For many remodelers, increased job sizes seem like a natural part of business growth. Big jobs with higher price tags feel more like showcase projects and keep them busy for a longer time. Yet consumers need more small improvements than large projects. Do you have to pick one or the other? Can you do both? Tom Swartz asks remodelers Larry Murr and Scott Mosby how they balance big-ticket design/build jobs with repair and replacement work.
Tom: Let's talk about strategies for large jobs versus small jobs. Do you approach them differently?
Scott Mosby, President
Scott: It is a different delivery system. The larger jobs are design/build with an average size of $109,000. We have two licensed architects and a team of eight within Mosby Building Arts.
We also have Total Home jobs. We evaluate the home and tell them what they need to do for the next five or 10 years: The roof is eight years old; you can expect it to be $7,000 to $9,000 in today's numbers. For 2006, we are getting into home energy audits. We are licensed as an Energy Star contractor.
Larry: We advertise a handyman service. We started that to service our clients. Our client base was starting to grow, so we wanted to be the person they call all the time.
The past couple of years we've gotten involved with a large builder here in Jacksonville. We started to do a lot of their major repairs as far as damage caused by water intrusion. We're probably going to close out that section of our business at a little over $300,000. We treat those homeowners just like we would our regular clients. We had about 112 small jobs in 2005. Of those, 79 were less than $1,000. The range will go anywhere from $106 to $21,000.
Tom: It sounds like not much design in the smaller jobs.
Scott: That's how we define it. The average size for our smaller jobs is above $20,000, because the more data we get the more we find out what's broken about a house. We don't even count the jobs below $1,000 — they all go into one job. They're too overhead-heavy to count independently, at least on our work-in-progress sheet. It's all service with a little bit of construction.
Tom: The folks at our office are trying to get me to commit to putting the real small jobs into one job and quit costing out all of them and I've resisted that.
Larry Murr, CGR, Owner
Larry: The overhead that goes into a small job is more extensive. Having someone entering all your accounting data for one small job takes almost as much time as it would for a large job. We track our small jobs separately. The builder we're working for has his own series of job numbers.
Our small jobs are almost a separate department. The gentleman who's been scheduling and managing these jobs is retired and works three days a week. If somebody needs to be there on a day he's not working, he'll work that out with my other project manager.
Tom: Do you actually go out and estimate and give them a set price on the small jobs?
Larry: We sometimes do. We've worked with the builder for so long that we're doing those on time and materials. If we have a customer call in, we'll talk to them about the job over the phone. We'll come out and do an estimate but we'll charge for that time. If we do the job we'll give it back to them or include it within the cost of the job.
Tom: Scott, do you always do a written estimate on all the work you do?
Scott: When the estimating becomes virtually impossible, that's when we'll go to time and materials. Our policy is $1,000 or less. Our financial success on T&M jobs is abysmal.
Tom: You're saying don't do time and materials, right?
Scott: Our Total Home program is predictive maintenance to avoid going out to fix one doorknob, where I can't possibly charge enough to cover my costs. All I do is make my client mad and chase away an existing relationship. What we're doing with predictive maintenance is: let us survey your house, make a list and do 10 things when we show up. We can purchase ahead of time, plan ahead of time, staff ahead of time. When we get there, we hit the ground running and we'll be efficient with your money.
Tom: When you get a call, who goes out to the house? Is it a salesperson, a technician?
Scott: It's our past production manager. He was a field person and is fully technically competent. He is in charge of Total Home. He will run out and do the sales call. Total Home was the brainchild of our current general manager and our past production manager. They figured that in six months, we referred out $500,000 to $1 million worth of work. We were fully employing two or three handyman services.
There are three salespeople at Mosby. When we're out on a call, somebody may not want to put on a room addition. We ask if there's anything else, and we perform a Total Home evaluation. This is a way to have another product to sell and to keep that relationship going.
Tom: Larry, when you do time and materials, do you charge a higher rate per hour?
Larry: We use an hourly rate and that hourly rate will depend upon how long that job's going to be. If our guy is only going to be there for half a day it's more than if he's going to be there for three weeks. Then we put a contractor fee on top of that. We include the cost of our labor in the cost of the entire job, which includes subs, materials, etc. Then we put a contractor fee on top of that.
Tom: Does the percentage on material and subs change depending on the size and material portion of it?
Larry: Right. It does.
Tom: And Scott, how do you do time and materials?
Scott: Our estimating systems for project planning and Total Home use the same units per hour, dollars per hour. We charge like an auto dealership — they have a shop charge for miscellaneous nuts and bolts. We will charge an above-line cost of so many dollars or so much percent. The idea is you pay for what we perform; however, much of what we perform may be not on the job site.
Appointments are time consuming. I hear you describe a "trip charge." You will pay us for the time we spend and only the time we spend, but we don't call it an hourly rate.
Tom: You charge the customer for not only the carpenter who's on the job, but also any other people involved even if they never go to the jobsite. Do they keep an hourly time that gets charged to that job?
Scott: Yes and no. We have a really wizard estimator who's gone back to figure out what the average rate is per $1,000 of work. We charge for that time one way or another.
