How Not To Leave Money On The Table

john elliott

Now this is a really interesting topic, and an important one as well.

Example- A contractor does his sums carefuly, and realises that he needs to ask a minimum of $10,000 for a job. Should he ask for $10,000? Maybe he should ask for $12,000? Maybe the customer would be happy to get it done for $15,000? Who knows?

I've tried asking for peoples' budgets but I don't have the necessary equipment with me to extract that info if it isn't willingly provided.

I would love to hear your thoughts on this one

John

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Ed the Roofer said "John too, in his crass and blunt demeanor.............."

Second Look

I've been asked "what do you want to spend?" when attempting to hire a contractor and it's an instant turn-off. I guess you could try making offers at 10k, 12k and 15k with varying degrees of material & finish quality. Maybe offer a discount if they are flexible on completion time (say within the next 90 days).

There is no reason to constrain yourself and your customer to a single offer.

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ron schenker

It would be nice to know how much the client wants to spend, but like you said that's not usually something that you can easily find out.If you are good at estimating then you should be able to make enough money for your needs. If you know what the materials will cost then you know what to charge for labor and ultimately a reasonable profit for yourself. If I quoted someone $10,000 and made a tidy little profit, I would feel like I ripped them off if I knew I could have gotten another couple of grand out of them.
But that's just me!

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dirt diggler

im slowly coming to realize that with a lot of prospects ... the price isn't so much as huge a concern as it may seem

You might find a CEO that takes pleasure in seeing how far he can knock your price down

Obviously, they have parameters in pricing set in their mind.

But, while there are exceptions to the rule - they've done their homework on how much something costs. I love it when they say "well I was talking to my friend and ..." --- this is a 50/50 chance that they know just about what your price is gonna be.

With that said, a conservative way to do it ...

at least the way I conservatively do it ...


I take how long that job is going to take. I divide every major task into 4 hrs and 8 hrs. I do this because there will also be smaller tasks that get done at the same time.

Basically, I come up with the total amount of hours. (also - count time for material orders/deliveries, admin work, etc)

then multiply that by the amount of my hourly rate.


That hourly rate contains everything from overhead, personal draws, warranty/murphy law fund contributions, dinner for 365 days, etc.





This will usually come out to the same amount as if I just said "ok, here's how much I wanna make off this"



Then I tack on 10% of that time figure to cover all those times that I know I'll have to leave the site to go to the bathroom, get coffee, find a tool i forgot, etc.

Anything out of the ordinary??? Any work with a variable factor???

Those are "options" - and get billed either a flat rate prior to the fact --- or if I'm not comfortable, Time/Materials

Stone Mountain

Depending on who and where, and what they want, I will gently ask if they have a budget they had in mind. Doesn't seem to offend anybody, and saves a lot of aggravation.

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dougchips

Mr & Mrs HO, I have built kitchens that ranged from $10,000 all the way up to $110,000. Our meeting will be very productive if we can work on designing you a kitchen within your budget. With that said, how much would you like to spend on this project? <let them answer> Ok, your budget is around $35,000, what is the top end of your budget, the number that your project can not exceed? (Generally you will get a higher number).

Now you can design them a $35,000 kitchen and if you want, you can design some outside of their budget.

AtlanticWBConst

Exactly....as posted above. I completely agree with this approach........this does work.....

One step further: Mr & Mrs. HO, on this type of project, it is possible to spend $20K or $120K. It all depends on what eactly you are looking for...

Another approach:

I have sometimes used the A, B, C method.

We explain to the customer:

C - Cheap, Cheap, basic, inexpensive (no customzing at all) Cost efficient construction.

B- Standard approach with standard fixtures and standard doors, window/doors - standard, but with nicer trim work. Nicer trim inside and out. Maybe a couple of custom items OR items that are standard but made up to look custom.

A - All Custom, quality, top-end look -means top end materials....etc...
Custom cabinetry ordered and made in shop...NOT on site, etc...


In our main work regions/areas, B seems to be the most popular. Tho, most end up wanting to upgrade as the project moves forward and they get excited from what they see. Result= Work change orders to avoid the sticker shock that they agreed to ....earlier into the project changes...



my 2 cents-

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- Build Well -

North Country

In my experience, asking for a budget pre-qualifies the customer to work with you. Usually they will not tell you the full amount they will spend if necessary, the truth is it depends largly on thier availability of financing or funding. I have had customers tell my 45k is as high as the budget will allow, only to later sell the job at 90k. On the other hand if they are expecting to only spend 5k and you know it will cost double or triple they may not have gotten other bids and are still in the price shopping stages. This leads to the written estimate. We give free estimates as most do, but we no longer give free written estimates. The reason for this is that a potential customer WILL shop your bid around and all the work you have put into it is lost.

dougchips

Correct about the budget gone wild. Most contractors will work with a budget instead of offering options that will exceed the budget.

