Contractor Mark Ups


From original questioner:

I have a strange situation about contractor mark ups. A contractor brought me in on a job he is bidding. The homeowner took to us and wants us to build his cabinets. The homeowner is getting 2 bids, and he told the second contractor that he already has a cabinetmaker. The first contractor wants to mark up by 15% (good size job, and about $9k in his pocket) and have my price go through him. The homeowner wants to pay me direct, and says it dis incentives him to pay the mark up of the first contractor, which is true. Looks like I get a gig either way, but hate to have hard feelings with the guy who brought me in.

From contributor Al

Regardless of who pays you the contractor has to coordinate your work with other subs, have personnel on site to work with you, insure the project and he is ultimately responsible for all the work. The owner should have known the rules and methods for work in and out of the contract.

I would expect that he has a 15% OH+P MU on subs. If there is a bank loan on the work and the cabinets are part of the work and part of the loan if the owner told the bank it was not part of the GC work then that would work, otherwise it can be a mess.

If you go under and no kitchen gets delivered who pays to complete the cabinets?

If the owner pays you direct and the cabinets have oily rags in them and catch on fire and burn the building who's insurance pays?


From contributor ri

The customer should not have known about the markup. He should only have known the price the GC gave him. Did you tell the homeowner your price to the GC? That would be the problem.

From contributor ja

I had a client come to me on a large Medical facility last week, wants to puch the GC to the side and payme direct for change orders done during the contract and had "More" work (Right) for me..

I promptly told him I am ethical to the GC and under contract until released. he would need to speak with him. Go with your Gut and ethics, Some GC's I need 10 times to every one customer (Commercial) most times the GC will release you and be thankful you told him

From contributor La

How did the home owner get your cabinet price? The work should go through the contractor... 15% is not out of line.

From contributor re

The homeowner probably told the OP that he wasn't sure if he was going to pick the first contractor and wanted to know how much cabinets would cost if he bought them direct.

There is nothing wrong with this at all. This is the part you see all the time in contracts called out as FOIC (furnished by owner, Installed by Contractor).

Homeowners buying direct in the residential world is completely normal in my neighborhood. They get a better value in more ways than price. I know this will shock a lot of of you but sometimes the customer's welfare is not at the top of the contractor's agenda.

The part I really enjoy is how the contractor will call you because he needs to talk with the countertop guy and wants to make sure he has the current drawings. This is code for " I don't want to spend any of my time researching email you have already sent when I can get the cabinetmaker to assume liability for bid assumptions and the stone guy to assume liability for templates and I can collect 15% of $7000 for simply ricocheting your email".

From contributor ja

"A contractor brought me in on a job he is bidding" Nuff said

From contributor re


Have you ever met a contractor you thought was "loyal"?

From contributor ja

You are kidding right ? I have 4,,, I call my primes. two who call on Thursdays asking how much I need this week (both over 15 years) I do 50-70% of all of my work with any three of them each year, the balance is open market. you see I started maturing relationships a long time ago. developed rules and ethics that we live by and expect.

No I did not "Get Lucky" I decided back in the late 90s to only do work if it was beneficial and produced long term or profitable relationships. I do not throw anyone under the bus and do not let others do it to me. My men photo document the work each day and email it to me, when questions and issues arise more often than not I have the answer and solution.

my top guy and I have not signed a contract between each other in 14 years and our average ticket with him is 30 k adding up to 500k a year on one contractor, now we are a small shop 6-9 guys. and we stay busy. sorry I believe in relationships. and I am quick to kick a fly by night GC who wants me to be his bank to the curb. Got one right now dragged us thru the mud on a small med clinic and went out and sold a much larger one based on my original quote for the one I will never do again.. dumb A$$ is really pissed to have a contract in his hand and no millwork company.. Make good decisions do good work and the Kings will find you.

This Guy should go to the GC, If the GC is wise he will let him bid separately and ask for respect in quoting. I do this with all my GC's and none have ever said No !

From contributor ja

I will add that my primes are in different areas of work, and yes I have bid a "Prime only" with out giving numbers to competing GC's on ton's of projects in return we are all in Demand we have communication with the same subs and Supervisors. It is not seamless and not without problems and issues but all are solved and generally at the lowest level.

From contributor Bi

The contractor was totally up front, showed my proposal to the homeowner, and explained the 15%. I see this happen often, and it's good because I can talk openly in front of the homeowner as everything is on the table. The homeowner is in commercial real estate, a Wiley Coyote if there ever was one. I could see this scenario coming a mile away. One thing about construction is everyone writes their own rules. I get many customers paying me direct, and on those jobs I often get attitude from the contractor (for the obvious reason). The contractor will need to suck this one up if he wants the job, and if I were in his shoes I would just bury some extra $$ in his costs to even the score. It's a big job, so not too hard to do.

From contributor La

"The homeowner is in commercial real estate, a Wiley Coyote if there ever was one."
That explains a lot! Hopefully there will be change orders for the GC to gain on this guy.

From contributor Bi

I'm with James all the way here. The "homeowner" is a one-off proposition, the GC can be a long term income stream.

Ethical business practices start with you, not the GC. Treat them right and you will be ahead of the game.

From contributor re

On retail sales you are contiguous with the money. You can look over their shoulder and see into their purse as they bring out the ink pen to write you a check.

The retail customer's motivation to buy a cabinet is completely different than than the contractor's. The retail wants to improve their standard of living and you become a friend of the family.

