A client sent the note below, expressing concern about how delayed job starts will impact material prices and his profitability.
I hope you are well. We have a problem and not a cashflow one this time, and we know that most other contractors will have this problem too.
We have been working with MyOnlineToolbox and they have been wonderful in helping us re-brand and re-market our business. Our ongoing relationship with them is priceless. Thank you for referring them to us. Amongst talking with them, they told us to direct this question back to you.
- Getting people to be sensitive to time and long-term pricing challenges, then
- Adopting contract language that does not have you completely exposed if you get the clients to agree and commit sooner than later.
The first thing that needs to be dealt with is ensuring you put “time” as an ingredient towards the process.
This is a sales issue and requires a refresher course on how to conduct the very first sales call. When you ask the four basic questions, and get answers, you’ll know if you’re dealing with someone who is serious about getting their job built. These four basic questions must be answered before you do any designing or estimating, or else you’ll be wasting your time.
Question #2 of the four basic questions deals with their project start or completion date. If they want to wait longer than the next opening on your schedule (within reason), tell them (nicely of course) that you’ll review Remodeling Magazines latest Cost vs Value report and provide a general price range for the work they want to do. You might also tell them you aren’t confident speculating on the cost of materials in four, six, eight months, or whenever it is that they’re ready to start their job.
Explain that in order to quote a firm price for their work, you’ll need to design the project, know their selections and obtain quotes from your specialty contractors before you can compile the estimate and put together the necessary paperwork for an agreement. For you to do all that, they’ll need to commit to a design agreement or letter of intent.
Now, if they realize they need to make a commitment and are willing to put a start date on the table that gets the job started in your next available window, then you can focus on getting the design agreement or letter of intent signed. If they aren’t willing to share their start date, or if they aren’t interested in doing the job during your next availability, offer to come back later when they are interested in going ahead with the work. You might want to impress on them the challenges that many contractors are having now with cost increases and material and labor availability.
Question #4 of the four basic questions is setting the budget for the project. This is easily done as we explain in our book, Profitable Sales, A Contractor’s Guide. Once the budget is set, if it’s realistic, then bring out your design agreement and start filling in the blanks.
You should be paid to estimate your projects, and you should be collecting a down payment when the contract is signed. Those are the only payments you can reasonably collect prior to job start. I’ve heard other interesting ideas recently, such as asking the client to pay for materials now so they can be ordered and stored for a job that starts further down the road. There are so many things that can go wrong with that scenario, such as where will it be stored? Who pays for storage costs? What happens if there is a problem with the material but you’ve held it too long to return? Who insures the materials in storage?
Potential clients need to know the risk of waiting to do a job. There are potential material cost increases and also the challenges of material availability. Last March we wrote an article on material price increases, where we talked about the things you can do to minimize your exposure to price increases. In April we discussed having a time limit on your proposals.
I’ve been in construction all my life, and these are interesting times. There is more work available now than I’ve ever seen, and fewer contractors available to do the work. Get your system up to date, practice your sales presentation so it focuses on getting a commitment, and help the nice folks make a decision to hire your company and move ahead with their work.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations as needed.
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