I saw an article in a newsletter recently telling contractors (both general and specialty) to give out itemized estimates to their customers. Oh joy. The writer talks about the goodwill, the trust, the ability to compare estimates and the usual tripe that accompanies this type of advice.
Let me tell you why I disagree.
First, your customers won’t be able to compare your estimate to any other estimate. Common sense will tell you that. I couldn’t compare your estimate to a second contractor’s estimate, nor could you compare your estimate to mine for the same job. If you have 100 contractors estimate any given job, you will get 100 different estimates. How do I know? I have taught estimating in 44 states to over 12,000 contractors. Been through this exercise, folks. And if an experienced contractor can’t compare 2 different estimates, how can someone outside our industry do a comparison?
Second, the argument is that the estimate needs to be prepared properly. Pray tell, who is going to pay for the time it takes you to prepare such a document? Somehow the time investment you’ll need to make always gets overlooked.
Third, providing an itemization gives customers a reason to argue with your price. It gives them the ammunition they need to complain that you are charging too much for this item, they can buy that cheaper down the street, etc. Price is not the number one consideration when picking a contractor – but presenting an itemization suddenly makes it the number one consideration.
Itemization does not make you any more honest than giving a lump sum, fixed price quotation. On the contrary. Most itemizations I have seen have had the numbers cooked to bury some or all of the overhead and profit to prevent any argument. The overhead and profit of any business is proprietary information and none of the customer’s business.
Time and material contracts are OK up to about $2,500, anything higher should be a lump sum, fixed price quotation only. If the customer wants itemization, that is a lot of extra work. I would charge at least $75.00 an hour, minimum of 4 hours for any request for itemization, paid upfront. If the potential customer doesn’t want to pay for the itemization, then that is a clear warning sign to you that you aren’t going to get the job anyway so why waste the time?
Time is all you have when you roll out in the morning, gang. Those that use their time most wisely are the ones who make money in this business.
Why would you go to the trouble of doing an itemized estimate? I agree totally with Michael, all you are doing is a bunch of needless work that does nothing more than to set you up to fail. You have given your client ammunition to use against you to get a “better” price from the next guy. All it does is cost you time and money. If you have that much time on your hands, then you had better get out and do some marketing so that your phone will start ringing. And, please, don’t use the argument that “all of my competition is doing it.” Just because they are “doing it” doesn’t make it right.
I agree with Mike.
1. You would be acting as a Construction Consultant. Fine, but get paid for it.
2. You’ll be acting as an “estimator”. Fine, but again, get paid for it.
3. You will, as MIchael says, will be handing them a handful of bullets and say to them: “Here. Now shoot me.” Which they will by ripping apart as many line times as then can, saying :”Outrageous”, “Why is this so high?”
4. Finally, you will end up teaching them Construction Finance 101 and 102 by the time you’re done. And it will not matter. You will leave and they will have received several hundred dollars (if not thousands) of valuable information – for free.
Michael,
As a small contractor in Minnesota who got into this practice about 4 years ago, how does one switch from itemized to lump sum. I have had much success with the itemized, and clients seem to like the information, but this part of our presentation takes up a bunch of time. what do I fill that time with if its not going over numbers. I understand some of it might be the spec I would write, but need som ehelp here.
Sonny,
I agree with your points as well, in my intemization we are up front right away with our fees, some of those fees are for estimating time, and consulting/managing. so they know right off the bat they are apying me for it. Just to back track a bit, I usually have them on the line and we have a signed and paid design/development agreement before we start exposing the total budge to them. I have personally not had anyone say, well I can get this down the street for this or that, so I cnat comment on what I would say to that. so far over the last 4 years it has worked very well. still wondering about my previosu post. if anyone can give me some advice on how to make the trasition that woul dbe great
Steve ,
I think your sucsess is due to the fact that your customer feels comitted already to you as they have comitted time and finances to you for the
design build service,most people dont want to go through all the steps to shop again once they are comfortable with you.
That my take, im sure the “Coach” will have more to say as well
best regards ,
Sean
AGREED!!! The customer should focus on the cost range of what the job should cost. They know in their mind about how much it will take to get the job done. Where they get this range could be from several sources.
We are the experts/specialists in our industry and they know we know. It is their decision to move forward or not and our price should not be a varible.
If anything,we could offer an additional extra that doesn’t cost us,not a decline in the price.
