Estimating With Allowances As An Alternative.

Ed the Roofer

Interesting comment in another thread provoked this thought process by me. Does anyone have any input in making this concept work?

Ed



Quote:
Originally Posted by whooley
It's getting bad. Our roofing supplier was using monthly price increases but are now going to start increasing prices every time they recieve a new shipment. It's no longer feasable to honor a 30 day old bid, unless it's a sure thing and materials can be purchased in advance of the job starting. Our last materials increase was 15%. Thinking of trying to guess the increase and adding it to the bid from the getgo, only problem is if the competition doesn't they'll likely get the work due to the lower price.

I have been considering making my quotes based on allowances for a particular price structure, rather than my guestimate at what costs wil wind up being by the time they actually get their order in.

Why not? Kitchen/bath remodelers do it due to the variance in fixtures and cabinet selections.

Upon final invoice and along with the acceptance of the proposal, they will know the actual cost of the material price figured in and only have to pay the difference plus markup upon completion.

I think that concept is worthy of its own thread.

Ed

dougger222

I do the opposite if a home owner insists on ordering the metarials himself from another supply company. If it's cheaper than my price they get the difference. I insist however that they use the materials I specify. What they don't realize is they usually end up cutting the check for the materials day of start so in all reality they are paying exactly what it takes.

The last time that happened the lumber yard sent out an elevator, haven't seen one of those in over 10 years. We all laughed at him when he showed up. I felt like telling him to wait so I could call my lumber yard to bring out a boom truck.

With always increasing prices you bring a up good point Ed. Charging them the difference plus a markup makes the most sense. Not all home owners will go with that but if written in the bid say, "Price good for 30 days, if after due to possible material increases will charge the difference".

I talked to a home owner the other day who called right before the snow storm last Winter. The other day he said he wants his roof done this Fall. How the heck will I be able to give him an accurate price? Thinking about measuring it and waiting for the end of Summer to call him with a price.

Mike Finley

I've tried all variations and I find allowance the least beneficial method for me.

It adds at least an additional step to your book keeping if not many more. It adds more time to you billing, trying to add & subtract, etc...

Best methods I've found are control the materials and if there is a variable we leave the amount out of the estimate and it's an additional cost.

Customer have no problem with this.

It keeps your initial bid price lower.

It is simple, effective and easy to keep track of and bill for.

It keeps you in control and keeps you at retail pricing for your materials.

Personally, now don't get me wrong, but personally I think allowances are not a preferred method, but are just a crutch that weak businesses find easier to rely on then what the alternatives are.

I can understand with so many businesses falling back on this method that there will be many who defend it, but just because there are many using it, I don't instantly begin believing it is the best method. I have used it in the past and have revisited it, but every time I do I'm reminded exactly why I don't like it.

If the only reason you can come up with to use allowances is because it gives your customer a total budget for the project, I think it's time to think about that. It's a pretty good fallacy to believe that a budget with lots of allowances in it is actually anything close to an accurate project budget.

The other method of leaving those allowances out of the budget and giving the customer a typical range or an average for them so they can achieve the desired goal of coming up with their total budget solves the same problems that allowances does, but opens up the door to alternative solutions that may benefit a construction company much better.

Ed the Roofer

Those are the things I was looking for Mike. The thing right now is, that roofing prices jumpded a "Stated" 15%.

One of the upper 3rd choice shingles I used all my previous years went from $74.99 to about $106.00.

If I didn't get a price list the other day, I only added the 15% plust markup to the 3rd alternate category.

If I price it or any other product right now, they will be going up another "Stated" 15% on May 1st.

I was thinking of using a pricing category that included all labor, overhead and profit, but leaving the price as an "Subject to Actual Delivery Cost price category. I know of no roofing company that prices this way, but the end result would wind up being accurate and not susceptible to guessing games by me.

I am just thinking out loud with this concept. This would not be the same as a disclaimer or using an actual "Escalation Clause", allowing for price increases in the event a material cost skyrockets above a set mark, but an open market actual price to be added in after the true invoice amount is revealed at the time of the order.

Does that sound deceptive or fair?

Ed

Mike Finley

I'm not sure at how that would work. Are you customers going to a 3rd party supply house that works with you and gives them retail pricing or are you providing the customer with prices for whatever shingle they pick?

If it's the former I could see little problem with it. You simply give them a range or average price based upon the quanity needed at time of estimate and then the final price is determined when the material is purchased at the 3rd party by the customer.

If you are showing them shingles and saying this $50 a square, this one is $80 a square then you've probably got some bugs to work out as to how you would do what you are saying. Some customers may get a little pissed if you show them their $50 a square shingle today and they lock that in their mind and then come job time you tell them it went up to $60.00. They might cry foul.

That's totally different then doing the typical escalation clause and locking it to some 3rd party index.