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Construction Programs & Results Inc

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Design Agreements Gone Awry

by Michael Stone

We discussed design agreements last week; today we're going to look at them from another angle. This is in response to a question we received last fall from a contractor who attended our two-day class a few years ago; I try to be available for quick phone calls from class attendees.Design Agreements and Setting the Budget in Remodeling Sales #MarkupAndProfit #DesignAgreements #RemodelingSales

"Hello Michael,

I was wondering if I might take a moment of your time for a phone call re: Design Agreements?

I thought I was doing pretty good and then lately, my estimated budgets have been coming way under the final contracted amount. Some of this has to do with changes made by the owners and I now realize I should have done a change order to the design agreement.

Others have been me just being way off.

My question is "How specific should the Design Agreement be?" and since we say this is an estimate only, "How do I respond to clients upset that the cost is higher than I said it would be!"?

Any insight or input would greatly be appreciated."

Let's go back to the beginning and take a look at how to approach a design agreement.

The first step is always setting the budget with the client. This has to be done before the design agreement is put together. If you don't get your client to set the budget first, you're going to have push back on prices and waste a lot of time.

Getting the budget set isn't that difficult if you follow the four basic questions in the Profitable Sales book. The book also discusses what to do if their budget is unrealistic, or if they won't give you a budget range. Keep in mind that you should only expect to sell one out of every three sales calls. If you're selling more than that, you're probably taking on problem clients. When you find tire kickers, price shoppers and hard-to-get-along with folks, it's better to walk away.

Your quote for a design agreement should always be within no more than ten percent of what you know the job will sell for, and preferably within five percent Your design agreement should be very specific on what the job is and the procedure you'll follow to design and estimate the project so you can present a proposal to them. It also includes a realistic price range for the work or service you are going to provide.

Getting the budget set helps to keep the customer focused and on track. It's your job to tell them upfront, and remind them frequently, that changes to the design will change the price.

They will want to make changes; it often happens. The minute they mention a change, you respond with a new price range for their project. Be prepared for push back on the price change, but unless the change has no price impact, they need to know it will change the price. Stay on top of your design, know your numbers, and don't make guesses. If you have to, tell them you'll be back tomorrow or the day after with an updated price range for their project.

Don't give price ranges unless you can get within ten percent, preferably five percent, of what the job will run. Slow down, take a breath, and get your numbers right.

Design the job, estimate it, write the proposal/contract, and lay it in front of them for review and signature. (The paperwork you present to a client for signature is the proposal. Once it's signed, the proposal becomes the contract.)

As soon as you present the final price, they'll start asking if this, that, or the other is included. Either it is or isn't. If it is, say "Yes." If it isn't, say "No." Don't be bashful or shy. Give them the information they need to make the decision to proceed, or revise their project to get the price where they want it.

You have to stay strong when they start adding extras or changes that will increase the price of the job. If you aren't, they'll assume those changes will fit in the original budget.

Clients determine the price of the job by the design and their selections. Make sure you emphasize that every time they change something. That's how you protect your assets and make the sale.

 

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