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Getting Your Remodeling Business Ready to Produce More Work

Posted by Shawn McCadden on Sun, Apr 01,2018 @ 05:15 AM

Getting Your Remodeling Business Ready to Produce More Work

Remodeler estimating systemGrowth in consumer spending on remodeling during 2018, and beyond, is expected to skyrocket.  This means that remodelers will have the opportunity to grow their businesses, and if done well; will make a lot of money.   But is your business ready for the work?  If you are already working too hard for too many hours will increasing volume just end up with you in divorce court and or on blood pressure medicine?   Below I offer a vision, and some suggestions, for what you can do to be ready.  If you already allowed yourself to get in too deep, then perhaps my suggestions can help you create a plan to get things running better than you had ever imagined.

It all starts with estimating.

Estimating might as well be the center of the universe for remodeling contractors.  Using a defined process and key information, your production team can conquer that universe.  If you grow your business without an advanced estimating system you risk dropping into a financial black hole. Your estimating should not only help provide a profitable selling price, it should also create, document, and organize the information your production team needs to build independently, without constantly bothering you or your salespeople.  Done well, it should also help you predict your cash flow needs, and therefore your payment schedules. This way every job finances itself using your clients' money to pay bills on time, not yours.  Successful estimating will also help your production team identify and schedule all the resources needed to complete the project weeks, or even months, before they are actually needed at the job site.

A real estimating system includes job costing.

First, an estimate is not Remodler job costingwhat you give to a prospective client. That is called a price.  The estimate is really the contractor's best guess on what the project will cost their business to complete before overhead and profit are added.   That's right, it’s just a guess.  To continuously improve the accuracy of that guess, particularly as your business is exposed to new products and construction methods, or brings on new untested employees, job costing will be the only way to reduce the risks of estimating.  Imagine going six months or a whole year before realizing you were using inaccurate information.  Imagine the benefits of offering profit sharing if your team brings jobs in on budget.  But, what if your budgets are never adequate and there are no profits to share, and when your employees ask why you can't tell them?

This all requires a well set up financial system.

Remodeler financial systemEven if you are a good estimator and you never miss any of the sticks and bricks, if you do not know which labor rate and markup to use you may be buying jobs instead of selling them. Without a well thought out list of estimating and matching time card work categories (sometimes referred to as phases), you will never know how well your team did compared to your estimated labor assumptions in specific areas.  Also, without the right time card categories, how will you know and or confirm how many non-billable hours of pay you will need to add to, and cover, inside the burden labor rate you assume and charge for their billable hours?  

There are plenty of things to work on as you grow a remodeling business.  However, if you don't get the estimating of your jobs right growing your business will just help you lose money faster.

 

Don't Underestimate Your Estimating System Workshop LEARN MORE

If you would like to learn more about improving estimating at your remodeling business consider attending one of our estimating workshops typically offered in Massachusetts.   You can even get MA CSL Credits by attending.  Shawn McCadden can also come to your group, company, remodeler education conference, or remodeler trade association to conduct the workshop.  For more information contact Shawn today.   

 

 

 

Topics: Business Financials, Job Costing Considerations, Profit Sharing, Estimating, Business Growth, Financial Related Topics, Estimating Considerations, Breaking $1Million

7 Simple Ways Contractors Can Improve Their Estimating

Posted by Shawn McCadden on Thu, Jan 07,2016 @ 05:30 AM

7 Simple Ways Contractors Can Improve Their Estimating

tips to improve estimatingFor most contractors estimating is like the center of the universe or the sun, with things like sales, cash flow, profits, job schedules, and payment schedules orbiting around it and depending on it for survival. Here are seven easy to accomplish ways contractors can improve the speed and accuracy of doing estimates. I cover these and many others at our Hands-on Estimating Workshop. Putting even a few of these in place can change your world!

 

#1: Separate Costs and quantities

This sound simple but it’s so important.   Don't add up the number of 2x4s you need and multiply them by the cost in your head.  Instead do this inside your estimate.   By doing so you will create a materials list and if prices change updating your estimate will only take minutes.

