Have you ever had a construction project to do, and you go and call four or five contractors, and the project you thought was going to cost $20,000 max (you did your research for your local area and looked up pricing five or ten places on the internet and even asked around through your own community) came back with prices of $40k, $50k, or even $120k? That is just crazy right?! These contractors must be ripping me off... Right?

Well, to be truthful, there are plenty of bad contractors out there, but the short answer is: No. We at Maguire Projects are here to rip the Band-Aid off and tell the dirty secret behind why contractors are so bloody expensive. It all comes down to this...Profit. Are you telling me that profit is why my kitchen remodel is going to cost $150,000? Yes! But not in the way you might think.

There are two types of profit in business: Gross Profit and Net Profit. Gross profit is like your yearly gross income, where you make a certain amount per year before all of your taxes, social security, workers comp and such get deducted. Likewise, gross profit is the profit that comes into the business before the company's overhead expenses are paid (such as: leases, salaries, office supplies, insurance, vehicle maintenance, etc.). For a general contractor, they have to make a certain amount of gross profit on every job just to stay in business and continue providing their customers with the services they provide. Most general contractors have an overhead cost of 25-30% (sometimes more!) That means for every $100,000 they bring in, $25-$30,000 of that has to go to just paying the bills, leaving only $60-$75,000 to go towards labor and materials (this is also known as their break-even point).

Then there is Net Profit. Net profit is the lifeblood of every business. It is the money left over after all of the job expenses and overhead are paid for. It is the money that goes into the bank during the good times, and comes out to "keep the wheels turning" during hard times. Net profit goes to paying off debt, and growing the business. General contractors need to make between 5% and 20% net profit to keep a healthy balance in their accounts. This allows the business owners to make income, and build a rock solid company that can last through any economic times. Did you know, most contractors pay themselves meager salaries, and rely heavily on profit to make their yearly take home? Some don't take any salaries and rely solely on the company's profits to put food on their family's table. All of this means that out of that same $100,000 they charge you, a good contractor is hopefully only really spending a total of $50-$60,000 on labor and materials for your project. Crazy right??

The truth is, you WANT your contractor to make a lot of profit. The more profit they make, the longer they will be in business and stick around and come back to do the next project for you in 5, 10, or even 50 years. Well, what about the bad contractors? How do you avoid getting ripped off, or a project not getting completed because the contractor goes bankrupt? Simple, choose a contractor who walks the walk, and doesn't just talk big.  They might not always have the flashiest advertising, or the newest vehicles, but you can tell if they have a proven process, and good references, they will be worth their weight in gold. Do not lie to them about your life and financial situations! You will be able to tell right away if you tell them the truth what kind of contractor they are. If they take the time to ask you detailed questions, educate you about the realities of your project, and tell you what range of cost you should expect, you have probably found a good one.

But why would you want to pay twice as much or more to hire a general contractor than you would if you did the construction project yourself? The truth is, if you have the knowledge, experience, and time to buy your own materials and vet/manage your own trade contractors, do it! More people should take on their own construction projects. The unfortunate reality is most of the time it is better to let the true professionals handle it for you. With the increasing complexity of building structural and energy code requirements, it is easy to have things go horribly wrong. Let them do what they are good at while you do what you are good at. Your time is worth money, and the more time you can spend working on your next promotion, or growing your own business, while not having to micromanage your construction project, the better! It is just like having a good attorney to manage your estate planning, or a great investment broker growing your stock portfolio and retirement accounts. Having a good general contractor will ensure that your construction project is done correctly and will last for years. Having a GREAT general contractor will ensure that your construction project will last for tens of years, if not generations. 

Are we biased? Heck yeah! We want to be around for our clients and their grandchildren, building things that last for the next century! But, we also want to speak the truth and educate people about our industry. We deal with this stuff every day. We want to lay bare the realities and shed light on the smoke and mirrors so many contractors put up just to get you to buy from them. Informed clients are the best clients! 

-By James Maguire, President/CEO Maguire Projects and Development LLC

Published April 27, 2024, 1:00 p.m.