup with Modern Construction Estimating Software
2 min read
Navigating the complex terrain of construction means comprehending the intricacies of general contractor markup. Previously reliant on intuition and rudimentary calculations, the age of construction estimating software like CostCertified has reshaped the markup landscape.
Modern contractors can harness the power of construction estimating software, moving beyond the pen and paper days. Platforms like CostCertified offer interactive quotes and cloud-based estimations, revolutionizing the markup process.
Dissecting General Contractor Markup
Markup on Labor: As the backbone of any construction project, labor costs are marked up to ensure profitability and to account for variables like worker's comp, benefits, and more.
Markup on Materials: Given fluctuations in material prices, contractors mark up these costs to guard against unpredictable market changes.
Markup on Subcontractors: Contractors often mark up subcontractor fees to cover management, coordination, and risk-bearing costs.
Markup on Overhead Expenses: This covers the indirect costs of doing business, from office rent to utilities and administrative salaries.
Typical Markup Rates for General Contractors: What's the Norm?
While this can vary based on the region, type of project, and market conditions, many contractors aim for a markup of 15-25% on total project costs. This ensures a fair profit while remaining competitive.
When Should General Contractors Adjust Their Markup?
Adjusting markup can be influenced by various factors:
Market Competition: A saturated market might necessitate a lower markup to stay competitive.
Client Relationship: For long-standing clients, a contractor might offer reduced markup as a sign of goodwill.
Project Risks: High-risk projects might warrant a higher markup to compensate for potential unforeseen issues.
How to Calculate Overhead Costs:
Overhead costs include all the expenses not directly tied to a specific project:
Rent: Cost of leasing office or storage space.
Utilities: Electricity, water, internet, and other essential services.
Salaries: Pay for administrative staff, managers, and other non-field employees.
Marketing and Advertising: Costs to promote the business.
Miscellaneous: Office supplies, software subscriptions, professional dues, etc.
To calculate, sum up all these costs for a specific period (e.g., monthly or annually) and then divide by the number of projects or total revenue for that period. This gives an overhead cost per project or a percentage of revenue.
Mastering general contractor markup, with the aid of tools like CostCertified, ensures a more prosperous and efficient construction business. As the industry evolves, understanding and adapting to markup nuances becomes even more vital.