The Benefits of Cost-Plus Pricing

Tune in as Kyle Hunt, host of Remodelers On The Rise, interviews Steve Tankersley, the owner of Tankersley Construction on his journey into the remodeling industry. After working in commercial construction, he decided to start his own remodeling business in 2018. Steve emphasizes the importance of the fundamentals in running a successful business, such as responsiveness and reliability. He also values the freedom and flexibility that owning a business provides, allowing him to spend more time with his family. Steve discusses his transition from fixed-price contracts to cost-plus contracts, which offer more transparency and build trust with clients. He provides insights into his cost-plus approach, including setting goals for net profit, accurately estimating project costs, and itemizing direct costs. 

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Takeaways

• The fundamentals of responsiveness and reliability are crucial in running a successful remodeling business.
• Owning a business provides the freedom and flexibility to spend more time with family.
• Transitioning from fixed-price contracts to cost-plus contracts can build trust and provide transparency with clients.
• Setting goals for net profit and accurately estimating project costs are essential in a cost-plus approach.
• Itemizing direct costs, such as insurance and software, can help reduce the markup in cost-plus contracts. The cost-plus pricing model allows for open and frequent communication with clients without the fear of racking up hourly bills.
• Delivering value to clients is crucial when using the cost-plus pricing model.
• Knowing your numbers and having a robust accounting and project management system is essential for success.
• Self-performed labor rates can contribute to higher margins in cost-plus projects.
• Using contingencies can help manage unexpected costs and build trust with clients.
• Cloud-based software and coaching can be valuable tools for remodeling contractors.

Chapters

• 00:00 - Introduction and Background
• 01:45 - Approaching Pricing in the Remodeling Business
• 04:10 - Transitioning to Residential Construction
• 08:50 - Achieving Dreams and Balancing Family Life
• 10:46 - Recognizing Success and Reflecting on the Journey
• 12:58 - Unpacking the Cost-Plus Approach
• 16:28 - Setting Goals and Estimating Project Costs
• 19:42 - Reducing Markup in Cost-Plus Contracts
• 22:09 - The Benefits of Cost-Plus Pricing
• 23:35 - Delivering Value and Accountability
• 26:06 - Knowing Your Numbers and Having a Robust System
• 27:06 - Maximizing Margins with Self-Performed Labor
• 31:41 - Managing Unexpected Costs with Contingencies
• 39:28 - The Value of Cloud-Based Software and Coaching