I bought a boat a few years ago for $26,000. When I went to the dealer to sign the purchase agreement, I had every intention of getting a better price. I was sold on the boat but just wanted a better deal. My wife and I sat in his office as he went through the price book to see what he could deduct from the boat. He went through each upgrade--"let's see we can't deduct the waterproof cd player because you did not purchase it", as he went down the list of options I bought most of them. I was sold on the 26k already, now he was letting me sell myself on the options. When I left his office my boat cost me $30,000 because I was sold on the entry level when I walked in and he only had to sell me on the options. < Maybe Atlantic sells boats in NH?

Mike Finley

A+b+c+d= $$$

We come up with the $$$ for a job based on all the normal boring ass stuff everybody talks about, then add in for a certain percentage of profits.

Then we start selling jobs, if we start closing too many the problem soon becomes we are booking out to the limits of how long customers want to wait and we start losing jobs only for the reason of being too busy.

So then it is back to the drawing board and raising the percentage of profit some more, then we go out and start selling jobs, if we start closing too many again, it's time to go back and raise the profit margin some more. As soon as we start getting to a point where we are not closing every job, we've reached a equilibrium in the market for what the market has established for what we are worth.

Then it's time to start looking at what we do and looking for ways to add perceived value, simultaneously it is time to increase our selling skills, then it starts all over again.

Mind you this system will only work if you are selling to customers who are exactly the perfect customers you want to sell to. If you throw in all kinds into the mix you can't do this. Somebody in a trailer will not be the same type of customer for you as someone living in a gated community.

dirt diggler

man--- you're easy

talk bout your soft sells

Dave Mac

Mike are you saying that you want to know how much you can get out of a customer, instead of what you need to run your buisness and make your profit. that doesnt sound right, i hope i didnt understand it correctly

john elliott

It sounds just fine to me. I wouldn't use Mike's 'cost plus' method of arrivng at the original selling price, but the idea of increasing your prices to the limit of what the market will bear is absolutely correct.

John

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Ed the Roofer said "John too, in his crass and blunt demeanor.............."

boman47k

So figuring your time, amount you need to operate and make a decent profit kind of goes out the window? I think I would rather have people saying ' couldn't get them, their schedule was too full' rather than, ' they were too expensive'. Not too sure about 'whatever the market will ....' philosophy. Pro's and con's to both for different sized operations, I guess.

john elliott

I disagree totally
'What the market will bear' is an economic principle which has been operating for thousands of years, and underpins a capitalist society
For instance, why should a woman provide services for a man for (for instance) $100 if he would be prepared to pay $200? If she found that at £200 she wasn't getting enough clients then she would have found that she had gone above what the market would bear, and would need to reduce her price until the demand met the supply.
I don't think anyone should sell for less than the market price just because they could afford to, regardless of the size of the operation

John

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Ed the Roofer said "John too, in his crass and blunt demeanor.............."

Mike Finley

Yes and no. Not that we want to milk an individual customer, that isn't the intention, but raising prices over time and presenting estimates to customers and letting the customers (or the market really) decide what you are worth.

I don't believe in a 10% or whatever is supposed to be the industry norm for a profit margin. (that mark-up & profit guy's numbers I think) There is nothing wrong with a 30%, 50% or 100% if the market verifies that your product is worth paying that much for it.

I think the part that might be confusing is thinking that we would raise or lower prices per individual customer, I'm not talking about that, the prices are the prices they are getting raised for everybody, not just trying to get the most out of an individual.

MarkNoV

John:

It goes without saying that the price should be high enough to begin with.

Some customers, by asking certain questions in a certain way, send out a signal that are ready to pay more.

If they ask or say" This is an all inclusive price?" that pretty well is it.

If they ask or say "taxes are not included" that leaves room for an additional 15% ( combined rate in Quebec, Canada)

If they ask " does that include installation?" that creates another opportunity.

I have found that putting the price on the table and then shutting up and letting the customer talk creates those opportunities. The rule of business seems to be that the first one to talk looses.

Like you, I only specialize in a single product, and do not rely or even like referrals. I am not concerned about having a reputation as being expensive, actually I prefer it.

Mark

Double-A

If she didn't want to discount her price, she shouldn't have married him.

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"My clients’ wishes are the center of my attention." -- David Guido, a contractor in Woodstock, N.Y.
New York Times, July 20, 2006

Tom M

Mike, I clicked on your web site -very nice job. This kind of proffessional site brings a certain type of customer to you anyway. To run an operation that has office expenses like this or salesman and other off the job costs you need different operating money than a guy with tools. You might run 30 - 50% profit and have have better purchasing power based on volume. Slow for you might be 20-30%. Many, many, many jobs are sold with presentation and thorough paper work. ONCE AGAIN NICE JOB.

Dave Mac

got you mike I understand better now, one thing i use to gauge if i can raise my price is my closing ratio, but the more ideas the better.

thanks
dave mac