Our objective is to help them realize their vision of what they want. In the event it is not feasible or economical we should inform them.
The intangibles such as guidence, timely proformance, cleanliness,courtsey, and above all, honestly are most important and seperate us from the competition.
For a fee we can do a work write-up for them, yet we should do so without thinking of getting that job,-independant and without conflict of interest.
Does anybody out there also do FHA/HUD 203k Consulting? This pays just for the said work write-up and progress inspections. I would like to communicate with those that do.
Brian Burns,CGC
I have been estimating/project managing/selling remodeling projects for about 10 yrs now and have used itemizing almost the entire time. What I have found works best to avoid the “ala carte” problem with clients picking and choosing is to do a very specific line item scope but do not show fees per each line item unless the client has a couple of options (abate the popcorn or cover it with sheetrock, for example). In which case I will show those lines individually so they can make an educated choice regarding their budget. Otherwise, the line item scope with a lump fee at the end shows them what they are getting for the price but also protects me from gray areas of my scope where the client can say, “Oh, I thought that was included”. It is very clear as to what I am doing, what others may be responsible for, and what the client has agreed to do. In this way, I am able to later get more work thru multiple change orders because the estimate/scope sheet leaves no room for argument. If the client wants that trim installed after all, I just write up a change order, get a signature and deposit, and keep trucking! I guess I see the added work (which I find is nominal) for line items as protection for me, a means to show my professionalism, assists with clear written communication, sets me apart from my competitors who do mostly hand written crap on preprinted forms you buy for $.99 at the local office supply store, and avoids confusion as to what the client can expect for their money. At the end of a job, I can have them initial each line as I go to confirm satisfaction or can cross things out with an initial if the client changes their minds. I can also use the line item scope as a production check list for my crew so I know later who performed each task and can go to them for training if an issue comes up, can track negative production trends if certain issues continue to come up, etc. I use Xactware software to estimate line items, which also allows me to work in the insurance repair industry in addition to the general marketplace since that is how insurance companies require estimates – by line item. Great margins in that industry, by the way! Anyway, there’s my 2 cents worth!
Milt, Ethan Home Repair & Remodeling, LLC
I agree with Mike and especially with Milt. I generally list line by line all of the work to be done so there’s no problems on either side understanding how much work is included. At the bottom of that, there’s a fixed price. Below that, I add the “options”, all priced individually.
It still takes up a lot of (mostly unpaid) time to itemise the scope but it’s then very handy because I leave a copy of it (without pricing of course) attached to the permit card on the job site. That way, my crew has a check list to follow and they’re not (supposed to be) standing around wondering what else to do.
It’s also a great way for the client to track progress and see whether or not I’m going to present a COR for some extra work.
And yes, I still figure on “throwing” in some goodwill COR’s. Maybe I’ll change out all of the outlets to a standard Decora or put in a basic RadioRA system. Doesn’t cost too much (and I’ve included it in the original pricing anyway) but it generates enormous goodwill on the client side ‘cos it’s a “freebie”. All clients like to think they’re getting something for nothing…
Thanks guys for the feedback, I may try to work this system into my next proposals, Coach, any feedback?
Steve
Thanks for the comments, guys. It all comes back to your sales presentation.
You need to tell the customer right upfront that the price of the job is set based on their design and selections. They set the price of the job – you don’t. So the salesperson needs to walk through the 4 basic questions, get the customer to set the budget and move to a design agreement. You get paid to do the design, write a firm price quotation (estimate), and write an agreement for the job. The agreement (contract) for the job must be detailed and tell them everything you are going to do – the standard one-page forms put everyone at risk.
When you know their budget, if the customer says “We decided to go with wood windows instead of vinyl,” it’s your responsibility as the salesperson to tell them right then and there that wood windows cost 3x vinyl windows, and the job price will be higher than their budget. Don’t assume they know they just shot their budget. If you don’t tell them, you are wasting their time and yours because when you bring back the fixed price quotation, they will tell you “Your price is too high”. You knew it would be too high when they changed to wood windows, right? Tell them at the time, not later. It is your responsibility to help them make selections that keep the job within their budget.
Again, it all goes back to the sales presentation, and making sure the customer understands clearly that the price for the job is based on their design and their selections.
Itemization (especially with prices attached!) is order taking. You are doing work for free, and when you start doing that you aren’t placing any value on your time. Your customer won’t place any value on your time, either. Get paid for what you do.