Why do we pay $10 for a Burger?
No matter what you’re buying, there’s an option to pay more for a specialty product and less for a budget product. In commercial construction, the majority of projects call for certified specialists to handle professional planning, regulatory compliance, and construction, while others will call for a good handyman. Both will have their associated costs; sometimes the higher price tag comes with a lot of extra fluff, and sometimes the bargain comes with an extra side of risk. So how do you decide?
Let’s consider the costs for a restaurant to make a single burger. When Forbes analyzed that very thing in 2017, a 355-384% markup was discovered between what the ingredients cost and what you, the consumer, winds up paying for your cow chow. AN OUTRAGE! Or is it?
The analysis was based on the price of each item on the moo menu: the bun, the patty, the tomato, onion, and mayo. But those costs are only a chapter of the burger’s value story. What about paying the direct labor to take your order, cook your burger, and serve you? What about the kitchen equipment and silverware, what about providing electricity in the dining room and gas in the kitchen? An awesome number of things go into overhead costs, and Forbes also estimated that business revenues are generally split up more or less evenly, with 30-33% going each to labor costs, general overhead, and ingredients. “In order to cover all of these costs and still make a slim profit (generally 3-5%), restaurants need to mark up ingredients on average 300%,” (Forbes).
That means that if that single burger costs $3.08 in ingredients, it really costs the restaurant about $9.24 to make. When you look at it that way, the markup and take-home pay are dwarfed. And, if they’re charging less for their burger, that means one or more of the ingredients will be sacrificed: maybe cheese, maybe service, or maybe health standards. What that says is that an incomplete burger, even at a great price, isn’t a great burger.
Sure, we build restaurants, but why do we care so much about the cost of a burger?
When it comes down to it, you could probably make a burger yourself. But you’re willing to pay a premium: a small markup for convenience if you find you’re suddenly ravenous while out running errands, a bigger markup for an experience to wow your date. The implications are the same for burgers and construction: a cheaper price may mean more than sacrificing your favorite ingredients. If the markup is lessened, whether the smaller or larger markup, something’s gotta go. Say you’re ordering a burger with the freshest, most premium ingredients from the best burger chef in 500 miles, but there aren’t enough resources to pay staff to serve it to you while it’s still hot. A great burger + inferior service = an inferior burger. If you’re having a restaurant built, and what you most value is finding someone to do it for the cheapest price, just consider the likelihood of the premium product being accomplished with fewer resources. A project hacked together so that it can be completed for less also runs the risk of surfacing issues later that are likely to be much more expensive than doing the job right the first time.
The business you’re building is a huge investment. We’re not recommending that you don’t look for ways to save money on construction, just that you take the time to conscientiously allocate resources to all the necessary layers. If you provide adequate resources to your construction service provider to perform at its best, the product will be at its best, too. Conversely, if you’re cutting costs, what fundamental components will you be pulling the plug on? There are questions you can ask your D-B general contractor to incorporate risk analysis and make sure you’re getting the best value:
Do you have the right insurance? They’ll need it to legally work at most commercial properties.
Do you have the right truck, tools, and equipment? They’ll need these to execute, i.e. cook the burger.
Does your price already have the appropriate profit built-in? Make sure they have a reason to show up and do a great job.
We do this all day, so contact us for help value engineering your next project!
by Jamie Accetta + Lindsey Andress
APSGC: Green Building Services
APSGC: Evaluating Hidden Costs On Your Commercial Property
APSGC: Green Building: The Paper Straws of Construction
Article: eSub: The Environmental Impacts of Construction Projects
Article: Forbes: How Much Do the Ingredients Cost in Your Favorite Foods?
Article: How Much Should a Contractor Charge? by Michael Stone
Article: How to Figure Out Restaurant Overhead by Lee Grayson
Video: NPR: How Much Does a Hamburger Cost? That Depends by Jessica Stoler-Conrad