 

#2: Get Unit prices from your subcontractors

free excel estimating template Do you really need to send your electrician to the job site and wait for him to get back to you to tell you how much he will charge you to install 5 recessed cans on a 3-way switch leg in that Kitchen you are hoping to sell?   Assuming you will gut the space most plumbing and electrical work should be easy to list out similar to new construction.  By getting unit prices from your subs you can quickly price their work using their numbers.  Getting supplies to the space will typically be the only nebulous costs and even those can typically be broken out into easy, somewhat challenging or "worse case scenarios".   

 

#3: Create a materials price book

I bet 20% of the materials you use on the jobs you sell make up 80% of the prices you need to collect to estimate material costs.  Make a list of the most common items your company uses and get your suppliers to proactively send you updated pricing for these at least once a month.  If they won't do this for you find a new supplier who will.  By having this info you can complete most estimates even when all the suppliers are closed for the day or weekend.

 

#4: Do it in one sitting

estimating tipsIf you look at a kitchen tonight but don't get to do the estimate for it until next week how fresh will the details be in your mind?  Try to get it done as soon as possible.  I found scheduling a specific time slot for getting it done into my schedule helped with this.   Otherwise doesn't estimating all too often end up being the red headed step child who gets ignored?  Forget or miss one thing and your profits may not be there.

 

#5: Do your estimates in critical path order

When you do your estimate think through the job in the same order you would build it and document the steps in your estimate in that same order.  This helps reduce missing tasks and materials and actually generates an outline for the job's schedule.  You can also then share the estimate with your lead carpenter as the critical path to use as he or she builds the job.

 

#6: Use your smart phone to snap pictures and shoot videos

In addition to sketches and written notes use your smart phone to snap pictures and shoot videos at the job site when you collect the info you need to complete your estimate.  For example stand in the middle of the space and shoot a video as you do a 360 spin around the space with your phone's camera.  When you sit down to do your estimate you can view the video or pictures to help you remember material details like trim or door styles, and to help prevent forgetting required tasks.

 

#7: Get off the yellow pad

yellow pad estimatingAs I had discussed in this JLC Magazine article the yellow pad can be a great way to get started doing estimates.  But, it can also help hold your business and employees back from growing.  Consider using a spreadsheet template to assist you.  Properly created the spreadsheet will do accurate math for you.  Using a spreadsheet you can also create templates that act as checklists for the common job types you estimate over and over again by hand each time.

free excel estimating template

 

Topics: Estimating

Three Ways To Get Fewer Leads But Close More Remodeling Sales

Posted by Shawn McCadden on Tue, Jan 05,2016 @ 06:00 AM

Three Ways To Get Fewer Leads But Close More Remodeling Sales

Increase_sales-wrIf you have been getting business by providing free estimates for everyone who calls your business you are most likely wasting a lot of money making time. Are you really an expert in your industry if you have been letting those who buy from you tell you how to run your business?  If these things have been happening to you it’s time to recognize the value of your time and expertise.  It’s also time to limit offering them to only those who find value in what you offer, how you do so, and are willing to pay you well for your expertise. Here are three ways successful contractors reduce their lead flow, improve the quality of the leads they get, and sell more jobs at higher prices. Yes, it is true, read on!

 

#1: Describe your process on your web site and find ways to entice visitors to check it out.

Do you have a define process for how you do business?  If not, create it. If you do have a define process document it with words and pictures and put it on your web site.   By explaining how you do business on your web site you can save a lot of time and make more money because:

You won't have to explain it to everyone you meet, over and over again. If they have not yet checked out how you do business when they call your office send them a link to the "How we do business" page at your web site. Additionally mutually agree to when you will then call them back to see if they still want to meet with you.

contractor web site marketingBecause the information is presented in writing at your web site prospects won't be able to interrupt you as the typically do when you try to explain your process to them at live sales calls. If written well they will either recognize that your process works as a solution for them, or they will know why it’s not right for them. This can help you eliminate defending your process as you try to explain it to them live and in person.  If they don't like your process after checking out your web site they won't waste your time.

