Many of you have questions about whether to show line items on your proposals, or whether it’s best to just give a lump sum. So, Mike Dennison from Dennison Contracting has agreed to come on the show and tell us how he does it and why.
This is a fast-paced episode that will educate you and inspire you regardless of how you do your proposals. Whether you do lump sum or line item, the most important thing about being a Protractor is making a difference in your community. And this episode is all about that.
Listen today, and be inspired!
#Protractors – Making A Difference!
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Martin: All right. Today for the Ask a Protractor Series I have Mike Dennison here. He’s a general contractor, does a lot of high end remodeling work and that kind of thing. The topic we’re going to be getting into has to do with how he writes up his proposals, his bids. Whether he uses line items or lump sum and we just get into that subject. I just want to welcome you, Mike, to the show, glad you’re here.
Mike: Hey. Thanks so much, Martin, thanks for having me on and very pleased to be a guest.
Martin: Well, it’s great to have you here. First of all, we’re going to find out where do you live, what do you do exactly, and how long have you been in business?
Mike: I live in the Seattle area. I do all my work on all the little outskirt towns in Seattle. I have had my company for four years now and we do custom remodel work, so kitchens, bathrooms, small additions. Got a bigger project coming this summer, it will be a third story so I’m excited to start that one.
Martin: Well good, congratulations, sounds like you’re doing really well over there. I know that going into business for yourself, I mean, there’s so many different things that you have to learn, right? I mean, you have the skill of doing the craft but then you have all these other business aspects. The question that we have today is do you break down and show all of your costs to your client or do you give them a lump sum? For example, do you break down your proposal per line item such as drywall, flooring, countertops, cabinetry, et cetera, or do you just lump it all together?
Mike: I always line item my bids, I’ve just found that to work the best for me. I constantly get feedback from clients about how great it is for them to go through and see that. Immediately after I caught on about a year of doing it I found that some contractors really don’t do that. What I like is it’s really transparent from the get go. They can go through and see how everything totals up because a lot of time with remodel this stuff really adds up. To get hit with a big lump sum it’s sticker shock. Just like a receipt from a grocery store, you want to be able to break it down and see where everything goes. I can explain my higher prices when everything is line item-ed.
Martin: Okay, so as a contractor you are positioning yourself as a higher end contractor.
Martin: You feel like that by breaking it down and showing in detail these line items it actually helps you sell better.
Mike: Mm-hmm, yeah. The feedback from my clients is just that they appreciate it. I’d say the only negative I’ve found about it is it takes a little bit more time and you have to do a little bit more homework for the bid. Then again, if you land … For a kitchen remodel that extra time is very well justified.
Martin: Is that the way you’ve always done it?
Mike: Yeah. I have done this for, when I first started when all I do is tile bathrooms. I would have to go through and explain what the lump sum of just tile was. I’d explain tile prep or demolition, then tile prep, then the tiling process and then the grouting. Those are four or five different ticket punch lines that I have that explain my tile process. Now, I might not go with that in depth if tiling is a part of the kitchen. I might just say tiling, and then break that out as one line item on the whole kitchen remodel. From small bathroom model to quarter of a million dollar project I’ve found that system to work really well.
Martin: When you’re writing up a bid and you have all these line items and their costs. Let’s say that you gather all the costs for what’s going to go into the cabinetry and the countertop and all of that. That’s your rough cost but then you have markup that you would put on it too. Where do you show all of that in your bid or do you not, or how does that work?
Mike: A lot of times I’ll leave just a little bit because the nature of remodeling is nothing is certain. I kind of show my numbers off the get go as a starting point of generally what it’s going to be to do the carpentry in the house or the tile in the house or my price to install the cabinets and I’ll leave out the price of the cabinets. That’s really, that’s a tipping point of it can go very low end, it can go very high end depending on what they pick out. I’ll explain to them there’s going to be a little bit of adjusting with it. If it’s a really high end cabinet with six inch crown that bridges the gap between the cabinet and the ceiling then that takes a lot of detail. I’ll explain, “Okay, since you bought this particular cabinet line with these details it’s going to be a little bit above the mark that I originally set out. We’ll get that on paper and explain that process.
