Subcontractor Markup

Discussion in 'Bidding, Estimating and Pricing' started by Honest Lawn Care, Dec 9, 2018.

  1. Honest Lawn Care

    Honest Lawn Care LawnSite Member
    Messages: 4

    I have a client that needs a lot of tree work done. I met my tree subcontractor over there today, walked the property and went over the scope of work. My tree subcontractor gave me his quote which I marked up only 10% because she is an existing client. I submitted the estimate to my client. Her response was to ask if the tree company was a sub of mine? I said yes and that I only use them for tree work. She then stated that she would have to think about it because the cost of a subcontractor balloons the price and she believes that a subcontractor mark up is unethical? I let hear know that subcontractor mark up is an industry standard and what is covers. I let her know that a typical mark up could be 15% - 20%+. She then wanted to know if she could deal with my subcontractor directly. I would like to know some options on how you would deal with this. I am not new to subcontracting and have yet to have this happen.
  2. Jack Hammer

    Jack Hammer LawnSite Member
    Messages: 45

    I’d be like..
  3. TPendagast

    TPendagast LawnSite Fanatic
    Messages: 15,969

    Don’t refer out your sub

    Tell her to call around and get her own prices for tree work

    But if you need to coordinate with her tree guy
    There’s an extra charge for that time (exactly the same as the 10% mark up you were going to charge her)
  4. BigJlittleC

    BigJlittleC LawnSite Fanatic
    from Chicago
    Messages: 5,098

    Tell her she can deal with it all. Sourcing bids and vetting companies. She can build her own sub list or just hand you a check and get the work done.
  5. OP
    Honest Lawn Care

    Honest Lawn Care LawnSite Member
    Messages: 4

    Thank you all for your opinions. I received a call from the client today and they said that they will accept the estimate but they feel the cost is still to much? I just stayed quite and professional and waited them out. The estimate was more than fair and it is a lot of work. They did not get any other bids for this work. You just have to come up with a fair price for the scope of work where you can make money and stick to that price. If I dont get the job they are most likely not the customers I want anyways.
  6. hal

    hal LawnSite Bronze Member
    from Georgia
    Messages: 1,235

    With someone like this, make sure everything is in writing, I mean every detail that can come back at you or the subcontractor. And when payment is to be made.
  7. rclawn

    rclawn LawnSite Senior Member
    Messages: 742

    Your name implies you are an honest guy. However, in cases like these while it is important to always be honest, you could have deflected this question. Assuming everything is legal (he is properly insured/ licensed, you are allowed to subcontract this type of work, etc) you aren’t obligated to inform her whether it is a sub or employee. If she asks, don’t lie of course but... I would have changed the subject.

    Customer: I received the bid and it is high but reasonable... Is this work being subcontracted out?

    Contractor: Yes, and this of course includes the cost of cleanup. Last time you hired a tree services what kind of issues (if any) were there? I always ask this to new clients and have found cleanup is always the issue, and this is what I believe sets us apart. Let me know what you are thinking as far as scheduling this.

    See, don’t lie, but just change the subject and make it seem important
    Honest Lawn Care and hort101 like this.
  8. Rockbridge Lawn Care LLC

    Rockbridge Lawn Care LLC LawnSite Bronze Member
    Messages: 1,089

    SHE is hook-n-baiting you for lowering your price. Simple as that. She wants the lowest price, and that organization wins her 'sale'

    The reason you mark it up is as the prime contractor is because YOU ARE RESPONSIBLE for the completion and quality of the outcome of the job.

    I feel strongly that in this case this client of yours probably does not care about quality much...she is competitively price driven.

    I NEVER reveal if work is subed out or not unless asked directly. How I complete a job is the business' business, not my client's to know our profit margins and such. They, the client, either likes the price or they don't. If they don't they have the option of coordinating and calling and pricing it themselves, that is the beauty of a free market:)

    HOWEVER, I as a business owner have a duty to check and make sure my price is in line with the market. For example you might get a separate quote from two separate sub contractors on the same job scope to price check your quote your giving to the client

    So back to the subject matter. DID you get two or three quotes on this job for subcontracting out? You need to know where your potential Sub is in the price spectrum. ALOT of times you can build SUB relationships with showing transparency comparing one sub to another or a job quote. Think of your SUB as a mini-you company. They want to get the job or know where they fall short against their competition to learn and improve so they can get the next one.

    Unless you know your SUB REALLY well they probably have a 25% margin in their price they are giving you, and you tack on another 10% on your mark-up, well yea that probably is looking like sticker shock to the client, especially if they are looking at a direct quote from a tree trimming competitor or had the mind set that it 'should' only cost X-dollars....

    Generally you can seal the deal by when you present the quote to your client state that Honest Lawn Care is $500, but you know Tree Trimming Company B can do it for $450, but they did not include the removal fee in which case we are a better value as Tree Trimming Company C quoted us $525.
    ^^^ that really shows clients that you care to go the extra mile and ensure 'value' to the client and open the door to budget restrictions, where a reduction in the job scope may give the client the price point they want.
  9. gcbailey

    gcbailey LawnSite Gold Member
    from WV
    Messages: 3,061

    You sub out to this outfit for all your tree work, correct? Do they give you a better price than they do to Joe Customer? If so then your 10-15% markup shouldn't matter....

    What I would recommend is..... We have two outfits we sub work to, an arborist company and a hardscape company, try to do everything else in house. They are "true" subs for us in that they are 1099s and also listed on our GL. We've worked up agreements with them that for every job we send them, we get discounts ranging from X-XX% depending on the type of job. Everything is billed through my company and for the most part the client doesn't even realize a sub contractor is being used, unless they happen to be at home and see the sub's company vehicles if and when...

    I would tell the client, which it isn't a lie. That we have industry agreements that allow us to keep our prices competitive and tell them to feel free to call around but your price is your price.
    Honest Lawn Care and hort101 like this.
  10. Rockbridge Lawn Care LLC

    Rockbridge Lawn Care LLC LawnSite Bronze Member
    Messages: 1,089

    one of my tree trimming buddies I use a lot does some jobs for me at labor cost that involve Oak trees as they make a profit on re-selling it as split firewood.

    its about having that relationship with your sub that puts you in a good spot, and having some confidence in your price
    Last edited: Dec 12, 2018
    Honest Lawn Care and hort101 like this.

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