Related article: If One Of These People Asks, Can You Explain How Your Remodeling Company Does Business?

 

#2: Charge for creating specifications and a fixed price proposal

Another thing to explain at your web site is why estimates are free but a fixed cost proposal from you requires paying a fee.  Think about it.  An estimate is just a guess. Any experienced contractor should be able to provide a best guess estimated cost range for project types he or she has past experiences with.  In a logical way explain why you charge to go past a free estimate.  If they still call you selling your services to create the proposal will be much faster and easier.  If you want some guidance on what to write read on below. If you don't have a web site read on anyway to find out how you can still do this live and in person.

If they want a fixed price why not help them recognize what it will take to get to a fixed price. Help them discover, say and agree that plans and or specification will be needed before you or any other contractor can determine a fixed price for them. Help them identify whether they will need plans to visualize the project before being able to confidently commit.  Help them decide if they need help finding and differentiate between product options and their price points. Help them recognize the effort and hours you and your trade partners will need to dedicate to preparing a proposal for them.  If they recognize the need for these things you can then ask them if they would like to discuss your design and specification process; as well as how you charge for it.

Related article: Tips For Contractors On Ball Park Pricing and Charging For Estimates

 

#3: Require a return visit to present your proposal and get their decision

Remodeling sales tips to close more salesEven if you are not ready to charge for them, before committing to preparing plans, specs and a proposal make an agreement with your prospect. Let them know that to prepare a proposal for them you require coming back to sit down with both of them to review, discuss and get a yes or no decision on your proposal and about working with your company.   Remember, you will have more time to do this because by being more selective you will be creating fewer estimates and proposals. Those who won't meet with you probably aren't interested enough in working with you anyway.  Perhaps they were just hoping for more free ideas from you before hiring the cheapest contractor or performing the work themselves. If they won't commit to meeting with you to review your proposal that's one less you have to do; freeing you up to concentrate on those prospects who respect you as a professional and value your process.

Related article: Is A Contractor Really A Salesperson If He Or She Hits Send?

 

I know there will still be lots of non-believers after reading this article.

By committing to fewer estimates and proposals you will gain the time you need to put together and present proposals that differentiate your business from other contractors. By being different you will attract clients who want different.  Consumers who want different know they have to pay more to get it. Those who don't want different buy from the commodity contractors who sell on price

It was definitely my experience as a contractor that the three pre-qualification tactics I suggest here help reduce leads, increase lead quality, and at the same time increase sales.  Please help me out. If you have had success using similar strategies please share your successes here. I am hoping that third party endorsements from those of you who have experienced similar success will help me win over a few more believers!Subscribe to the Design/Builders Blog

Topics: Sales, Estimating, Differentiating your Business, Marketing, Prequalifying, Plans and Specifications

What Happened When I Stopped Providing Free Estimates

Posted by Shawn McCadden on Sun, Jun 28,2015 @ 07:00 AM

Guest Blog: What Happened When I Stopped Providing Free Estimates

Mouse_trap_free_bait-wrIf you are still running free estimates and playing a numbers game of leads to appointments to sales then I have something valuable to share. In the past I believed that if I did not actively pursue new clients, and provide free estimates, I would have no income. It was a numbers game; 5 leads - 3 appointments  -1 sale. Sound familiar? In this article I share my lesson in letting go; finding the faith to trust a system to qualify prospects, and the positive impact it can make for your business as well as your cash flow.

 

How I discovered the solution that worked for me

For me, it was getting increasingly difficult to find and schedule client meetings with my increasing responsibilities of being a Mom with a terminal illness. Running from lead to lead was taking up the time I needed to run my business and finish the contracts that we already had in the pipeline. Holding on to how I always did things was holding us back. I needed a temporary solution to what was a temporary situation.

Then, one late fall morning while catching up with reading emails and industry updates, I came upon an article about a remodeling business joining with another remodeling business to create a winning partnership.

