Recommended profit on sub contractors?

[Melec]

Hi all,

We have the opportunity to supply a company for a specialist contract (guaranteed us). We will use another company to do this for us completely. The only work that we, as a company, would have to do is arrange the days/times on site and the paperwork (money in/out).

With this in mind, is there a minimum amount of profit recommended that we should be putting on the sub contractors costs? Obviously, we are doing nothing (very little) for our profit, but I am mindful that it will push our turnover up substantially, therefore I wondered, from an accountants point of view, is there a minimum amount percentage wise if doing this long term?

Thanks,

M.

 

[NICHOLASM1987]

this question is pretty vague,. i always think you get what you pay for when i sub work to people i find people who are quiet and are not really advertising well etc etc so i take advantage of people but they still have to be good at what they do and they get a healthy profit them selves a lot more than the average salary in the uk and the fact we are still in recession helps to get people cheaper. good luck anyway.

sorry ive misread the question i dont deal in specialist feilds,

 

[saxondale]

allow enough for when you have to go and do it all again.

TBH we just double their charge.

 

[Tej]

subcontractor price + 50%

Gives us a third return..

works for us

 

[Tej]

this question is pretty vague,. i always think you get what you pay for when i sub work to people i find people who are quiet and are not really advertising well etc etc so i take advantage of people but they still have to be good at what they do and they get a healthy profit them selves a lot more than the average salary in the uk and the fact we are still in recession helps to get people cheaper. good luck anyway.

sorry ive misread the question i dont deal in specialist feilds,

cor blimey..
and you were mentioning " sh***y comments on another post

 

[Melec]

Thanks for the feedback.

I should have explained that the specialist company gives us a price per job...

So, for example, we get a call from the client saying can you give us a price to do A,B,C. We then ring the specialist company and pass on the requirements of the client and ask them to give US a price (for everything, labour and materials etc.). We then have to give our client the price to do the job (their price plus our profit).

To give you an idea of costs, each job may be anything from £1000 to £20000. We obviously can't put 50% on this price, as our client would go elsewhere, and we have to remain fairly competitive (even though the way things are at the moment, we are the only ones pricing for the job).

We have already done a few of these and rather than looking for a recommended amount percentage wise we should be adding for profit, I wondered if there was anything we should be aware of by raising our turnover drastically that an accountant may be able to advise? We are currently adding around 10%...

Thanks again,

M.

 

[saxondale]

not subcontractors at all then, but I`m stuck with your question, simple answer is just turn the work down if your too rich.

 

[Melec]

not subcontractors at all then, but I`m stuck with your question, simple answer is just turn the work down if your too rich.

Hehe. Ok, here's is what I'm asking; by charging the 10% profit on these contracts and raising our turnover drastically, is there anything I need to be aware of?

I remember an accountant I used to use many years ago when I was self employed saying I should be making at least 20% on sub contractors to make it worth my while, hence the question.

Thanks again,

M.

 

[Tej]

it all depends on what your overheads are in total. If 10% covers that and gives you a decent profit.. thats fine.
What will the price bear?
thats ythe crux. If the subbie charges £20k and you out on 20%.. that gives you 4k.. if you are getting that besides other business.. and you are happy with that.. then thats fine isn't it?

Businesses are not limited to the profits they can make...name of the game is to maximise!
and .. accountants don't advise that you should not make profits


IMO

 

[Tom McClelland]

Just don't forget that you may be bearing 100% of the risk for 20% of the profit.

 

[Tej]

To give you an idea of costs, each job may be anything from £1000 to £20000. We obviously can't put 50% on this price, as our client would go elsewhere, and we have to remain fairly competitive (even though the way things are at the moment, we are the only ones pricing for the job).

Is the client a good payer?

Surprised that you are the only ones pricing the job!!... why is that?
begs the question.

 

[Tej]

As I said, we put on a mark up of 50% for similar situation.. and as Tom has pointed out.. look at the risk you are taking!

 

[NICHOLASM1987]

tej i may take advantage of people, but i treat people with respect and would never treat an employee as stated above.

 

[Tej]

tej i may take advantage of people, but i treat people with respect and would never treat an employee as stated above.

You have to do as you see fit... and do what is right for you.

I don't treat my employees badly.. I have never fired one ever!.. and.. I have had companies where we employed over 300

 

[Melec]

Is the client a good payer?