Martin: These line items, are they more a general, kind of like an estimated budget, is that how that works or …
Mike: Yes. A lot of it, like tile install, you can get pretty true with that or if it’s just simple baseboards throughout the whole house. I’ll include the price of the baseboards, of the woodwork, because that you can look up. You can do takeoffs off your plans and realizing how much linear feet you have and get a pretty precise bid on that. If I’m bidding out windows and doors and all that and I haven’t known that they are picking out yet then I’ll just bid out my labor on it.
Martin: Okay, so you include the labor in a separate section?
Mike: Yeah, or I’ll make an exclusion, say does not include price of doors and windows because they haven’t picked them out or always on tile, does not include the price of tile; or painting even. I never include the price of paint because you don’t know how many accent walls, whether they’re going to go to a Benny Moore where your paint’s going to be double of an inferior paint.
Martin: With, say, electrical, do you put five new outlets, one light switch or do you just say electrical’s going to be $3,000 budget? How precise do you get on that?
Mike: Yeah. With that I will be a little generous on all my bids for electrical and plumbing because a lot of that’s up in the air. You don’t know until you open the walls of what’s going on. If it … Take for instance in this bigger project that I’m on right now. I put a big lump sum out for electrical and I know that I’m probably going to, that price was probably going to be a little bit more than what the electrical might be. In the back end I’ll bring that up to the client and say, “Hey, electrical was only $18,000, I know we bid out $22,000 so I’m really responsible with that and really honest with that. I’ll knock that off the total price and I don’t pocket that, I’ll give that back because I’m still going to markup my sub. For my particular case, I’ll mark my subs up 15% to cover my operation costs.
Martin: That’s kind of what I was wondering. Do you show that markup in the bid? Does the end client know clearly what your costs are, what the markup was and all of those details? Is it more like we just have these budgets and …
Mike: Yeah. I actually, from the get go I do, I bring up all that. I’ll explain my markup is 15% because if you can establish that right off the get go and you have a client that is comfortable with that and okay with that, then you know that it’s not going to be an issue throughout the whole project. I’ll explain that I markup my subs 15% and explain that. On plumbing and electrical those are big numbers that you’re marking up but that’s all justified. That really helps at the end of the day because once the dust settles and you have your hourly marked in there you really do need that leftover markup for your operation costs and for your business.
Back to the point is yes, I explain it from the get go and it’s kind of a tough pill for the clients to swallow. If you explain it right it is something that is very transparent throughout the whole process and it helps both the client and the contractor.
Martin: For some reason it makes me think of booking a ticket, an airline ticket. You have your ticket, you have your tax, but then there’s two or three charges in the middle and you’re like … Services charges or whatever, it’s like, “What are those?” They do have a business to run and so they have to cover those costs. We’re at the end of our time already. Do you have a quick takeaway point you’d like to throw in on this subject of line items versus lump sum?
Mike: Yeah. Basically, I always think of it as if I’m the consumer and if you have to put yourself in the shoes of the client. They don’t shop in this market every day. They don’t really have a frame of reference of what everything costs. By explaining everything and by having everything line itemed they can understand where all the money goes in a large project. Then you can explain to them why you have to markup. It took me a long time to finally get to the stage of marking up materials. Once you cross that bridge you can finally grasp it and realize, “Okay, I need this markup.” It all comes down to line item and understanding where your client’s head is at and putting yourself in the client’s shoes.
Martin: That’s great, I appreciate it very much. Where can people learn more about you and follow your journey online?
Mike: Online I have a Facebook. I need to be better at … But my Facebook is Dennison Contracting. I’m on Instagram. My handle is @Dennisoncontracting. I have a great website I just finished this Spring and that is dennisoncontractingseattle.com.
Martin: Awesome. Well, everybody go check him out, and say “hi.” With that we’ll see you next time.
Mike: Sounds great. Thanks a bunch for having me on, Martin.
Martin: Thank you, appreciate it.