Inspired by that article I decided that if I could temporarily give up running the leads to create the sales opportunity I would then be able to concentrate on design, closing the deal and project execution.   Doing so would be the temporary solution I needed to solve my current challenges. It worked. I found a design firm with a great front end sales system and at the same time was struggling with project management and finding responsive sub contractors. And, fortunately there would be no conflict, as they only needed to temporarily fill this need as they were relocating out of the area in six months, one year max. It was a good fit, they were looking to hire a per contract designer/project manager. The fact that I already had a top notch construction team in place sealed the deal.

 

The results

How contractors can stop giving free estimatesAs a result of that temporary relationship I learned how to create a trained support staff at my own business and secured steady work for my team. By learning how to use and sell paid consultations our leads turned into project development retainers which then turned into profitable construction contracts. That temporary relationship was also a big success for the partnering firm; they had a record earning year and made a lot of money.

When I stepped out of my business and worked within a sales process for another firm it forced me to stop chasing down those leads that after too much investment of my time proved to be unqualified. As an owner, I would not have had the faith that charging for estimates would actually provide a constant flow of better customers. I was too invested in my previous training and experience as a sales person. I was dead wrong.

 

The change was an emotional one; here is how I did it

First I had to stop thinking of my role as being an in-home salesperson. Second, I had to better and fully understand why our clients were actually hiring us.  Finally, I had to set up a marketing and sales system that could drive value and was not contingent upon my making it through the prospect’s front door to get the “opportunity to do an estimate".

 

Here are the steps I took and worked for me:

Step 1. I optimize my online profiles to convey value; value to my target prospects.
Step 2. We made it easy to see reviews and then contact us.
Step 3. The first phone call replaced the in-home appointment.
Step 4. We added “homework" for the prospect to do and the use of a “paid consultation"
Step 5. We offered prospects a retainer to act as their very own personal consultant and helped them develop “their project”.

 

The result of adopting this system has been life changing

How to stop giving free estimatesI no longer run around from appointment to appointment. I now have the time to focus on creating more ways to provide paying prospects with value early in the process. Our business is running with more consistency and cash flow has increased. For every consultation I go on now we have a 70% close rate to a full construction contract, a 20% conversion to a design/material contract and about 10% of our prospects don’t move forward.  

Since returning to concentrate in full on my business and my new sales role gross sales have increased over the last twelve months by more than 75%. This is because we now focus on our ideal client. We actively seek clients that have budgets that match our business model and refer the other prospects to contractors that are better suited for them. Cash flow problems have all but disappeared.

It starts with faith. It took trusting a system, knowing who our client is, and having the time to create opportunities to provide value.

 

Cynthia MurphyGuest Blogger: Cynthia Murphy, CKBR, is a Certified Kitchen and Bath Remodeler and co-owner of Murphy’s Design, LLC. She operates a Design Studio in Fairfax Virginia. She will be launching her blog called “Home Design Labs” in June and hosting an industry specific interview podcast called “The Social Home Pro” this summer on iTunes and Stitcher radio. If you would like to connect with Cynthia you can contact her via her website, blog or you can email her at cynthia@murphysdesignllc.com.


Topics: Business Management, Estimating, Differentiating your Business, Earning More Money, Lead Generation, Guest Blogs, Prequalifying, Opinions from Contractors, Estimating Considerations, Customer Relations

Why Building a Backlog of Work Could Cost Some Contractors a Lot of Money

Posted by Shawn McCadden on Tue, Feb 10,2015 @ 08:44 AM

Why Building a Backlog of Work Could Cost Some Contractors a Lot of Money

Why contractors lose moneyBuilders, remodelers and lumber dealers often get in trouble with lumber framing packages by overlooking the obvious…the volatile lumber market. Most contractors and lumber dealers do not have the luxury of pricing a job today, signing it tomorrow and buying the required materials the next day. By the time a job is priced, signed and the lumber gets delivered to the jobsite 30, 60 or even 90 or more days may have passed and lumber prices may have changed as much as 20%. At the Estimating Workshops I offer this concern comes up quite often and attendees often share how their profits are affected as a result.