Surprised that you are the only ones pricing the job!!... why is that?
begs the question.

Hi Tej,

We have worked for the company for quite a while now and built up an excellent 'professional' rapport. We are also their preferred contractor.

They have won a large contract that, although linked to our area of expertise, isn't 'what we do'. This has been explained to them and we have basically been told to get an expert in and put our profit on the top and the jobs are ours.

They are excellent payers by the way.

I realise, reading back through the thread, what I was asking seemed a no brainer, but my question was really aimed more at an accountants point of view in that I was unsure raising our turnover by so much for 10% profit was going to incur any other, unforeseen penalties.

One thing that has been touched on by Tom McClelland is that although we are not doing a great deal for that 10%, if anything does go wrong (now or in the future), it is us that will take the blame, fully. Thank you for reminding me of this Tom.

It seems that, with no negative reactions in this thread to us charging 10% on this contract, this would seem the way forward and there are no negatives to doing what we are...

Thanks again for taking the time all,

M.

 

[Tej]

If you are happy with that mark up.. then go for it.

Have you built in your costs about finding/vetting the subcontractors that you have to find for the work required?

What would a 10% mark up net you in the final analysis?

Have you built in a %age should something go wrong?

I am sure you guys have done your homework.. so friends... good luck!

Hope everything goes well for you.

 

[appyammer]

one thing to consider is if the works are being done for a main contractor

example:

your cost £100,plus your profit 10%, less main contractor discount (normally 2.5%)less 5% retention= £2.34 profit until you get the retention.

not too inviting

i think you should be adding 30% or 15% if its materials only

 

[Tej]

one thing to consider is if the works are being done for a main contractor

example:

your cost £100,plus your profit 10%, less main contractor discount (normally 2.5%)less 5% retention= £2.34 profit until you get the retention.

not too inviting

i think you should be adding 30% or 15% if its materials only

MCD and retentions are not automatic!!
These can be/ and are negotiated to NIL

Some main contractors don't even ask!

 

[LicensedToTrade]

Ok so let me get this right in my head:

Job 'A' is priced at £10,000 (100%)

You pay Subbie '1' £9,000 (90%)

You take the remaining £1,000 (10%)

Subbie '1' does not complete the job on time or to a satisfactory level.

Job 'A' now brings in £8,000 after all the time and money spent on Subbie '2' to repair the damage.

Subbie '1' gets £9,000 (because you didn't draw up a contract)
Subbie '2' gets £4,000 (because that's the amount he wanted to fix the damage)

That leaves you with -£5,000 (because you are the one who takes on 100% of the risk)

So what's my point? Cost plus pricing is a dangerous dangerous way to go about your business where sub-contractors are involved. You need to either spread to risk to all parties or factor in any potential hiccups in the overall price.

 

[Tej]

Ok so let me get this right in my head:

Job 'A' is priced at £10,000 (100%)

You pay Subbie '1' £9,000 (90%)

You take the remaining £1,000 (10%)

Subbie '1' does not complete the job on time or to a satisfactory level.

Job 'A' now brings in £8,000 after all the time and money spent on Subbie '2' to repair the damage.

Subbie '1' gets £9,000 (because you didn't draw up a contract)
Subbie '2' gets £4,000 (because that's the amount he wanted to fix the damage)

That leaves you with -£5,000 (because you are the one who takes on 100% of the risk)

So what's my point? Cost plus pricing is a dangerous dangerous way to go about your business where sub-contractors are involved. You need to either spread to risk to all parties or factor in any potential hiccups in the overall price.

Don't know if you have any experience..

Subbie doesn't get paid till the job has been done satisfactorily.. i.e the job does not get signed off.!.. if not done right.

so.. its tough on subbie!.. maybe even penalise subbie for "ballsing" the job up

Hope you have got that right in your head now

So.. nobody gets paid till the job is done right and signed off satisfactorily!!

 

[Melec]

Hi again,

Yes Tej, you are correct.

We have to have a 'sign off sheet' signed by the customer to say that all is working as expected, site left clean etc. We then invoice our client and include the signed sign off sheet, any appropriate testing, inspection and/or commisioning results and 'as fitted' drawings if appropriate. Only then will we be issued our money.

A bonus for us is, in this case, is the price we are quoted from our specialist company includes all of this documentation. In fact, they issue their method statement and risk assessment straight to our client too at the start of the job, which negates us issuing one, which our client is happy with!

