Combining New Construction and Remodeling
Combining new construction and remodeling can be done, but few have been able to do it successfully long-term. New construction is a commodity and remodeling is a service business, it is like comparing apples to oranges.
The Difference Between New Construction and Remodeling
Most contractors who attempt to do both find that mixing these two types of construction just doesn’t work. Not only is the customer service aspect of the two businesses very different, but so is the physical work itself. This also usually means, the same crew can’t do both types of work. It is usually better to focus on one or the other, but try not to switch back and forth.
If you do happen to get into a combination of remodeling, new construction, or specialty work, your projected volumes and overhead figures will be drastically different. It is likely that you will not have the same markup.
Calculating Your Markup
The only way to correctly calculate your markup for each type of work is by keeping two sets of books. This is one of the many reasons why few contractors can successfully work in both areas of construction at the same time. Maintaining the correct numbers and keeping two independent sets of books can be a bookkeeping nightmare.
When you lump everything into one set of books, you will never be able to figure out what expenses apply to what division. If you can’t figure out what your overhead is for each division, you definitely won’t be able to compute an accurate markup for each type of work.
If you have developed your markup as outlined and your numbers are based on building new homes, you actually lose money if you use that same markup for a remodeling job. Do it consistently and you will go bankrupt. Of course, this assumes that your volume of business in new home construction is larger than the volume of work you do in remodeling.
The opposite however, works very well. If you use the same markup for new construction that you have been using for remodeling, you will actually make money. The only trouble is that it is hard to get jobs at that price.
My advice is to choose one – new construction or remodeling and do it well. You will make more money and experience fewer headaches.