Tips For Reducing And Controlling The Effects Of Construction Allowances
If you are building custom homes or doing high end remodeling it is your responsibility to help prospects and clients understand what their project will really cost. Don’t give or let your customers use inadequate budget allowances.
Isn’t it easier for a customer to accept a credit rather than an additional cost?
Think about it. If a prospect or client has selected a granite counter, how often will that same client choose a $5.00/ft tile backsplash? Why not set the allowances for items not yet selected to a cost consistent with what other clients have spent in the past on similar projects? Applying this strategy will help protect your margin, and could actually increase your margin, assuming that you only credit back any difference in your direct cost.
One sure way to protect your mark-up is to eliminate allowances. However, depending upon the project or client, eliminating all allowances may not always be possible. But, reducing the number of allowances may be.
Here are some ways contractors can improve results when working with allowances
- Try to get your clients to make their selections during the design phase.
- Identify what selections must be made and provide the clients with a list.
- To help them complete the list make showroom and or vendor suggestions.
- To motivate them to get the list done establish the date(s) by which they must complete the list and advise you of their choices.
To start or not to start, that is the question…
Persuade the client that it is in their best interest that you not schedule the start of their project until you know the availability or lead-time of all required products. You can even blame it on company policy. “Based on past experiences, our own and those reported by other contractors and homeowners, we have made it our company policy not to start any project unless we are sure we can complete the project on time, as agreed, with the least amount of disruption for our customers.”
Make that list and work it!
When you assemble the list of allowance items include the related dollar value included for each item and a total cost allowance value for all of the items to be selected. Make sure you include a column where the client can write in their actual selections. Then, add one more column to the list where the clients will fill out the actual cost of their individual selections and can tally up the total for comparison to your list and total cost. If you’re comfortable doing so, this is the place to include what mark-up will be added on any additional cost over the allowance total.
Many builders and remodelers report that creating and using a list often times provides the client with a sort of psychological goal of not exceeding the total allowance. Assuming you have established realistic allowances, clients will usually try to avoid any additional costs and or mark-up cost; spending more on one item only if they can save on another.