Understand your renovation quotation [part 4 of 4]

This is the most important article ever, when it comes to understanding how renovation firms earn their money in this day and age.

Watch our tiktok video on this if you lazy to read.

Remember the previous article, where we shared that a fast way to tell how expensive a renovation firm is to look at the unit rate for carpentry and tiling?

Actually, many firms now know that homeowners are becoming more educated. Hence, they have gone a step further, and this is what we coin “拉长补短”.

Renovation firms now price carpentry and tiling at a cheaper/standard cost to seem cheaper.

How they then maintain their margin, is by marking up the other miscellaneous items even higher, so that it gives them an “affordable” image, yet maintains their margin.

Let us illustrate this.

Consider a contract that costs $100k to the renovation firm (not what they are quoting to the homeowner).

Carpentry and tiling normally takes up 60 to 70% of the total cost. For these items, the renovation firms will charge a simple 10% mark-up, so that it seems reasonable. In this case, a simple $7k profit ($70k to $77k).

Now, this is where the real mark-up starts to happen. Remember those items like hacking, false ceiling, plumbing, painting, doors which seem small, and typically charged as a lump sum? These are areas where they can charge almost double the cost.

In this example, the ID firm marks up the remaining items by around 80%. In other words, the items that costs them $30k is quoted at $54k.

Homeowners are less aware on how these things are priced, and it does not easily come to their attention as the number still seems relatively small compared to carpentry and tiling.

This is essentially “death by a thousand cuts”.

The net effect is a 31% mark-up from the cost, protecting the renovation firm’s profit.

And this, is how many renovation firms make their money nowadays.

Don’t get us wrong; we are not saying that this is wrong. After all, by providing a service, it is only fair that they receive a profit.

What we are trying to do is to educate homeowners so that (1) they are not unfairly charged by renovation firms (2) they know how they are being charged, and look out for any other hidden costs.

So, if you have just received your quotation, don’t just look at the big ticket items, take a look at the small ones as well, because it definitely adds up.

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