The retail customer may be a one-off transaction but it is very easy to understand how to make them feel good about shopping with you. The contractor wants to buy everything wholesale.

There is a significant difference between wholesale prices and retail prices. For all you guys who want to slug it out in the trenches, more power to you!

From contributor La

To retail direct guy --- "There is a significant difference between wholesale prices and retail prices." Not true when dealing with most small shops. We have one price. The buyer can be anyone. If it is not the end user , I.E. a contractor or retailer, they can add whatever they want. They know how much their market will bare. They have to have a markup.
We don't do residential work. Too many small shops selling too cheap directly to the home owner. We track our costs add a profit that our market will bare. How else would a business operate? Wholesale is selling in volume and eliminating costs of selling bits & pieces. How much time do you spend hand-holding MS housewife to sell a kitchen? That is a retail cost. How do you find customers and how many do you have to talk before you get a sale? more retail costs.
Our business model has almost none of those costs. Give us a set of plans (over the net) and we will return a price and maybe some options to improve the product or cut the cost. The price is not negotiable. Want lower price? What do you want to eliminate? Long ago I did some kitchens. Had to deal with way too many changes of mind after starting. Every one of those conversations cost time = $. That I define as cost of selling @ retail. Are we slugging it out with our business model, Yup! For a small shop I don't see how one could work with two price levels unless the work provided is different. I.E. the services of selling, customer relations etc.

From contributor re

We have only one quality level but we have several levels of marketing.

The contractor is only going to hire you if you are a self-managing entity anyway. Inasmuch as we are actually the only people on site that know anything about the key relationships between plumbing, lighting, countertops and tile we might as well also get the referral. We make a lot more money on jobs that were referred to us. We get a lot more referrals on the projects we have a direct relationship with the homeowner.

Having a face to face relationship with the end user allows you to discover what is really significant to the homeowner rather than what the Architect or Contractor says is important. If you frame your questions properly you create a Rorschach test. You can discover whether or not they truly are cost conscious or whether cost doesn't matter. In residential market about 25% of the customers are willing to make the compromises necessary to lower cost and 25% of them really don't care and they will buy as much value as you can show them.

The contractor's marching orders are to make sure the remodel doesn't cost more than "X" dollars. The client really doesn't care how the small dollars are distributed only that the whole budget stays within what they have in the bank or the bank approves them for. The contractor knows that every dollar that goes into your camp does not stay in his.

We have a recycle cabinet that is probably the highest quality rollout on the planet. We charge $500 extra for it. When you park it side by side to anything Hafele or Revashelf sells you can see it is clearly a better product and worth the money. All the contractor cares about is a good enough recycle pull out. He sees no reason for an extra $200 to fly out the window. If he just doesn't bring it up nobody is the wiser.

I can't count how many different door profiles I have seen on Architect blueprints.
I have a set of stacked cutter heads and am able to stick with Ovolo or Shaker. When the customer brings in a specification sheet calling out for Ogee I show them Ovolo. 95 out of 100 times they say that looks great.
One less setup cost for the same budget.

We used to outsource dovetail drawer boxes and that was a struggle. We tried four different vendors. Whenever the project would grind to a halt it had something to do with a drawer box that wasn't in the building. Now when the blueprints call out for dovetail I just show an apple ply drawer box and they "that looks great!" And it does. So why should I continue to throw myself under the bus to preserve the Contractor's relationship with an architect?

The contractor would have you think all oxygen flows through them but I think it was Mrs. Smith that created the job. I just introduce myself to Mrs. Smith and she introduces me to her friends.

I don't know anything about commercial work so it wouldn't surprise me if this approach did not work in that market. I am quite sure if that was the kind of work I wanted to go after or I wanted to live in high drama residential market I would be doing more through contractors.

From contributor La

I agree, referrals are very important. We don't have any system of promotion. Should have, but always seem too busy to do it. All of our customers have come through referrals. All are commercial. Most of them I have never met. Should do that but they are too far away. Have met those in Omaha but that's it. Contractors or other manufacturers that we do work for are in other states or in one case Canada. RDG's method of getting work through referrals is likely the best for his product.

From contributor Wi

I would never bite the hand that feeds me. Your lack of integrity is the issue now. Looks like the contractor should find him self a new cabinet builder. 15% is a bargain Obviously you do not have a clue about the game you are in.

From contributor Bi

Will, you are the one who doesn't have a clue, can you comprehend what you read?? The homeowner may choose the other contractor just to avoid paying the 15% on the cabinetry as he told the other contractor he already has a cabinetmaker and will pay direct, which was OK with him.

From contributor re


Let me run a scenario by you that I think you might recognize.

Imagine that the contractor comes to you for a bid. You have been his go to guy for many years and have pulled his bacon out of the fire many times. After your contractor submits your price the homeowner decides he would like to go with another cabinet shop. In this scenario is your contractor being disloyal to you or is he just doing what the customer asked for?

What if you helped value engineer the job or made some worthwhile inputs about design savings?

What if another contractor brings the same job to you? Would you bid this to more than one contractor? Would your price be the same? For every contractor?

BigTup is merely doing what the client asked him to do. The contractor will either accept this or move on but I suspect he will probably be more flexible in his interpretation of this scenario than you are. There is a reason the client prefers BigTup over the alternative and the Contractor probably also recognizes the inherent advantage of keeping BigTup in his camp for the next one.