An important book: Michael Stone’s Markup and Profit: A Contractor’s Guide (Revisited)

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Markup and Profit revisitedMichael Stone’s classic Markup and Profit book, originally written in 1998, has become an essential guide to contractors hoping to succeed — even survive — in the contracting business.  Stone’s fundamental point:  Contractors generally under-price their services because they don’t understand the real mark-ups they need for their work, is a lesson hard-learned by most people in virtually every business (including, blush, my own publishing enterprise).  His book has been updated to answer questions that have arisen in the past 14 years and is now produced in e-book format.

Among other resources, Stone reminds us that if we are to succeed in the business, we need some core competencies and resources.  He says anyone hoping to be a general contractor should have journeyman-level skills in at least two relevant trades and that anyone in business needs a fundamental understanding of selling and marketing.  The first is because, even if you delegate much work to others, you still need to know enough to be able to teach your employees and sub-contractors, and the second is that you won’t be able to get out of the “low price wins the work” trap until you can create enough leads and convert enough of them to remain in business.

The book has other basic and sound advice including being very careful about non-essential expenses, understanding the amount of business you need to cover your overhead (including management salaries) and the dangers of going off-budget for things like personal interest “toys”.

The “guts” of the book are some easy-to-understand rules, formulas and benchmarks.  For example, he says in general, if you need a piece of equipment more than 24 days a year, you should purchase rather than rent it.  You can calculate clearly your profit and markup requirements with the formulas and then figure out what you need to do to balance things.

While Stone has focused much of his work in the residential sector, I think the basic information will be helpful for non-residential and specialty trade contractors.

For more information, See Stone’s site.

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