 

An educated guess is much better than a Wild Ass Guess!

Matt Layman is the publisher of The Layman’s Lumber Guide. I met Matt through LinkedIn. His expertise is forecasting “when” lumber market pricing will change. Having and using the information he assembles through his research can help contractors and lumber dealers price future jobs involving framing materials with precision.

 

According to Matt lumber prices are reported twice weekly.

Framing_lumber-wrHe says some weeks do not change at all. However he also points out that 70% of the time they do change by an average 2.5% each week or 10% per month.   Based on those realities a contractor who estimates a framing package using today’s lumber costs at $10,000 may end actually paying over $13,000 for that same package 90 days later. For those of you who understand how margins and markups work, not only will the contractor have lost the $3300 due to price increases, but also the gross profit margin on that difference. At a 50% markup that’s another $1650 of gross profit that could have been included in the sell price to help cover overhead and profit.

If as a contractor you buy a lot of framing materials you may want to consider subscribing to Matt’s monthly publication called the Lumber Market Blueprint. I also think lumber dealers serving contractors could share this information with their customers on a regular basis. Doing so would be a great service that could help differentiate them in the marketplace.

 

Lumber Market Blueprint

The image above is an excerpt from the February issue of Matt’s Lumber Market Blueprint. Notice that the information not only includes his predictions for the next 30, 60 and 90 days, he also offers some insight as to why he makes his predictions. I suggest by knowing the why’s behind his predictions you can consider your own pricing adjustments if for any reason conditions change dramatically during the month.

 

I appreciate Matt allowing me to share this information with you.

If you are a contractor do any of your lumber dealers share this kind of info with you?   If so, it would be great if you shared the name of the dealer with us as well as an example about how the information has helped you.

 

Topics: Job Costing Considerations, LBM Related Topics, LBM Dealer Topics, Estimating, Cash Flow, Production Considerations, Estimating Considerations, Keeping More Money, Business Planning, Plans and Specifications

Financial System Considerations for Remodelers Looking To Break $1Million

Posted by Shawn McCadden on Mon, Jan 19,2015 @ 06:00 AM

Financial System Considerations for Remodelers Looking To Break $1Million

Financial reports for contractorsGrowing a remodeling business past $1Million a year of installed sales comes with new costs and expenses as the number of employees and overhead related activities naturally increase.   Just like estimating the cost of a remodeling project, the business owner will need a practical plan for growing the business and an accurate estimate of the costs related to growing it.   Then just like a remodeling project the business needs a way to measure how well things are actually going against the plan and budget.  

Without the ability to measure as the business grows the owner will experience a lot of financial anxiety.

Here is a list of several important financial system related items the business should put in place before growing past that $1million threshold.  Remember, this is supposed to be what I refer to in the second article in this series of articles as the Take-Off Stage.  Either the business properly prepares to take off and grow profitably or it risks disorganized chaos and lots of frustration attending the Lumberyard School of Hard Knocks.

 

Create a Financial System Strategy:

Identify what the business needs to measure and how it will be measured.  This is important because the business must have apples to apples ability for comparing estimated job costs and overhead expenses to actual cost and expenses.   Without a well thought out and accurate chart of accounts in place job cost reports will be misleading and estimated gross profit margins for sold jobs will not be comparable to the profit and loss reports the system creates.  I bet most of you don't job cost your actual labor costs for each employee using the same burdened labor cost strategy employed when estimating those labor costs.

Find or create a fast and accurate Estimating System:  

Yellow pad estimatingAs the business grows and more employees are added to share the workload the owner must be able to delegate tasks he or she probably did them self as they grew the business.  These delegated activities might include things like product selection, product procurement, production management, and even the responsibility for doing the estimating.   The yellow pad estimating method will not be adequate anymore.  A more advanced estimating system using spreadsheets and or industry specific estimating software will be needed and employees will need to be properly trained to use it.  The right system will speed up the estimating process and provide the information the entire team needs to build projects on their own without the need for constant micromanagement by the estimator, salesperson production manager and or the business owner.    

