Balancing Mark-Up with Project Length:

Key Points for Contractors

A crucial topic for construction businesses…mark-ups. Specifically, the 20% mark-up. This mark-up can make all the difference in your business's success, but it’s important to understand when and how to apply it effectively. Here’s a breakdown to help you navigate this essential aspect.

When 20% Mark-Up Works

Let’s get real about the 20% mark-up. It works great for smaller projects and shorter-term commitments. For instance, a 20% mark-up is perfect for a 3-week kitchen renovation. The scope is clear, the timeline is short, and the costs are manageable. Clients can see the value and are willing to pay for the quality and expertise you bring to the table.

The Challenge with Larger Projects

But is 20% sustainable for a 10-12 month project? Will you really be competitive? If you’re awarded the project and it’s a time and materials contract, will the owner and you still be friends after they pay 20% on everything that passes through the front door? Larger projects come with higher costs and more variables, and a flat 20% mark-up might make your bid too high compared to competitors.

The Sliding Scale Approach

To stay competitive and fair, consider using a sliding scale approach for larger projects. For example, 20% might be too high for a year-long project. Instead, think about balancing a lower mark-up with longer-term commitments.

Example:

• For smaller projects (up to 3 months), stick with the 20% mark-up.

• For medium projects (3-6 months), adjust to a 15-18% mark-up.

• For larger projects (6 months to 1 year), consider a 12-15% mark-up.

This approach helps you remain competitive and attractive to clients while ensuring you stay profitable.

Why Balance Lower Mark-Up with Longer-Term Commitments?

It’s simple: it’s better to stay employed for 12 months at 12-15% than for 3 weeks at 20%. Long-term projects provide stability and steady income. By adjusting your mark-up, you’re showing clients that you’re flexible and fair, which can lead to more business and better relationships.

Conclusion

Balancing your mark-up with the length and scope of the project is not just about crunching numbers; it’s about building trust, delivering value, and ensuring the sustainability of your business. By considering a sliding scale approach, you’ll position yourself as a competitive and fair contractor who clients can rely on for both small and large projects.