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Remode Cost: Materials vs Labor % ??

10ACjed's picture

I am fairly new at presenting proposals to clients in the remodeling realm, and am trying to improve my bids/presentations to be both more accurate and realistic for clients choosing between my company and someone else's in multiple bid scenarios...

That being said have any of you found a good labor vs material percentage that you consider "average" on an "average" remodel job. Let's say minimum gross job cost here is $10K...

Do y'all find that 50/50 can be true? or is it more like 70/30 in favor of labor. I'm just trying to find a moderately reliable talking/reference point on this.

I, of course, realize that this can vary depending on materials, but i'm looking to hear averages you may think reliable.

thanks...

(post #119778, reply #1 of 33)

  I think there are no meaningful, reliable averages, as each job varies too much. Until you can come up with them yourself, for the specific type of project, they aren't going to mean much.


I have read recently that new construction runs 60 percent materials and 40 percent labor, and remodeling the reverse, 40 percent materials and 60 percent labor.


I just don't see how this information can be very useful. Why does this matter to the homeowner if they're buying installed products?


IMO you should be selling your services emphasizing how smoothly your jobs run, how clean they are kept, and what you do to minimize the owners inconvenience of living through a construction project.


Rich

New commercial construction cost ratios - materials and labor (post #119778, reply #27 of 33)

Rich:

 

Thank you for this insightful post.  Do you know what the general percentages are for materials and labor for new commercial construction projects? I realize every project is different.  I am only looking for general guidelines. If you do not know, any recommedations on potential sources I should consult?

 

Thank you

You're posting to a 5 year (post #119778, reply #28 of 33)

You're posting to a 5 year old thread. Don't expect answers.

Florida Licensed Building Contractor, 50 years experience in commercial remodeling, new homes, home remodeling and repairs and all types building maintenance.

new (post #119778, reply #29 of 33)

Personally, if anyone bids a job or expects to come close with a cost study using a "here's the material cost" to figure labor-they be wishful thinkers.

A Great Place for Information, Comraderie, and a Sucker Punch.

Remodeling Contractor just outside the Glass City.


http://www.quittintime.com/

 


Too bad such an old thread, (post #119778, reply #30 of 33)

Too bad such an old thread, could give the my break on stuff based on desk job rate and using salvaged materials.

This would give the OP an extreme edge in hid comparisons and show how meaningless a percentage based estimate could be.

Based on the 800 sq ft bldg nearing completion (fairly high quality, 3/4 baltic birch sheathing, hadi siding, oak flooring, customarch window, etc.)

Total material outlay in $$ = about 12K, including the approx 2k in permits.  .. biggest expense = about $2K for concrete, kinda hard to get that at a discount (unless you mix by hand, then labor ratio would be even higher)

Total labor 'cost' at my day job rate = $110K

That gives a labor rate over 90%  --  'hobby' ??

material example : custom window as a return at Lowes, orig price $1500, watched it get repriced over a few months from $1000 down to $200 in $50 steps, to where I figured if I didnt buy it somebody else would! 

 

Before the floor is down

 
outside view, scaffold still up
 
 
 

 

(post #119778, reply #2 of 33)

well...

Averages can be a helpful tool to do a once over on a proposal as a method to look for glaring oversights or errors.
To be any where accurate the average ratio used has to be tailored to Your business, especially if you focus a particular market segment. Too many variables other wise.
(Focus on very high end material installations? You ratio needs to reflect that . Same if you focus on low end material but high labor jobs)


They can't get your Goat if you don't tell them where it is hidden.

Life is Good

(post #119778, reply #3 of 33)

Welcome to the business section!

I think you are barking up the wrong tree if you want to discuss theoretical materials and labor percentages with your clients. On the first visit, you should be aksing lots of questions and figuring out their wants, needs and desires and budget.

On the next visit, you should be offering a proposal that know EXACTLY what percentage is materials and labor but you shouldn't be revealing that unless you are commissioned to do a proposal on a cost plus basis. If it's a fixed bid, you don't need to talk about those splits and you should have your reply ready when someone asks about that ratio.

Bob's next test date: 12/10/07

(post #119778, reply #4 of 33)

So, what is the reply if someone wants to dig into the fixed bid numbers?