Create and document an Accounting and Bookkeeping System:

To support the financial system that was designed to best serve the business as it grows, a software system to support it must be setup and put in place.  Keep in mind that financial software like QuickBooks is not a financial system, but rather the tool that will be used to support that system.  Software like QuickBooks can be setup in many different ways.   Setting it up correctly is probably a task far more involved and time consuming than most business owners, bookkeepers and even most accountants are skilled to tackle.  Make sure you use a qualified expert to help you in this area.  Also, the business will need to create and document an administrative system for how financial information will be collected, coded, entered into the system, filed and verified.  This is needed so trained employees can follow the system and the business owner can be confident about the accuracy and timeliness of information when reviewing financial reports.

Growing your business should be profitable and should not be left to luck or chance.  

Financial system for remodelersWithout an accurate financial system in place your business will, unfortunately, be like the majority of other remodeling businesses in our industry.  Over 80% of remodelers have no idea of the true cost of being in business.  These businesses use what is referred to as the WAG method, or "Wild Ass Guess Method” for estimating direct cost and even the markup percentage to use on estimated costs when pricing the jobs they sell.  If that describes you and your business put the things I describe here in this article in place at your business before you seek to take-off past $1Million in remodeling.  Growing your business should be rewarding and profitable.  Entering the unknown without being properly prepared can be costly and may even lead to the demise of your remodeling business.

 

(Note: This is the sixth article in a series of articles written specifically for remodelers who want to successfully break past doing $1M/year in installed sales. Click here to see a list of all the articles in the series that have been published.)

 

 

 

Topics: Business Financials, Estimating, Business Growth, Financial Related Topics, Estimating Considerations, Business Planning, Software Related, Breaking $1Million

Yellow Pad Estimating For Contractors: The Good and the Bad

Posted by Shawn McCadden on Tue, Apr 22,2014 @ 06:00 AM

Yellow Pad Estimating For Contractors: The Good and the Bad

Yellow Pad Estimating

 

Many contractors start out estimating and learning how to estimate using what I refer to as the “Yellow Pad Method”.    Using paper and a pencil they can create estimates any time and on the fly.   However as the business grows, particularly when others take over the management and building of projects sold, the typical yellow pad estimate may not give the build team the information they need to build the project on their own.  Also, the information within the yellow pad estimate may not be in an intuitive and organized format, making it hard to find the information they need. 

I came to this realization as I built my company and eventually formalized my estimating method and started using a better tool to get it done.   I learned at lot by attending training seminars, reading articles and plenty of trial and error.  In this blog post I’ll share a little about what I learned during the evolution in hopes it will help your estimating evolve.  

I’ll even offer you a free copy of my recently updated Excel Estimating Spreadsheet Template.

 

The Good

Actually I think yellow pad estimating is the best way to learn how to estimate.   I say this because every time you do a new estimate you start out with a blank canvas.   This allows you to be creative and try new ways to estimate and organize your info each time you do one.  Using the yellow pad I learned how to do estimates in a variety of formats.   For example the information in the estimate could be listed in critical path order, the same order I promised my client and therefore wanted my production team to build it.  For another client I assembled the information room by room so they could decide what to do at a later date if the total cost came in higher than their current budget.

Using the yellow pad I could also do quick estimates for small projects on the fly.   This often allowed me to sell the job at the first visit as long as I could also easily write up my proposal ready for a signature.   That was back in the good old days when work was plenty and hand written proposals were the norm.

 

The Bad

Eventually I became frustrated with many of the limitations of using the yellow pad to estimate.  Here is a brief list of what I ran into that motivated me to make the switch to using Excel spreadsheets instead.

