Small jobs can bring big profits

Late last year, Dave Brady of Oak Design and Construction in Oak Park, Ill., got a call from a past client who needed a side-entrance door replaced. The overhead structure of Brady's full-service design/build firm positions him perfectly to handle jobs in the $75,000 to $200,000 range but leaves projects of this size outside of his core competency.

Even though these small jobs aren't where his company "shines," he was happy to accept the project. "We want to be your remodeler for life," Brady says. "We really pride ourselves on getting our clients and keeping them."

This particular project, however, proved to be a nightmare. The client didn't want to spend a lot of money, so Brady recommended lower-cost options and priced the replacement of the odd-sized door and the required trim and threshold work at $5,000. But once the door was up, the client frowned. She didn't like the looks of the simulated divided lights and wanted the stain to match better. "I thought I was doing them a favor by presenting them with this lower-cost door alternative," Brady says, "but ultimately I wound up hurting both of us." With the extra work needed to please the client, the original $5,000 wouldn't even cover cost. "I should have charged them $10,000, but they would have said, 'That's insane,'" Brady says. "That's where [small jobs] can create problems." Small Can Be Big

For this reason, Brady only accepts small jobs, which he defines as $10,000 and under, from past clients and solid referrals. Both, he says, can lead to bigger and better things. "We might get a referral to go solve a water problem in the basement. We'll go and fix it, and then two years later you're in there doing the kitchen."

But to get that future work, you've got to please the client, which means treating a small job like a big deal. "If I was spending $10,000 out of my own pocket, I would want good service too," says Erik Anderson, vice president of Anderson-Moore Builders, Pinnacle, N.C. Whether it's a $300,000 renovation or a $4,000 deck, Anderson takes the same care in estimating, planning, and scheduling the project. He generally schedules the projects in between larger jobs or during planned down time on long-term projects. Once the time is found, he plans the small job on Microsoft Project just like he would any other. The extra care adds cost up front, but it helps head off delays that can kill a small job's profit margin. "It helps the guys in the field a lot to look at each activity, know what's coming up, and make sure that they've had the customer make their selections," Anderson says.

Thanks to the planning, Anderson finds his smaller jobs actually have a higher profit margin than his larger ones. "Since it's a smaller, simpler project, we can actually manage it tighter," Anderson says. "We can order all the materials at one time, get everything delivered to the site at one time, and not have as many problems."

Keeping the projects on time and on budget means Anderson maintains the padding he adds to the margin on small job estimates. "If you do 20 small projects a year at $10,000 each, that is $200,000 worth of work," Anderson says. "These projects are often more profitable, so in essence, you have done a more profitable $200,000 project. Why not?"

Pick and Choose

Tim Cross of Merrick Construction in Rumson, N.J., takes a less favorable view of small jobs. "They can't have that much profit in them because they're too small," he argues. Any hitch becomes magnified, and even the best planning can't control the weather or mistakes by suppliers. "If something small goes wrong, there's not enough in [a small job] to eat that."

Cross does, however, appreciate the marketing value in smaller jobs. "If you can take some of these smaller jobs, you expand your exposure to more people, and therefore your name gets around more," he explains. "It's name recognition. We want everyone to know Merrick Construction."But Cross is picky about whom he'll do these jobs for -- generally only for past clients -- and he only does them on his terms. "We use the smaller jobs as fill-in," Cross says, which means the client needs to be flexible. He'll give the client a range of time, often as long as three months, when he could get to the job. "I may be there in a month. I may not be there until the end of the third month. They have to be willing to work with me on that." Then he puts the project in his pocket and waits for a delay on a larger project. When his crew has some down time, he reaches into that pocket.

Veering from the strategy causes trouble. He recently agreed to make and install a screen door for the neighbor of a current client. "I explained to them, this isn't normally what we do, and they said, 'Well, you're working right here. Can you send somebody over?'"

So Cross agreed, and when a crew member became free, he made the door. "My foreman called her to tell her that we're bringing the door over to put it in," Cross explains. "And she said, 'Oh, really? I have somebody else that's doing it already and they're doing it for half the cost.'

"Even on the smallest of issues like that," Cross says, "I should get something signed." He didn't have the time to spend on those details for such a minor project, and like Brady, he ended up paying for treating a small project like a small project.

"The little jobs we have to watch, as contractors, because we can be a little sloppy with them," says Michael McCutcheon of McCutcheon Construction, a $4 million design/build firm in Berkeley, Calif. "We say, 'Well, it's only $3,000 worth of work. Let's not worry about it. Let's not estimate it properly. Let's not even give them a proper contract.' Then you can really get into trouble. When we do them, we have to follow the same procedures as a larger job."

Make the Small Jobs Pay

Taking that time adds cost, and smaller jobs don't have much room to absorb it, so making small jobs profitable requires a boost in markup. "You still need to get a permit," says Brady. "You still need to go and look at the job, and figure it, and estimate it, and probably change the estimate around. You still need to contract it. You still need to go out there with your team and set it up. It's still the same amount of work. So we price them higher." The remodelers interviewed for this story generally increase their markup between 10% and 30% for smaller jobs to account for these costs.

"Small projects require a higher gross margin. I don't think there's any question about that," McCutcheon says. To protect his margin, be fair with his clients, and save time on estimating, McCutcheon prefers to do smaller jobs on a time and materials basis. "Our philosophy is, we don't know what it's going to cost, and if we put enough fees in there to cover all our potential contingencies and risks, it would get ridiculous." If something goes wrong with the project, the extra time is added to the bill. And if everything goes right, the client isn't paying for delays that never occurred.The real value of doing small jobs and doing them well, though, goes beyond the bottom line profit on that project. "If you ask a department store if they make money when you return a shirt with a defect and they give you a new one, they'll say no, they don't make money directly from it," McCutcheon says. "But do they make money? You bet ya they make money. It's part of a whole picture, though. That's how we look at it."