I might reply "Oh, I'm sorry Mrs Jones, I thought you wanted me to give you a fixed bid proposal as you requested in our first visit. I will be glad to prepare a detailed cost plus proposal if that is your preference but we don't do those for free; because of the substantial time involved in breaking out the numbers and making them understandable and presentable, we normally charge $350 for a proposal like that. Is that something you are seriously interested in or are you going to be more comfortable with the fixed bid proposal?"

I might follow that up with the question "Most people aren't comfortable with the cost plus type contract because it is an open ended contract and they aren't guaranteed that the price will be fixed, as I am offering you today. I would be glad to explain the benefits and risks of each type of contract. Would you like to know more about that, or shall we continue explaining this fixed bid proposal?"

Bob's next test date: 12/10/07

(post #119778, reply #6 of 33)

So, I think I've identified a core question that should be resolved in the opening interview!

"Do you prefer a fixed bid or a cost plus bid?"

In fact, I think I want to start a new thread about that topic.

Bob's next test date: 12/10/07

(post #119778, reply #11 of 33)

Jim


You seem to be meeting with Mrs. Jones alot. LOL


Rich

(post #119778, reply #5 of 33)

Welcome to Breaktime.

"I'm just trying to find a moderately reliable talking/reference point on this."

Why bring up percentages/material costs to the customer at all if it's a bid?

As far as "multiple bid scenarios", search through the business threads and listen to some of the advice here which talks about developing a business that doesn't depend on price.

(post #119778, reply #7 of 33)

jed, I think I can provide a little direction. I understand, you just want some rough percentaged you can toss around privately in your own head. But it's tricky with all the possible scenarios. Attic and basement conversions often start from a fresh slate, with little if any demolition. Living and sleeping areas start with walls already framed and plastered and/or drywalled, which may or may not have to be taken out. Kitchens and baths are like living areas with the added plumbing, cabinets, tile and such to deal with. So, as you can see there really is no percentage formula that could possible meet all these different scenarios. And I haven't even mentioned decks and patios, roofing, doors and windows.


Given all that, I'd have to say 32%


Hope that helps :D


--------------------------------------------------------


Cheap Tools at MyToolbox.net
See some of my work at TedsCarpentry.com

~ Ted W ~

(post #119778, reply #8 of 33)

I would say 50/50 is true about 50% of the time.  Not trying to be a smart #### but its true.  But if they just chose ONE expensive material element of if there is one unique labor need (like having to pump concrete for an addition into a backyard) that rule is kind of out the window.


Someone may have mentioned it already but I never shared my labor and materials costs with clients.  I just told them the whole package cost.  When I first started years ago, I did split out the costs and all it proved was to be more information than they needed and I got picked apart for pennies on a $30k job.  Too much wasted time and headaches for me.

(post #119778, reply #9 of 33)

Hello all--

thank you for some thoughtful feedback here, and you all bring up good points. i am exploring the current job in question as a cost-plus scenario, in which case i need some ballpark numbers to throw around w/ the client when we get to that place...

that being said--the comment about the need for a fee in a cost-plus bid is a useful one. short on time to run the business and write bids trying to swing the hammer and chase down supplies 6 to 9 a day, a fee cost-plus scenarios make sense...

it also brings up the point: (and this may be worthy of a new thread): is a cost-plus quote a "point of no return" with a client. in other words, i'm presenting cost-plus as my labor, subs and materials at cost (with my supplier discounts), and a ten percent gross job bonus at conclusion...

so with all that in mind, the client will see my subcontractor bids w/ the cost-plus quote. if they bail out at that point, they've got free info to use against you (or the next guy), and you could probably never get back to even ground for a flat fee job...

i prefer the sentiment of cost plus on remodels though. it's too easy to get burned with unexpected items in fixed bid scenarios.

so there's that. thoughts are appreciated. the generous feedback from round one is also appreciated.

jed

BTW, the job in question is a heavy duty one: new floors, doors and trim throughout 2500 sq.+ foot home, 2 new baths, new kitchen and laundry...

(post #119778, reply #10 of 33)

Jed, I'm not liking your business model at all unless you have a very hefty hourly rate so you are covering all your overhead costs in your labor bill. I think Jerrald in here uses that formula.

