Written by Darren Wallbank Executive Chairman of Builda Price
The current building market is plagued by high demand, labour shortage and rapid material price increases, because of this there is a definite move towards charge-up jobs and away from fixed price contracts. At Builda Price we noticed this and now have close to 200 Certified Builders using our software. We see a real trend towards charge-up jobs in this current economic environment.
A charge-up job (also known as cost plus) shows the real costs incurred on a job, adds a margin, and passes the resulting price onto the customer. This presumes there is no risk in this type of work. You fix the margin, then make this percentage on ALL the work you do for the client. You complete the job with a nice tidy profit, and you know where everything went.
Sounds simple. Here are the issues that come with charge-up jobs:
Margin % – How do I fix this on a charge up job to ensure I am making profit?
In my years as an Accountant for builders, I found most builders ran between 13% to 16% overhead in their business. This is the percentage of costs that you incur in your business after direct cost like materials and wages. It is simple to calculate. Take your last financial accounts and your gross margin percentage, then subtract your net profit percentage. If you can’t figure it out, ask your Accountant and they can tell you.
Why is this important?
If you are charging a 20% margin on your charge-up job for materials and labour, and your overhead is 16%, then you are only making 4%. That is not enough for the risk and stress you are taking as a builder.
Forgetting to pass on costs
Every hour of labour, every material invoice, and every variation you forget to recharge to the client is a real cost to you under a charge-up job. Your systems have to be precise to ensure you capture all costs efficiently.
If you don’t give a $125 materials charge to your customer in a charge job where you have a 25% margin, you have just lost the equivalent of $500 labour that you have spent on that job.
An expensive miss.
Forgetting to add a margin
In a charge-up job your margin percentage is the only money you will make on the job. If you don’t add it on to every cost, then you aren’t making money on that cost.
Surprising the customer with a blow-out
This can result in an argument, or even worse, you don’t recover that last bill you sent out to your client. The final disputed amount generally represents your profit on the job. You need good reporting. You need to keep your customer informed along the way. You need a system that does this for you. This gives you a “no surprises” environment.
Administration time spent pulling together your client’s invoices
There are many spreadsheet types that are all used to pull together the costs on a charge-up job and you or your administration support person will spend hours making sure you haven’t missed anything. These are non-productive hours that you could be spending elsewhere so having an easy-to-use system is key here.
How does a good system help you overcome these issues and ensure you maximise profit?
Let’s talk through a typical charge-up job using the Builda Price software solution.
Step 1 – For larger charge-up jobs the customer may want an estimate on the job even though it is a charge-up. They want to know where they are heading. We see this in many charge-up jobs. With Builda Price Pricing you can prepare a quick and accurate estimate for any type of charge-up job. This is presented to the client in a tidy format enabling the customer to understand what they are getting into.
Step 2 – Once the job is accepted, an estimate can be set up as a job in Builda Price Job Tracking to enable the job to be tasked correctly. This could be the first step in your process and if it is a smaller charge-up job there may be no estimate. This can still be set as a job with tasks and no budget.
Step 3 – All costs associated with the job are then captured against the job real time in Builda Price.
Labour – Captured by our timesheet app and set against the job and task. This then feeds straight to your payroll system. It is now available for billing.
Material Invoices – These are captured from suppliers direct into Builda Price with no manual processing. Every supplier invoice is allocated against a job. You can’t miss charging on an invoice to a client. These then feed to Xero, so no double administration handling.
Subcontractors Invoices – These come into the Builda Price software and are allocated against the job and task.
Variations – Simply add a variation task onto the job and capture the associated costs for labour and materials.
Step 4 – Invoicing
With the Builda Price Report Builder you can get a summary for any time of day and job that includes all labour, invoices, and variations. This is done in less than a minute. You add on your margin to any section. You have a report ready for invoicing that makes sure no costs are missed.
This is one of the builder’s favourite features in Builda Price as it saves using a spreadsheet, it makes sure everything is charged and it saves hours of administration time.
Step 5 – Reporting
You can use Builda Price Reports:
- To see real time job data against your original estimate. Keep your customer informed.
- Do a Progress estimate against your original estimate.
- Give your customer up to date positions on the job.
- Back Cost and check you made money on the job.
Charge-Up jobs (cost plus) should be easy and work to guaranteed margins with profit. Make sure you get a good system in place to handle these jobs.
“ As a PROTRADE United member” you are entitled to a $150 discount on your sign up, contact Builda Price for a demonstration today.