  • Yellow pad estimate methodI had to add up all the numbers with a calculator multiple times before having enough confidence to give it to my prospects because I didn’t always get the same number!
  • Cutting and pasting to insert missed tasks was literally cutting and pasting using scissors and tape.
  • If a prospect who several months back had said no to my price called back to go ahead, making updates to the estimate was not possible, I had to do it all over again.
  • If the customer wanted to make product substitutions or wanted suggestions to value engineer the project, to be confident about the price differences I had to do the estimate all over again for each option.
  • After hand writing the estimate and proposal me or my staff then had to also hand write out the sub contractor agreements and the materials lists.
  • When I had to do another estimate for a similar project trying to reuse an old estimate wasn’t as simple as copying and pasting or changing the quantities like it could be using a computer to do so.

 

Then I started using Excel to Estimate

McCadden's new estimate templateEventually, after a lot of experimenting using the yellow pad I eventually incorporated what I had learned into an Excel Estimating spreadsheet I created on my own.   Doing so definitely improved the speed and accuracy of my estimating methods.  The end result also provided the majority of information the production team needed so they could build the job without me around, leaving me time to sell more work.

For more on how I advanced my estimating methods and how I used the Excel estimating template check out this previous blog post titled Don’t Underestimate Your Estimating System’s Potential”.

Click on the button below to get my NEW UPDATED Estimating Template now!

free excel estimating template

 

 

Looking for help to improve your estimating?    

Check out these half-day hands on estimating workshops and dates:

Don't Underestimate Your Estimating System Workshop LEARN MORE

 

Topics: Remodeler Education, Estimating, Earning More Money, Production Considerations, Estimating Considerations

Three Options For Getting Paid to Do Estimates

Posted by Shawn McCadden on Sun, Jan 19,2014 @ 11:00 AM

Three Options For Getting Paid to Do Estimates

How a contractor can get paid to do estimates

 

The debate about charging for estimates will probably go on forever within the residential construction industry.  Contractors and consumers both have strong opinions about the subject. Back in December I posted a blog about ballpark pricing and charging for estimates here at the Design/Builders Blog.  I also posted it on several LinkedIn groups in the discussion area at each group.   Well, the comments began to fly.   Many commenters defended their position of not charging for estimates.  Many others scoffed at them for being willing to work for free.

 

If you want to do estimating for free, go for it.  You can stop reading this now.

On the other hand, for those who want to charge for estimates, I decided to post this blog to help you out.  If you are using a different method than the ones I share here please feel free to share it with the rest of us by using the comments area below.

 

Here are a few ways a contractor gets paid to do estimates:

 

  1. The contractor charges a fee to do the estimate, separate of the project’s contract price. 
    • The fee is paid by the customer even if they do not contract for the work.
    • Some contractors credit the fee towards the job if the customer goes forward with the work.
    • If the contractor doesn’t somehow have the cost of doing the estimate in the sell price of the job, crediting the fee against the price of the job means the contractor did the estimate for free.

 

  1. How can a contractor get paid to do estimatesThe contractor includes the time/cost to do the estimate inside the estimate as a line item.
    • Contractor does not get paid to do the estimate unless the customer signs a contract to do the work.

 

  1. The contractor considers doing estimating an overhead expense and the cost of estimating is therefore covered in the markup applied to the estimated cost of each project to determine the sell price of each project. 
    • Requires that the contractor knows how to figure out what markup to use.
    • The only way the contractor recoups the cost of estimating is by selling jobs. 
    • To cover the full cost of estimating the contractor must achieve the installed sales volume and produced gross profit margin (GPM) assumed when he/she figured out what markup to use.
    • In this scenario, because not all projects go to contract, customers who sign a contract for work end up paying the costs of doing estimates for the prospects who do not choose to do business with the contractor.

 

I hope you found this information helpful.  

I encourage all contractors to charge for their estimating efforts.  As a professional I believe you deserve to get paid for your time and your knowledge.

 

Should a contractor charge for estimates

Now, let the debate begin.  About which method makes the most sense.

 For the contractor, as well as for the customer!

 

 

Need help with estimating? 