I would not provide a cost plus bid for free. The instant that I knew the bid was going to be cost plus is the instant the meter would start running.

So, the conversation would go something like this. "Mrs Jones, thank you for choosing our firm to provide you with a cost plus proposal. As I've already explained, this type of proposal is much more time consuming because we have to break down the costs and put them into a format that is explainable to you. Our consultation fees for this type of proposal is $85 per hour and we expect the total time spent to prepare this proposal to be 16 hours including this time spent here exploring the scope of your design needs."

Think about it Jed. They choose the cost plus option to save money, but by choosing it, they also agree to compensate you for all your time involved in their project. Why would you give them the first 16 hours free?

Actually, that conversation about choosing the cost plus basis instead of the fixed fee basis should be explained before they make their choice. They would choose the cost plus bid process knowing that the ticker was starting immediately.

Bob's next test date: 12/10/07

(post #119778, reply #23 of 33)

10ACjed - "I am fairly new at presenting proposals to clients in the remodeling realm, and am trying to improve my bids/presentations to be both more accurate and realistic for clients choosing between my company and someone else's in multiple bid scenarios...

That being said have any of you found a good labor vs material percentage that you consider "average" on an "average" remodel job. Let's say minimum gross job cost here is $10K...

Do y'all find that 50/50 can be true? or is it more like 70/30 in favor of labor. I'm just trying to find a moderately reliable talking/reference point on this.

I, of course, realize that this can vary depending on materials, but i'm looking to hear averages you may think reliable."

Hello Jed being something of a statistical junkie back in May of 2004 in support of my reasoning for using a Capacity Based Markup (vs. using a Total Volume Based Markup)I did a study comparing 114 different remodeling projects to see what the ratios of labor to materials to subcontracting looked like and I could find absolute no kind of consistent ratio or correlation of costs that could count on in looking at remodeling projects so I'll echo what rlrefalo wrote (and some others here; dovetail97128, Jim_Allen (aka Blue), Ted W. wrote too) in response to you

"...there are no meaningful, reliable averages, as each job varies too much. Until you can come up with them yourself, for the specific type of project, they aren't going to mean much."

(in fact I also really liked how he wrote: "...you should be selling your services emphasizing how smoothly your jobs run, how clean they are kept, and what you do to minimize the owners inconvenience of living through a construction project.").

With respect to you subsequent post where you wrote:

thank you for some thoughtful feedback here, and you all bring up good points. i am exploring the current job in question as a cost-plus scenario, in which case i need some ballpark numbers to throw around w/ the client when we get to that place...

If you need ballpark figures to throw around I would suggest you might want to pick up R.S. Means' Interior Home Improvement Costs: The Practical Pricing Guide for Homeowners & Contractors and Exterior Home Improvement Costs: The Practical Pricing Guide for Homeowners & Contractors and use their figures as your low end places to start from.

it also brings up the point: (and this may be worthy of a new thread): is a cost-plus quote a "point of no return" with a client. in other words, i'm presenting cost-plus as my labor, subs and materials at cost (with my supplier discounts), and a ten percent gross job bonus at conclusion...

I'll echo Jim_Allen's comment again here (especially since he was already cited me in it). Unless you have a properly Loaded Labor Rate you might be getting yourself into real trouble with what you are describing. How did you go about coming with the Labor Rate you want to use for your time? Have you read How Much Should I Charge?: Pricing Basics for Making Money Doing What You Love? Have you checked out my own shareware Capacity Based Markup Workbook?

so with all that in mind, the client will see my subcontractor bids w/ the cost-plus quote. if they bail out at that point, they've got free info to use against you (or the next guy), and you could probably never get back to even ground for a flat fee job...

I'm not sure just what you are trying to get at there. I certainly wouldn't be giving your client/customer any firm bids from your subs until you have a signed Cost Plus Fixed Fee agreement in hand so I'm not sure what the problem you are envisioning is.

i prefer the sentiment of cost plus on remodels though. it's too easy to get burned with unexpected items in fixed bid scenarios.

If you don't know you own costs, understand risk and variation, and know how to estimate yes that would be true.

ParadigmProjects.com

(post #119778, reply #12 of 33)

If I'm reading your question right, you're looking for a number that will help you check the accuracy of your mental guesstimate of how many hours it will take you to install a given list of materials.


