{"id":48713,"date":"2023-03-24T08:00:44","date_gmt":"2023-03-23T23:00:44","guid":{"rendered":"https:\/\/norimen.net\/wordpress\/?p=48713"},"modified":"2026-05-17T14:04:53","modified_gmt":"2026-05-17T05:04:53","slug":"how-money-works","status":"publish","type":"post","link":"https:\/\/norimen.net\/en\/how-money-works\/","title":{"rendered":"A Super Simple Explanation of How General Contractors Make a Profit"},"content":{"rendered":"

Hello, everyone.<\/p>\n

This is Enta.<\/p>\n

The other day, someone said they couldn't find the application form for Real Entertainment's Slope Management Seminar, so,<\/p>\n

I redesigned the banner at the top of the page lol<\/p>\n

\"Real<\/a><\/p>\n

This is how I originally made it, but here's how it looks after the changes.<\/p>\n

\"Real<\/a><\/p>\n

I don't think anyone would get this wrong lol<\/p>\n

Click the banner above to open it!<\/p>\n

We've been told there are currently 21 people, so please make your hotel reservations as soon as possible.<\/p>\n

\n

But that's beside the point.<\/p>\n

Do you all know how general contractors make a profit?<\/p>\n

\"Gross<\/p>\n

Let's look at this from the perspective of construction cost estimation.<\/p>\n

The breakdown of the total construction costs is as follows:<\/p>\n

 <\/p>\n

Direct Construction Costs<\/p>\n

\uff0d\uff0d\uff0d\uff0d\uff0d\uff0d<\/p>\n

General Temporary Construction Costs \u2014
\nGeneral and Administrative Expenses \u2014\u2014 Indirect Construction Costs
\nSite Management Fees \u2014<\/p>\n

 <\/p>\n

Broadly speaking, these are divided into direct construction costs and indirect construction costs.<\/p>\n

For general contractors, indirect construction costs typically amount to approximately 30% to 50% of direct construction costs, depending on the project value.<\/p>\n

For example, if direct construction costs total 10 million, that means there are indirect costs of about 5 million.<\/p>\n

As the amount increases, the expense ratio also changes.<\/p>\n

 <\/p>\n

If a first-tier subcontractor submits a quote to the general contractor with direct construction costs of 10 million,<\/p>\n

The general contractor will cover labor costs (for the site representative) and some temporary equipment from the 5 million budget and carry out the construction work.<\/p>\n

The more the general contractor cuts costs in this area, the more money they make. (The money left over is profit.)<\/p>\n

*On a project worth around 15 million, the main contractor\u2019s profit margin is pretty limited, and,
\nIt might end up being a wash, but I've written this in a way that's easy to understand.<\/strong><\/span><\/p>\n

 <\/p>\n

It would be great if first-tier subcontractors could get paid for both direct labor and overhead, but that depends on the nature of the project.<\/p>\n

When a first-tier subcontractor brings in a second-tier subcontractor, the costs are covered within the direct labor costs, but there are times when we set a budget and still end up in the red.<\/p>\n

However, since we\u2019ve already submitted a quote to the general contractor, there\u2019s no way we can change it at this late stage, and<\/p>\n

In most cases, we have to turn a profit.<\/p>\n

\"The<\/p>\n

What should you do in that situation?<\/p>\n

It's a simple story, really\u2014it's about squeezing the subcontractors (forcing them to lower their contract prices).<\/p>\n

This is the easiest way.<\/p>\n

 <\/p>\n

The larger the company, the more this might be an unavoidable situation.<\/p>\n

At branch offices, the operations and purchasing departments are separate.<\/p>\n

Even if the Construction Department draws up a budget, it\u2019s a no-go if the Purchasing Department says no, and some companies have fairly fixed nationwide unit prices (based on the lowest price).<\/p>\n

Since Purchasing is the department that decides everything from materials to construction unit prices, the Construction Department ends up coming up with something that\u2019s sort of like a budget, but not really a budget, lol.<\/p>\n

 <\/p>\n

However, since the Construction Department handles the negotiations, the supervising engineer ends up having to ask a subcontractor to handle it, which is a source of frustration.<\/p>\n

To put it bluntly, the pattern where general contractors squeeze their subcontractors to turn a profit has remained unchanged, both now and in the past.<\/p>\n

 <\/p>\n

There are two other methods as well.<\/p>\n

That's a design change!<\/p>\n

Switching to construction methods that are advantageous to your company or that offer benefits in terms of materials can change your profit margin.<\/p>\n

*\"Material benefits\" refer to materials for which there is a difference between the list price and the delivery price.<\/span><\/strong><\/p>\n

 <\/p>\n

The last point is to get the work done quickly.<\/p>\n

This might actually be the most legitimate way to make money, lol (though subcontractors don't have much wiggle room).<\/p>\n

 <\/p>\n

1. Reduce the contract amount for subcontractors<\/span><\/strong><\/span><\/p>\n

2. Make design changes<\/span><\/strong><\/span><\/p>\n

3. Finish it quickly<\/span><\/strong><\/span><\/p>\n

 <\/p>\n

I think this pretty much covers it.<\/p>\n

What do you all think?<\/p>\n

 <\/p>\n

At first glance, some of the job titles might seem really off-putting, but that\u2019s just the nature of this line of work.<\/p>\n

The government agency awards the contract to the general contractor.<\/span><\/strong><\/span><\/p>\n

The general contractor assigns work to a subcontractor.<\/span><\/strong><\/span><\/p>\n

A subcontractor uses its own employees to do the work.<\/span><\/strong><\/span><\/p>\n

Employees receive their pay.<\/span><\/strong><\/span><\/p>\n

 <\/p>\n

The system is designed so that sufficient funds are allocated to every area.<\/p>\n

If that amount (the contract price) is too low or too high, it will be called out.<\/p>\n

That's how it works. Basically, lol.<\/p>\n

 <\/p>\n

This is a rough overview of how general contractors in the construction industry make money.<\/p>\n

I'll skip the details lol<\/p>\n

 <\/p>\n

But it\u2019s highly likely that we won\u2019t be able to do things like this anymore, isn\u2019t it?<\/p>\n

I'll do that tomorrow, then.<\/p>\n

 <\/p>\n

See you later.<\/p>","protected":false},"excerpt":{"rendered":"

Hello, everyone. This is Enta. The other day, some people said they couldn\u2019t find where to sign up for Real Enta\u2019s Slope Management Workshop, so I redesigned the banner at the top of the page lol. This is how it originally looked, but here\u2019s the updated version below. I don\u2019t think anyone will get confused now lol. The banner above\u2026<\/p>","protected":false},"author":2,"featured_media":6401,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_bbp_topic_count":0,"_bbp_reply_count":0,"_bbp_total_topic_count":0,"_bbp_total_reply_count":0,"_bbp_voice_count":0,"_bbp_anonymous_reply_count":0,"_bbp_topic_count_hidden":0,"_bbp_reply_count_hidden":0,"_bbp_forum_subforum_count":0,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[1],"tags":[344,525,2086,4709,5641,5642,5643],"class_list":["post-48713","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-others","tag-344","tag-525","tag-2086","tag-4709","tag-5641","tag-5642","tag-5643"],"acf":[],"yoast_head":"\n\u5143\u8acb\u304c\u3069\u306e\u69d8\u306b\u5132\u304b\u3063\u3066\u3044\u308b\u304b\u3092\u8d85\u7c21\u5358\u306b\u89e3\u8aac - \u65b0\u30a8\u30f3\u30bf\u306e\u6cd5\u9762\u7ba1\u7406\u587e<\/title>\n<meta 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