Checkout this Estimating Workshop for Contractors

 

Don't Underestimate Your Estimating System Workshop LEARN MORE

Topics: Estimating, Keeping More Money

Tips For Contractors On Ball Park Pricing and Charging For Estimates

Posted by Shawn McCadden on Tue, Dec 17,2013 @ 06:00 AM

Tips For Contractors On Ball Park Pricing and Charging For Estimates

Ball Park Pricing

 

 

Any contractor who has been in business for any length of time has probably had to deal with Ball Park pricing and charging for estimates.  Home owners always seem to want one but not the other.  Rather than risk letting a Ball Park price make them look bad, savvy contractors can use the request for one to help cause the other to happen.  If interested in how to do this, read on.

 

 

Let’s start with Ball Park Pricing

Ball Park Pricing of Remodeling projectsHow many times in your career has a homeowners asked you for a “Ball Park” price for their project.   And, how many times did your Ball Park price end up being nowhere close to the actual price of the project? 

I find the whole idea of Ball Park pricing comical. I’m not saying it doesn’t have value in some selling scenarios.  I am saying however that when contractors offer a Ball Park price more times than not they strike out rather than hit a home run.

So, when I was selling remodeling and a prospect asked me for a ball park number, I would respond by asking them which ball park they preferred; Fenway Park or Yankee Stadium. That usually stopped them right there in their tracks and helped them think about what they just asked for.  And, by asking that question, I was able to get them into a much more meaningful conversation about their project.  Let’s face it; a "ball park number" really doesn't have much value unless there are some specifications to help give it any relevance.

Try asking them about which Ball Park they are looking for.  Feel free to substitute the parks you use. I think you will find doing so to be a great conversation starter. 

 

Then there’s the whole idea about charging for estimates

As contractors we know estimates are not free.  Somehow the cost of creating an estimate must be recouped by the contractor. 

Some contractors may say they don’t charge for estimating.  If that is true they are working for free and the cost of estimating is not included in the price quoted to the prospect.  I don’t know about you, but in my opinion if you do estimates for free you are undervaluing your worth and might also be putting your professionalism in doubt.  If you are not charging for estimates, and you also are not accumulating enough money to someday retire, working for free might be a good part of why.  And, contractors who do so are making things challenging for those who do charge by helping consumers think they should get estimates for free. 

On the other hand many contractors who tell their prospects they do not charge for estimates are actually not charging for the estimate in advance, they recoup the cost of estimating through their markup; but only if they sell the job.  

 

It’s OK if they don't want to pay, but why get offended? 

How to charge for estimatesSo why do prospects get offended when you tell them you charge for estimates?  Did they expect you to work for free?   Do they work for free at their jobs?  I doubt it. 

When I was selling remodeling and homeowners asked if I would do free estimates I would say yes and give them an estimate right then and there.  I would say something like “I estimate the bathroom project will cost somewhere between $15 and 25, 000”.   Then I would just wait.   When they asked why such a big range I would simply ask them why they thought I had to give such a big range.  It usually led to meaningful conversations about the fact that an estimate is really just a guess and may not have any relevance to the true cost of what they would actually want to buy.  And, as a result, having this conversation helped them discover the need for plans and or specification so I could give them a fixed price in place of the “estimate”. 

After all, that’s what most remodeling consumers really want; a fixed price for what they actually want. 

 

One option you can try if the Home Owner can’t understand why you charge for estimates


Next time a homeowner wants a free estimate, or is upset about charging for one, why not suggest bartering?

"If I spend the time to collect all the info about your project, seek pricing from my vendors, meet with my subs to get accurate pricing for their work, and then assemble an accurate cost and proposal; how about we do a trade? Maybe while I'm doing that stuff you could either babysit my kids or cut my lawn? What to do think Mr. Home Owner, would that be a fair trade?"

 

Getting paid for estimatesA point of clarification which should already be obvious

If you choose to go down the “Which Ball Park” or “Let’s barter” path make sure you do it in a respectful manner and your purpose for using this analogy is appreciated by your prospect. 

How you say it can make the difference between being the contractor of choice and being shown the door!

 

 

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Topics: Estimating, Success Strategies, Differentiating your Business, Prequalifying, Estimating Considerations, Customer Relations, Plans and Specifications