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What is a reasonable GC markup for large kitchen remodel?

Tyson Kirksey
last year

I'm beginning to embark on a large kitchen-plus remodel (including removing walls and some adjacent rooms). It's a large project, for sure, likely 3-5 months. I'm getting various ranges and models of pricing from contractors including fixed bid, cost-plus, modified cost-plus, etc. One particular remodeler shared with me a budget from a similar project he did so I could get a sense of costs. It laid out all of the direct costs, which totaled $106k. On top of that, the contractor charged $24k for site management (basically the time to manage the project), and then on top of all that they charged a 30% markup ($39k). Total project came out to be $168k.


My question is, does this seem reasonable to GC a remodel? If my math is right, that's a 60% markup of direct costs that went to the contractor ($106k X 1.6 = $168k). Granted, they are a franchised, well-regarded operation, so they may be able to demand that premium. I haven't done a project like this in a while, so I'm just looking for confirmation...does that seem high or reasonable? I've heard 30-40% markup is more common.

Comments (19)

  • Fori
    last year

    3-5 months? Oh, my dear, sweet, innocent...


    Sorry what was the question? :P


    I think it varies a great deal. Location, project, etc....this seems like a pretty small project based on the amount, and small projects don't always scale the same way large ones do. And do keep in mind, that "markup" isn't what the GC gets to take home. It covers all kinds on insurance, fuel, tools, visiting with prospective customers...

    Tyson Kirksey thanked Fori
  • mcarroll16
    last year

    Site management is man hours that deserve to be paid for, even if it's a solo contractor's own man hours. Plus the actual markup that covers all the costs that Fori listed. Finishing up our own 5-month remodel (schedule for 2 months, heed Fori's warning!), and the amount of man hours our contractor has spent here definitely warrant a big chunk of what we're paying.

    Tyson Kirksey thanked mcarroll16
  • PRO
    Charles Ross Homes
    last year

    Gross margin on remodeling projects is typically 30% to 40% Net margin is around 5%

  • mcarroll16
    last year

    @Charles Ross Homes Ouch! I hope that's after the contractor has paid himself a wage, or that is just incredibly brutal.

  • PRO
    Charles Ross Homes
    last year

    The statistics are from the National Association of Homebuilders (NAHB.) The remodeler's gross margin typically funds all of the remodeler's cost for supervision, field overheads and office overheads. After paying for those, the net margin (profit) is 5% +/-

  • Tyson Kirksey
    Original Author
    last year
    last modified: last year

    I'm familiar with the difference between markup and margin...I just wanted some feedback on if these numbers seemed average, low, high, etc. I definitely want to my contractor to be motivated and make decent money on my job. Just thought 60% markup / 40% margin seemed on the high side.

  • Tyson Kirksey
    Original Author
    last year

    @User what do you think of the numbers I posted? How would you describe that?

  • lharpie
    last year

    Sounds sky high to me. pretty sure we paid 10% (and did cabs/counters on our own without markup). but i keep talking to contractors who say they are quoting sky high prices because they have too much work right now and are surprised when people say yes. i would say my gc was not fabulous, but adequate over a 60% mark up certainly!

  • PRO
    Charles Ross Homes
    last year

    "Just thought 60% markup / 40% margin seemed on the high side." I suspect a lot of folks who don't run a small business don't understand the basic accounting or the costs. The NAHB numbers indicate that an average of 30% to 40% gross margin delivers an average of 5% profit (net margin.) That's not on the high side, in my opinion. You can benchmark it against the profit generated by other companies which incur comparable risks. The difference between the gross and net margins needs to cover the cost of everything from professional and business licenses; trucks; fuel, maintenance and vehicle insurance; tools; cell phones; safety equipment; general liability insurance; workers' compensation insurance; employee benefits; office rent, utilities and maintenance; advertising and marketing expenses; accounting fees; legal fees; continuing education, well, you get the picture.

  • PRO
    User
    last year

    30-40% margins are standard for a business, run like a business, and not a hobby or charity. Or a failed business. There are a lot of contractors out there who do not know they are runnng themself out of business until the IRS sends them the audit. They do not understand the concept that ”money left over” after buying supplies is not ”profit”. It has to pay for the other business overhead besides materials.


    COGS+overhead+profit= job pricing. Most cannot accurately use that formula because they do not do any back analysis of completed job costs. Going out of business is always a surprise to someone who has cash flow, but not profit

  • PRO
    Joseph Corlett, LLC
    last year

    "Next, and much more importantly, don't get hung up on their business model, it is mostly irrelevant information to you."


    This^.

  • millworkman
    last year
    last modified: last year

    "Net margin is around 5%"

    And a great job and or great year you would end up about 8-10%. Most people do not understand the true cost of doing business.

  • Tyson Kirksey
    Original Author
    last year

    @Charles Ross Homes thanks. I work in residential construction for a large production builder. In our industry, gross margins run typically between 15-25%. I know remodel is different, but I was surprised to see double. Especially in a cost-plus model where the gross margin is guaranteed. I love the transparency, though, and I don't blame owners for wanting to ensure a profit. Nothing wrong with that.

  • Tyson Kirksey
    Original Author
    last year

    @millworkman a lot of healthy businesses operate on 5-10% net margins...that seems reasonable. If you have a $3-5M remodel business, pay yourself a good wage, cover overhead and have half a mil left over at the end of the year, that's a good business.

  • Helen
    last year

    FWIW my GC charged 18% as his fee for the materials and work.


    What he actually paid for the screws or self leveling materials or sheet rock or his labor I have no idea nor did I care. Each segment outlined the scope of the work for particular segments with the "price" and then 18% would be added to the total.


    I didn't hire the cheapest guy - I didn't nickle and dime him and he paid me back by going above and beyond and leaving me with a place that was well constructed.



  • millworkman
    last year

    @Helen, this was in a High Rise correct?

  • PRO
    Charles Ross Homes
    last year

    @Tyson Kirksey,

    You production guys make better margins than small-volume custom builders. Custom home builders operate between 15% and 20% provided we're not hit with rapidly escalating material or labor prices like when covid-19 first hit.

    I believe the margins quoted by NAHB for remodelers are for fixed-contract price work. If it's a cost-plus arrangement, I would expect the fee to be less than for a fixed-contract price job. You may be able to negotiate to that end.

  • Helen
    last year

    @millworkmanYes I did a gut remodel of my condo in a high rise in Los Angeles.


    The actual contract was a bit more complicated because there were elements that I provided which were generally the finishes and also allowances for things like the electrical. Allowances were pretty accurate since they were chiefly for fungible items like the electrical work or shower doors so chiefly these went over for real surprises like my needing a new panel or for my upgrade when I wanted Showerguard glass rather than the kind of allowances where the builder has an allowance for cabinets which are low grade or lowest grade granite. Since I was paying for the elements like cabinets, counters counters, tiles and other types of finishes there wasn’t that kind of unrealistic lowballing


    For example, the cabinets were built and installed by a local company who he worked with a lot. He was given the plans so his bid was based on the actual design so that his bid reflected whether the tiles would be more expensive to install for example.


    I didn’t care what his profit was or his margin was. My concern was hiring someone who was dependable and skilled and not the cheapest guy.