M.

 

[LicensedToTrade]

Don't know if you have any experience..

Subbie doesn't get paid till the job has been done satisfactorily.. i.e the job does not get signed off.!.. if not done right.

so.. its tough on subbie!.. maybe even penalise subbie for "ballsing" the job up

Hope you have got that right in your head now

So.. nobody gets paid till the job is done right and signed off satisfactorily!!

Forgot to mention that I work for a well known international building distribution company working closely with many sub-contractors who work for some of the UK's largest housing developers like Persimmon Homes, so I'd say I'm a reasonable authority on the matter.

When I see someone asking 'how much margin should I be making on top of what the subbies cost AFTER having claimed to be the sole person bidding on these projects, that is when I question who has adequete experience.

I appreciated the challenge though

 

[Tej]

Hi again,

Yes Tej, you are correct.

We have to have a 'sign off sheet' signed by the customer to say that all is working as expected, site left clean etc. We then invoice our client and include the signed sign off sheet, any appropriate testing, inspection and/or commisioning results and 'as fitted' drawings if appropriate. Only then will we be issued our money.

A bonus for us is, in this case, is the price we are quoted from our specialist company includes all of this documentation. In fact, they issue their method statement and risk assessment straight to our client too at the start of the job, which negates us issuing one, which our client is happy with!

M.

Absolutely.. the only way.

May I ask what work this is?

PM me if you don't wish to divulge in open forum. And if it is really sensitive.. don't PM me either.. I shall understand

Good luck

 

[Melec]

When I see someone asking 'how much margin should I be making on top of what the subbies cost AFTER having claimed to be the sole person bidding on these projects, that is when I question who has adequete experience.

Hehe. All getting to be a bit 'who's got the biggest chest' this thread...

I hopefully summed up my reasons for asking about profit margins earlier. We ARE a relatively new company and I thought that the idea of the forum was to ask questions of others who were more knowledgeable?

I apologise if my inexperience has offended you, and I will go back to lurking mode...

M.

 

[Tej]

Forgot to mention that I work for a well known international building distribution company

What is a building distribution company?.. you distribute buildings?

Thought that only happened on a Monopoly Board.

 

[Tej]

Hehe. All getting to be a bit 'who's got the biggest chest' this thread...

I hopefully summed up my reasons for asking about profit margins earlier. We ARE a relatively new company and I thought that the idea of the forum was to ask questions of others who were more knowledgeable?

I apologise if my inexperience has offended you, and I will go back to lurking mode...

M.

Melec.. you have nothing to worry about.. you have done right IMO

Good luck as I said.. make the profits

 

[LicensedToTrade]

Hehe. All getting to be a bit 'who's got the biggest chest' this thread...

I hopefully summed up my reasons for asking about profit margins earlier. We ARE a relatively new company and I thought that the idea of the forum was to ask questions of others who were more knowledgeable?

I apologise if my inexperience has offended you, and I will go back to lurking mode...

M.

No need to apologise Melec you haven't offended me in the slightest. I was merely trying to offer you something from what I have learned in regards to subbies. What is a little offending however is when someone finds it hilarious to poke fun at the industry I work for. Tej, google saint-gobain building distribution, you might find it interesting. If you forget how to spell it then check your car windows (it's not our main area of business but 1 out of every 2 cars in europe have their windows made by us).

I work for SGBD UK (saint-gobain building distribution) that means Jewson, Graham, CTD, Minster, Curzon etc. you may have heard of them.

 

[Tej]

Yep.. I know them.. so what?

We buy supplies from them.. so what?

 

[Tej]

and.. you are an employee.... don't have your own business !!

Do St Gobain.. have contracts with subbies in the building trade?..

I don't think Jewson have!!.. They supply building materials as far as I know

 

[LicensedToTrade]

I don't really know how to answer that question...what kind of answer do you expect from that? As I said before I was offering up some of my learning on this area, an area of which I have a lot of experience. Advice like criticism is a gift, it allows the receiver to fill any skill gaps. If for example I wasn't sure which was the best way to produce a sarcastic and provocative statement I would seek advice from those more experienced than myself, someone like your good self. Look I'm joking now, let's not have arguments on a forum, I came here to network, evidently I'm not doing so well at this stage. Can we put it behind us?

 

[Tej]

I don't have a problem with you

 

[LicensedToTrade]

That's settled then