I often hear contractors say they offer fair pricing. When I ask them what they mean by that, most really can't provide a logical answer, or their answer is subjective. It got me to thinking about what fair pricing really is. I came up with three considerations I think make a contractor's pricing fair to their customers, as well as to their business and their employees. Let me know what you think.
#1: Your markup is established using math, not a Wild Ass Guess (WAG)
Your pricing will be fair if the markup your company uses to price your projects is based on a budget that identifies your true overhead costs for running a professional operation and a respectable net profit. I suggest if you run your business, but don't work in the field, you shoot for a salary at 10% of your produced volume as well as a 10% net profit for the risk of being in business. Remember, if you don't work in the field your salary is considered overhead. If you do work in the field be sure to split your time and related salary appropriately between direct job costs before markup for your hammer-swinging activities and the balance of your time under overhead for your business management efforts.
Your overhead will be fair if you include enough money to properly manage your business, market to the right customers, and adequately staff your office so you're not a slave to your business. Therefore, your price will be fair if your markup is fair. Click here to read an article on how to calculate your markup using simple math.
#2: You pay and treat your employees as professionals
I would suspect most contractors work for customers who have good jobs offering decent pay for the job performed, workers' compensation coverage, benefits like vacation and holiday pay so they can enjoy life, health insurance so they can stay healthy, and retirement contributions so they can save for a comfortable retirement. I bet if their employers took any of those things away from them "it wouldn't be fair."
Therefore your pricing is fair if it includes enough money to offer those same things to you and your employees. Perhaps remodeling prospects who don't think paying enough so you can offer those things aren't being fair to you and or your employees when they hire contractors who pay their employees under the table or as 1099 subs.
#3: When consumers buy from illegal businesses they aren't being fair to any of us
Homeowners who work with illegally operating contractors aren't being fair. If contractors ignore RRP requirements, that's their choice, but it's not fair to legal business, or to those who end up getting lead poisoning as a result. When they buy from unlicensed contractors when licensing is required, or purposely do the work without a building permit, that's not fair. And when they knowingly work with contractors who operate this way, then sue them because they can, that's not fair either.
If you and your business comply with these things and many others, such as OSHA regulations and payroll taxes at your business, and charge appropriately for them, it is my opinion that your pricing is fair.
Are my article and my opinions fair?
Let me know what you think. Did I miss some things you think should be considered regarding fair pricing? Do you disagree with my thoughts? If you don't share your opinions, maybe you're not being fair either?
Shawn McCadden founded, operated, and sold a successful design/build company. A co-founder of the Residential Design/Build Institute, he speaks at industry events and consults with remodelers about owner issues, management, lead paint regulations and other industry issues. ShawnMcCadden.com firstname.lastname@example.org