I’m looking for advice on the use of a retainer, to gain a tangible commitment from a future client.
In the past four years I’ve completed three house frames. They are unique timber frames. The timber for which I fell and mill in the clients’ own woodlots (then truck to my shop for the joinery). So it takes time, and patient, enthusiastic clients. Each project represents almost all of a year’s income for me.
When I feel like I’m talking with the right people for the next job, ie sincere, fun people with a dreamy woodlot, money & taste in equal proportion…, what is an appropriate charge in return for my committment to their project? in the present case, 5 months ahead of the work, though we’ve started meeting for the design.
Secondly, what are the customary provisions of a retainer?
Thank you for your time.
Replies
Wow! If I was doing something that high end with that much commitment on your part, I'd ask for at least 50% non-refundable. I mean, what if after you've cut the lumber and started milling, they decide they don't want to do it? So they let you keep the lumber but you'd be out a pretty penny in labor.
Just my opinion...
BTW, sounds like a pretty good setup you've got. Where are you located?
Mike
I doubt your clients will want to kick in 50% ahead of time, as was suggested. But I think 10% would be reasonable, particularly if it was non-refundable. (Make it hurt for them to walk on you)
And I'd definitely have a schedule of payments set up, to keep your cash flow going and to keep them from getting too far behind.
Right now I am having amnesia and deja vu at the same time. I think I've forgotten this before.
You have two separate issues here:
1. You’re doing the design work. As with any architect,draftsman/engineer, you should get money up front for this. As many designers do, you might state that “X†amount includes “X†amount of hours and anything above that is at the rate of “X†per hour. That way you’re covered for changes, and in the nightmare scenario , multiple changes. Time is money in any business.
2. Your main liability wil be labor, and not an insignificant amount either. As with any other project that involves labor, I’d set up a contract to get “X†amount every two weeks to cover that labor and it’s associated costs, eg. taxes.
In other words, reduce your liabilities. And it's fair, since with each payout, they will only be paying for services rendered to date, again just like any other construction project.
Sonny, thanks for the emails . I know it took you time . Your swell guy!!!!!!
I want to throw in this dicussion that I would not like all my apples on one truck. I like other things going on also. We are taught to spred our stock shares around , so that if we do get hit hard , it wont happen every where . You have something going that has little competition though. That reeks capital return in my mind. Get all you can get sir, if your way of doing business cant be flexible .
Tim Mooney
Tim, that's called having several "profit centers." I'm a believer.
How about this? They give you a deposit worth, let's say, the last two weeks labor for the job to hold as your security. Then you bill them every two weeks throughout the job. Keeps cash coming in and if they get squirley about paying a bill you stop work until they pay it. The worst that can happen is you stopped work, but you keep the deposit and therefore got paid in full.
Boss Hog - "10%"? That's not even enough to cover overhead, man. I'd put someone on my schedule for that, but I wouldn't be doing any work, way too risky.
Edited 6/4/2002 1:51:02 PM ET by jim blodgett
I thought the 10% to get it in the schedule and do the preliminary leg work was what he was asking about.
I didn't mean he should do a lot of work without more money.
Looking from the homeowner's perspective - Giving someone a big check without any guarantee that the guy would actually do anything is also risky.
Last year, something like that happened near home. A guy gave a "contractor" $30,000 as a deposit on a house. Pretty soon there's a foundation in and a bunch of materials there. Then a new skid steer loader pops up, pulled behind a new pickup truck. Very little work got done before the pickup, skid steer loader, and the contractor disappeared. The "contractor" had not payed for any of the materials, or the foundation.
I was trying to daydream, but my mind kept wandering.
10% non-refundable would let me sleep better.
Sonny Lykos, I'm just now starting to charge separately for design. In the past, hunger for the next job ate away my confidence to do so.
Thanks for all the ideas.
10% will guarantee that the clients are serious about the project though there is probably no way to guarantee that the job is solid. That is the main problem with relying on one job at a time. The timberframers that we use do about 5 large frames a year and an equal number of small ones. This gives them a margin of safety in that if one frame falls through, they have other work that they can accelerate in the pipeline. 10% won't pay the bills if you don't have any other work but I don't think that too many customers will give a bigger nonrefundable deposit. Even if they have complete faith in you, things can change in their lives and yours in ways that just can't be foreseen(death and divorce to name two).
What about 10% cash to you, and another 40% in escrow at a bank?
As a homeowner, I hope you don't mind my post in the business section, but I wanted to add a homeowner perspective. We are building a log home which is, in some ways, similar to timberframe. The log home companies typically ask for 10% of the log package as a deposit, 40% to create the shell (whether that is milled or handcrafted) and then the balance when the truck shows up at your site. The banks that do log homes know this schedule and they will come up with the money for these stages as long as they know ahead of time what you are doing. Perhaps this model would work for you Xtenon? Just as an FYI, we had our deposit into our log home company about 18 months in advance, but they are small and we needed to get on the schedule. Had we backed out, we would have lost our deposit, which is only fair.
The way I understand it, you only provide the frames, but not the entire house. If so, then the above model may be appropriate with a couple tweaks. You would have 50% of the cost of the frame before you actually begin making it, so that would really help protect you. Instead of waiting until the end to get the rest of the money, you could ask for 10% more when the frame is 60% done, 70% done, etc.
Also, the getting paid every 2 weeks thing works great for customers who pay cash, but not for those of us on construction loans. It doesn't sound like Xtenon's clients have to worry about that, however.
Anyway, sorry for the interuption. Hope you all don't mind.
Don't see any reason for you to appologize - Everyone is welcome to provide input here.
This ain't JLC.................(-:
Life without pizza is no life at all
Thanks Boss. I guess I just feel funny posting about business topics when I'm not in the business. I made an exception only because I thought I might have something to add for Xtenon which is how the log home industry handles this. Frankly there are thousands of us out there willing to go along so surely his serious customers will too.
I must admit, however, it is a bit unnerving once the log home company has 50% of the shell price and you have nothing. If they go bankrupt....well....don't really want to think about that. You really have to develop a relationship of trust with the company and that's what we did.
Anyway, as an aside, I really think reading the business forum has helped me become a much better client. I really see things from your side and how difficult it is to run a business.
Paula , please jump in any time , and thanks for the imput . People doing loans would not be able to pay every two weeks unless the customer knew where the coffee pot at the bank was , kinda thing.
Tim Mooney
here in California we are only allowed to take 10%or no more than $1000 making it very easy to get taken a fellow contractor just lost $20000 when his client went bankrupt just when his swimming pool was completed the guy got to keep his newly remodeled house and my friend ate 20grand