This is entirely understandable. We'd all like a magic bullet, LOL....


But here's the ugly truth: For people new to the business end of this trade, estimating labour for remods is about thirty billion times harder than anything else in the building business. You Are Going To Eff It Up. That's part of the learning curve, pal. Welcome to the club.


It's gonna stay that way, too, until you've done enough remods so that you have a statistically-significant number of jobs in the can that you have done, upon which you can look back to check the actual labour required for you to do each type of job. Only by looking at your own track record will you be able to predict accurately your future performance. In the meantime, you're just guessing.


So my advice to you is, guess high. Double whatever hours your first mental estimate says it will take you to do it. People like us tend to be incurably optimistic. You will think you can do it in less time than you actually can. Remember that every time you start to do an estimate. It's better to risk scaring off the client with a highish estimate than to low-ball him and then have to eat 30 or 40 percent of a bill that came out to twice or more what you told him it ought to cost.


My first major roofing job, I estimated about $4000. The actual bill came to over $8000. My first major basement, I figured $25 grand; the total came to close to $40. But on that one, I could blame a good bit on change orders (thank bog!). My first big tile floor I estimated $3000; the actual bill was close to $4300.


But on the second major job in each of those categories, I was closer (although still 'way low on my estimates). The third, closer still. And by now, 15 years later, I can usually (but not always!) hit it within 10-15%...which is a legitimate variation in cost on any T&M estimate proposal.


The important thing for you at this point is to make it absolutely clear to the client what a cost-plus or Time & Materials estimate means, and what remod work entails. That is to say, the client must understand that your estimate is not a fixed-price 'bid', and that any bad surprises encountered once you start stripping or demolition calls for a change order to cover the extra work and essentially nullifies the estimated total.


Don't even use the word 'bid' when talking to the client. Erase it from your vocabulary, because if there's a misunderstanding here, you're gonna have a very rough row to hoe later when you tot up that final bill and present it for payment.


 


Finally, you don't do this for free. Jim Allen is dead on in what he said to you on that score. You should not be even thinking about providing a detailed T&M estimate for free. It will take you days and days to do an estimate for a job like the one you describe. Were I to take that on, I would probably bill the client for at least 24 hours of what I call DCA ('Design and Cost Analysis')...at the same hourly rate I charge for swinging a hammer, setting tile, running NMD, laying shingles, or roughing pipe. In other words, at least a thou for the estimate. Could be more, depending on how much yak-yak the client insists on doing with you during the process.


Are you sweating yet? You still want a 'magic bullet' to use?


Okay. Feel free to use mine: 50%. But remember: That's based on my labour rate; my methods and speed of work; my quality standards; my materials cost and markup. All of which are almost guaranteed to be very different than yours.


So if it doesn't work for you, don't be surprised. Just take note of how much it doesn't work by, and use that difference to improve your next estimate....



Dinosaur


How now, Mighty Sauron, that thou art not brought
low by this? For thine evil pales before that which
foolish men call Justice....


Dinosaur

How now, Mighty Sauron, that thou art not brought
low by this? For thine evil pales before that which
foolish men call Justice....

(post #119778, reply #13 of 33)

the old rule of thumb,


which actually works sometimes ...


 


is take the cost of materials .... double it ... then add it all together.


$3K materials ... doubled to make for $6K labor ...


is a $9K job.


 


so what's that? a 33% / 66% split?


 


I'm suprised the number of times I work thru the real numbers and hit fairly close to that.


But ... fairly close ain't what I'm looking for.


and I also don't care how low the other guys bidding undercut themselves.


 


simply add up the materials and use an educated guess at labor ...


plus 20% O&P and away I go.


Jeff


 


and your O&P can be 1% ... or 99% ... all depends on how you worked your labor.


    Buck Construction


 Artistry In Carpentry


     Pittsburgh Pa

    Buck Construction

 Artistry In Carpentry

     Pittsburgh Pa

(post #119778, reply #14 of 33)

You've gotta' think about mark-up, as well.


Walt Stoeppelworth (Google him) says for ~<$50K jobs; YOU MUST charge direct costs plus 67% at a minimum.  Your labor is a direct cost - your hourly rate.


Forrest - did that for almost a decade; worked well.