Tom: Scott, you have an hourly rate for your craftsman on the job, plus a percentage you add to the materials that you buy. Plus a percentage that you put on for the subcontractor if there is one. Plus what Larry is calling a contractor fee and you call a shop charge. Is that correct?
Tom: Do you shoot for higher gross margins on small jobs or about the same gross margins as your larger jobs?
Scott: Small jobs need a higher gross margin because most of those off-site hours are not individually job-costed. They show up as indirect costs or overhead. The way we do pricing and estimating, small jobs are about 10 points higher on gross margins.
Larry: We do the same thing.
Tom: On the handyman jobs, how do you get paid? Is it different from the large jobs?
Larry: We'll establish a working budget and then we'll ask for 50 percent of that, typically. We recently had a larger repair job — we were estimating it to be around $50,000 — so we got a $10,000 deposit and we billed out biweekly. Some we'll bill out on a weekly basis.
We always get a deposit ahead of time so we're working against their money. It's the same on time and materials jobs. If it's small, like $500, it might be half before we start and half when we're done.
Scott: Within Total Home projects, there are two tiers according to size. A time and materials job, we'll give them a range of what we expect it to be and then it's per hour. Although I'd like to say we get paid up front on those, we don't. We don't have a contract. We have an understanding of budget and when we're done, we hope we get paid.
Tom: Do you ever get paid by credit card?
Scott: Not yet but it's inevitable.
Larry: We haven't. We don't always get money up front. If we're going out to do a job for a previous client, we already have a payment history on them, we'll go out and do the job and bill them out once we're done.
Tom: Some remodelers say, "We've got to do the small jobs. From the small jobs, I'm going to get the larger jobs." Is that true?
Larry: Occasionally it happens. I don't think that should be a reason why you do small jobs.
Scott: Small jobs, well done in a professional, equitable way, lead to large jobs.
Tom: And conversely, a small job done poorly...
Scott: Yeah, how many times do you hear a complaint from a consumer on a television station for poor quality? Most everybody does a pretty good job from a technical standpoint — the customer satisfaction is why we either had to get in or get out of small jobs. It's very communication heavy, setting the expectations, showing up on time. Our Total Home people are polite, courteous, respectful and communicative, and they are at a lead carpenter level skill.
That's the cost of it — opportunity costs. They could put on a $100,000 addition. We choose to put them in a different type of job. They really have to be some pretty stellar employees to send them out by themselves.
Larry: I agree. Not only do they have to be technically skilled and socially skilled, they also have to be business smart. Finding that particular type of employee is difficult. When you do, I think you can be successful running a handyman or small jobs division as part of your overall remodeling business.
Tom: On small jobs that are mostly subcontracted, how do you charge, by the hour or by the job?
Scott: We charge for supervision and communication time above the line. The owners buy Mosby. They expect a Mosby person to be there taking care of the job. What we bring to the table is all that soft-side management and that's direct cost. We just consider that a cost of construction, and we charge by the hour. But anything that has a sub or trade contractor involved will be an estimated job.
Tom: So you'll get an estimate from the trade contractor and mark it up appropriately, then add the time that you're going to have for production management.
Scott: We're holding hands tightly enough with our trade partners that they rather we estimate for them. We're sticks and bricks both for large jobs and small jobs.
Tom: Larry, what do you do with subcontractors on small jobs?
Larry: We have subcontractors we've worked with for years. Depending on what the call is about, we may just send them out. If it's a past client and it doesn't make sense for us to be involved with it, we'll tell them to go ahead and bill them directly. For the most part that subcontractor has already been out to that job and is familiar with the client. If they want us to handle it, or if it's a particular subcontractor that we feel we need to oversee, then we charge a supervision fee. We have a project coordination line, too, not for being on-site viewing that job but when it's setting everything up. We charge for that time.
Tom: Scott, let's talk about having your trade contractor bill your customer direct. Do you ever do that?
Scott: Not consciously. If customers are willing to pay us the time it takes us to supervise a job, then by golly we better bring something to the table for it. If I let a sub bill directly, it might be at the end of a job, mostly on a design/build. If part of the project is wiring for the future patio lights, when it comes time to install those lights, feel free to call the trade contractors we trust.
Tom: If you were to give the readers advice on large jobs versus small jobs, pro and con, what would that be?
Scott: Two points: Small jobs — yes, if you do it extraordinarily right to where it becomes a positive relationship building experience. If it's something just to keep your guys busy, stay out because the harm will exceed the benefit for both client and company.
The second thing is, we've learned over the last few years that sales responsibility is to decline working for the wrong clients. Anybody who tells us what to do and how to do it is the wrong client. If they're going to tell us what and how, then they're better off with a carpenter to come do whatever they say.
Tom: Larry, what advice would you have?
Larry: Well, I think small jobs can be very beneficial. But you have to look at it realistically. Small jobs are going to cost you more to do and price accordingly. If you don't have the manpower to do that and if you don't have the time to follow through and do it right, then you shouldn't get involved. It can be a very profitable part of your business if you handle it well.
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