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% Mark Up between Contractor & Sub-Contractor

Discussion in 'Commercial Snow Removal' started by Patrick34, Aug 15, 2006.

  1. Patrick34

    Patrick34 Member
    Messages: 99

    I may be subbing out some snow work this year. Is there a typical percent to give a sub-contractor? Example, a customer contracts with my company a seasonal snow plow quote of $10,000. I decide to sub it out. Assuming this $10,000 job is at current market rates, how much would you offer this to a sub?
  2. Jay brown

    Jay brown PlowSite.com Addict
    Messages: 1,783

    typically in the construction business the builder makes 10-15% off of the subs in your case you should earn at least $1000 for your paperwork and phone calls.
  3. Big Dog D

    Big Dog D PlowSite.com Addict
    Messages: 1,134

    Thats about right but you have to make sure or take into account insurance and liability. If the sub is going to be the front runner on any and all claims 10-15% is fine. But if I am the front runner on any and all claims I would want more than 15% in most cases.
  4. Gicon

    Gicon Senior Member
    from MA
    Messages: 989

    Get the highests percent you can without pricing yourself out of the job on either end.
  5. SLSNursery

    SLSNursery PlowSite.com Veteran
    Messages: 140

    Big Dog is right on the money

    Point 1 - figure out your real costs accurately -
    If you can find a good sub who will show up, have him give you a certificate of insurance showing General Liability and Worker's Comp. Then show your insurance agent and ask him how your contracting relationship will affect your insurance policy at audit time. If he is insured properly and equally to you, you'll only pay a small amount of premium for the exposure. If not, which is usually the case, you'll be liable for a lot more. Off the top of my head G/L is probably around $60/thousand paid, and comp is about $11/hundred paid. If you paid the sub $10,000 you might end up being billed $600 for G/L and $1100 for WC. You can fight about this with your agent while the insurance company sends the bill. At this point you have cost yourself money and aggravation, and haven't made a profit. Furthermore, if your carried doesn't 'like' snowplowing, or the type (condos, apartments) of accounts you have, they won't like the added exposure of a sub either. Get this hammered out up front and you'll be better off.

    Point 2 - make the margin you need to be profitable.
    Sub-point - Get a handle on markup versus margin
    I am of the opinion that your profit margin needs to relate to where you want to be at the end of the year, or the season depending on your overall view. It is not so important to worry about pricing yourself 'out' of a market. This is more of a function of sales ability. Sell your value and qualifications at your rate. Your margin is all that you have at the end of the year. If you underprice to be competitive, you'll be wondering where your paycheck is. Example - Let's say you charge $15,000 for an account that you pay $10,000 in direct wages to the subcontractor. This leaves a gross profit of $5000 for overhead and profit. My question for example would be, how much did you make on the job? $5000 is the correct answer for the dollar amount, but what is the percentage? The markup and the margin are NOT the same. You made $5,000 on $15,000 in sales. That is just over 30%, not the 50% you thought you 'earned' by using a subcontractor. Worse yet, you only have $5000 to pay your bills. Using my conservative calculations from above, there are an additional $1700 in costs on top of the $10,000, but not including your administration time. Lets factor in about $300 for that and say this job cost you $12,000 all told. That means you made $3000 on $15,000 billed. That is 20% profit, but still not 'net' profit because you haven't paid yourself yet. Assume that you pay yourself $1500 for the endeavor, because 10% of the overall $15,000 seems reasonable. You have $1500 left in the company as net profit. This is 10%, which is pretty average in some industries. Most plowing companies would report that they make a lot more than this for the effort and the risk. Think of your margin/markup like this - If someone asked you how much you make at the end of the year would you answer 30%, 20%, or 10%? I think a lot of profits are overstated in this industry because reality is not checked very often.
  6. Jay brown

    Jay brown PlowSite.com Addict
    Messages: 1,783

    they wouldn't be a sub contractor if they didn't have proper insurance in my book. i would consider them a employee or a hacker or jackleg.
  7. SLSNursery

    SLSNursery PlowSite.com Veteran
    Messages: 140

    Thanks for the new term

    I must admit that 'jackleg' is an addition to my vocabulary now, and it is a very suitable term in this instance. Thanks for the enrichment. And, by the way I agree.
  8. fulltiltwill

    fulltiltwill Senior Member
    Messages: 204

    Hey Patrick
    In the greater Lansing area when I am the subcontractor I get 60% of the total. I have gotten as high as 75% but most are at 60% and I still have to have 1 mill in Liability and have a 2000 or newer truck.