 

(post #119778, reply #24 of 33)

McDesign - "You've gotta' think about mark-up, as well.

Walt Stoeppelworth (Google him) says for ~<$50K jobs; YOU MUST charge direct costs plus 67% at a minimum."

Well yes you do need to thing about markup but as I alluded to in my last post there is a big huge problem problem with the 'Walt Stoeppelworth/Michael Stone 'YOU MUST charge direct costs plus 67% at a minimum" Total Volume Based Markup method' which is directly related to the fact that the ration of materials to laborhours or labor dollars varies greatly from project type to project type. Have you ever read my: The Potential Problem Using a Traditional Volume Based Markup?

Any thoughts or comments on the problem I lay out there?

ParadigmProjects.com

(post #119778, reply #25 of 33)

Wow!  I'll have to read that tonight at home - looks thorough.


Forrest

(post #119778, reply #26 of 33)

Forrest, I'm also in the midst of writting another article for my blog on how the use of the wrong markup methodology (a Total Volume Based Markup Method) will put you in a position where if you are bidding a job with a Low Relative Cost of Labor to High Cost of Materials, and SubContracting you wont get the job because you'll be over priced and in the reverse case where you have a project with a High Relative Cost of Labor to Low Cost of Materials, and SubContracting you will be underpriced and while you'll win the job with your low bid you'll be doing it at a loss.

I'll post about it here when I finally get around to working on finishing it and I'll invite criticism.

ParadigmProjects.com

(post #119778, reply #15 of 33)

It's not a number I use in any way but I have found that many typical remodeling jobs actually work out very close to 50/50. Of course, a single item could blow that theory. I have been surprised on the final tally, on a number of jobs, just how close it often was.

Beat it to fit / Paint it to match

Beat it to fit / Paint it to match

(post #119778, reply #16 of 33)

30 years ago I used to hear the framers price their rough frames using the lumber price.

Nowadays, it still is a very close approximation.

Bob's next test date: 12/10/07

(post #119778, reply #17 of 33)

30 years ago, I was a framer, actually worked on a shell crew which included roofing, siding, windows and doors. Most of the houses being built were entry level VA or FHA. Three of us could shell a 24' x 40' ranch in 50 hours. The boss was charging $2000 per ranch, our wages were under $6/hr. The completed house sold for around $60,000 as land prices increased. The same house sold for $12,500 ten years before and today they are closer to $185,000. Wish I could have bought a dozen in 1968 for under $10,000.

Beat it to fit / Paint it to match

Beat it to fit / Paint it to match

(post #119778, reply #18 of 33)

It's hard to buy stuff when you're making $6 per hour!

Bob's next test date: 12/10/07

(post #119778, reply #21 of 33)

Tell me about it!
Most of my carpentry "career" has been in pursuit of better pay and work.

Beat it to fit / Paint it to match

Beat it to fit / Paint it to match

(post #119778, reply #22 of 33)

my Dad used to install kitchens for "list price".


what ever they picked out at the showroom ... add the list price and that was the whole deal ... cab's, top's and install labor.


 


he was getting 60% off list , so worked out to be a nice payday.


plus ... made for an easy sale.


people would guess he was getting 15-20% off and think they were stealing the labor.


Jeff


    Buck Construction


 Artistry In Carpentry


     Pittsburgh Pa

    Buck Construction

 Artistry In Carpentry

     Pittsburgh Pa

(post #119778, reply #19 of 33)

Percentages have no value in one job. They might over a year .


I remodel flips and rentals . They are never the same ! No house needs the same exact things . It may appear but no. Its like framing houses per sqft . Opps ya already sold your #### on sq ft price so let me have 5 dormers. How ya like your sq ft price now ? Can ya still hear me ? Can ya hear me now ? Playoffs ? PLAYOFFS? Dont talk to me about PLAYOFFS!. <G>


Tim


 

 

(post #119778, reply #20 of 33)

A very general rule of thumb would be one third material, one third labor, one third profit, overhead etc.

This does not apply to subbing new work or specialized aspects such as sheetrock, insulation etc.

I used to not figure in enough and felt the loss in my tools, trucks, expenses, advertising, I was slowly drowning by my own ineptness.

No bodys gonna throw you a life ring.