Qualified Remodeler Magazine

JAN 2019

Qualified Remodeler helps independent remodeling firms to survive, become more professional and more profitable by providing must-have business information, namely best business practices, new product information and timely design ideas.

Issue link: https://qualifiedremodeler.epubxp.com/i/1070573

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Page 39 of 66

percent markup and then raised it to 45 percent af- ter reading a magazine article. One day, he thought, I'll hit the magical 68 markup [40 percent margin]. "When I was doing that, I was spending a lot of time—aƁer clients would have a change in their scope—trying to shuffle my profit around between different lines," recalls Anschel, the president of Otogawa-Anschel Design+Build in Minneapolis. "I was spending hours and hours reworking my estimates. It affects your sales because you're not able to produce a new estimate or bid quickly." The company experimented with different pricing models but, for the past five or six years, the business has embraced a zero-markup trans- parency system. Anschel includes line items for fees associated with project management and project administration, as well as a variable overhead and 18 percent profit; otherwise, the estimate just relays the exact numbers the remod- eler collects from subcontractors and material vendors who bid on the project. "Things became easier to research. Like, [say] part of my job is a furnace replacement," he says. "The local utility—you can get an estimate from them for free. So they know that they can get a new furnace in there for $8,000. I can't take my bid from the HVAC, which is $7,000 and turn it into $13,000 and sell that; it's impossible. We looked into how we could go about removing that. "It also is [about] money because production and design really don't understand where the profit starts and ends, and how much of that gross mark- up—which is supposed to cover management—is actually for management, and how much of it is for the company," Anschel adds. "It makes for bad cash-flow analysis, it makes for bad cash manage- ment—it makes for bad profit predictions." As the company has fine-tuned its pricing struc- ture, more employees understand the amount of dollars set aside for management and in-house la - bor. Managers can then make decisions based on what they notice they have allocated for time and dollars, as well as the resources they used. Instead of being fixed, the markup becomes dynamic and makes the business more competitive. "Now I know that I can do roof replacement, which is a single-trade job to manage—very little management—at this rate. And I can do a bath- room remodel, which is much more complicated with multiple trades, at a very different rate," Anschel explains. "So it no longer is, 'What is your markup? What is your margin?' It's not static. I think that works if you're a single-trade contractor, and you're doing the same thing all the time, but not for general contractors—that's not what we do." Clients appreciate the pricing model because, like any other consumer, they seek transparency in the marketplace wherever they can find it, he notes. "What client wouldn't? If you were going to remodel your own house, would you rather that the remodeler is willing to share all the stuff, or that they are cagey about it?" Anschel asks. "Our clients, if they have a question on price, I can show them what everything costs. That's huge. It builds the trust in a way like nothing else can." If customers need to scale back their project and reduce the overall price, they can examine the estimate line-by-line with the company and replace expenses—or cut them out altogether. For example, if a client wants stainless steel switch plates as opposed to almond switch plates, the remodeler has the ability to swap out those prod- ucts without negatively affecting its bottom line or its margins. "What we're not going to take out is my man- agement fee; you can't take that out," Anschel says. "Just like I can't take the toilet out of the bath- room—you can't take the management out of the project. That's what you're actually paying me to do, is to manage the project. My profit is not nego- tiable; my overhead isn't [either]. My management fees are not negotiable once I set them. "A consumer who is going to haggle about price is going to haggle about price regardless," he con- tinues. "The project can require extra steps, clients can change their minds, and I can bill for that as independent lines. I'm never playing catch up. I'm protecting my profit [and] my overhead." Anschel believes the role of a contractor has always been to figure out how to assemble a project for the customer and execute the job as efficient- ly as possible. "In other industries, we would be required to be transparent," he adds. "In fact, our job would be to sort through different vendors, get different pricing from different vendors, share them with our clients, and point out the best path— quality, time, whatever—and make decisions based on what the criteria are for the client. "We're not a retail outlet, we're contractors. Contractors aren't supposed to be marking up their stuff," Anschel continues. "So we have a line item for profit; we have a line item for overhead. We have 13 different fees that we charge, depending on the kind of project and the scope of work—sub- contractor management fee, client management fee, inspections. You name it. Those are all costs of goods and services. They are identifiable! There's time associated with this [project]." Since the company already provides clients with precise bids from trade contractors, Anschel can present an updated estimate when the price of a material increases aƁer 30 days. "The client can't object to it, and we don't have to hide it," he explains. "We can take the supplier's number, we can take that quote that we get and hand it to the client and say, 'Here's the cost difference.'" " YOU CAN'T TAKE THE MANAGEMENT OUT OF THE PROJECT . . . MY MANAGEMENT FEES ARE NOT NEGOTIABLE ONCE I SET THEM. " Michael Anschel QUALIFIEDREMODELER.COM QR JANUARY 2019 37

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