Source: DS Duby via Hubpages
It never fails, when a potential customer receives a proposal from a contractor, the first thought is always, why is it so expensive. Well to clear the air a little, and with any luck take some of the heat off of construction contractors, I’m going to fill you in on a few things. The information I’m going to share with you should give you an idea of where all your hard earned money is going.
When determining the cost on a proposal there is no common or set price that the contractor takes from a book, there are in fact many different aspects to figure in to each individual bid, before the overall cost is decided. The contractor or sales rep. is most likely spending several hours, if not days, working out the specific details of your contract and coming up with the estimated cost of each service performed.
When choosing the proper materials for your job, the chances are that your contractor has either chosen high end or a good mid grade product, very few contractors will buy low budget materials when it is their name at stake. So with that being said, your projects materials will probably account for 30% – 50% of the final cost of the project.
Another material related cost to keep in mind is that the higher quality the product the more expensive installation usually becomes, due to the product damage risks involved.
COMPANY VEHICLE AND INSURANCE PRICES
The company vehicle and business insurance costs are a majorly overlooked factor when seeing your out of pocket expense.I have seen contractors insurance range from $2,000 dollars to $10,000 dollars a year, in some cases even more, and that doesn’t even include the workers compensation insurance that has to be paid for all employees. The cost of compensation insurance is based on the total amount your employees have earned the previous year or quarter.
EMPLOYEE WAGES AND TOOLS
As long as we’re on the subject of employees lets talk about their cost to the contractor.$10.00 dollars an hour is usually the bottom of the totem pole pay rate for construction workers, and for good reason it’s hard work, yearly that averages around $21,000 dollars a year, each. The actual rate is usually closer to$15.00 – $25.00 dollars an hour for any competent professional, giving you an average of $31,000 to $52,000 dollars a year per employee.
Then of course you have tool rental/purchase and maintenance, though you may not feel it’s your responsibility to cover a percentage of these costs the bottom line is that if your project requires a specific tool then it has to be figured in to your contract.
OFFICE AND TRUCKS
Then of course there are the office/shops and trucks your contractors business is operated from. An average sized shop with an office can easily cost $20,000 a year to keep up and that really is keeping it quite simple without many of the luxuries you see in some businesses of the same nature.
Company vehicles can cost as much as your willing to spend but a nice average for a simple work truck can easily average $6,000 dollars a year, and considering how much abuse the trucks endure it’s safe to say a highly reliable truck is a necessity, not an option.
So how did you hear about your contractor or know how to contact them? Most likely it was through some sort of advertisement as in TV, newspaper, phone book,fliers, business cards or even more recently the Internet.
The amount a company is willing to spend on advertisement really depends on the companies size and how aggressively the are able to expand, for example a certain remodeling company I know is quite modest (less than 8 employees) and still spent $4,000 dollars last year on advertising. Yet another contractor I know runs a larger scale roofing company and spent over $23,000 dollars in aggressive advertising, to keep his employees working year round.
STATE AND FEDERAL TAXES AND THE CONTRACTORS PROFIT
Now on to good ole Uncle Sam’s Federal and State taxes. Depending on what deductions your contractor is eligible for, these combined taxes can eat up anywhere from 15%- 30% of his annual profit, making a pretty big dent in the bank account.
Last but not least comes your contractors profit, and any self respecting contractor, just like you or I, expects to be paid well for his services. Keep in mind, if this company is always working then chances are they are worth the price tag that comes with them.
The only other thing I can tell you is if your still convinced your contractor is to high then get bids from other quality contractors, just keep in mind, there is always gonna be that guy who beats the price of every one else and most likely, you will get just what you paid for.
I hope that I was able to give this consistently asked question the answer that it deserves. If there is anything else you would like to know concerning this subject, just let me know in the comment section below.