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Recently submitted a bid that I thought was high but double-checked the #’s; still looked accurate. Client decided to reconsider scope of work and whether or not he could recoup the investment when selling the house. I was to cut an opening in masonry wall, install wood window w/custom ripped extension jambs and trim; match pebbled stucco on outside; remove old tarred deck (7′ x 9′)and railing on second floor porch; rebuild deck with plywood and membrane roof to shed water; install floating cedar deck system and new railing (total of 16′). My price was $5100.
After reading some of the posts, looks like I fell short on the selling.
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sounds too low, but i do not know where in the states you are located, thats an awfull lot of work for 5100, materials for the deck could go as high as 1000 and what about the window.......
*Hey B. Carter, When your done sellin' yourself short on that project I'll keep you busy all summer! C'mon, are you for real or what? I like the part about the client reconsidering thescope and will he re coup the investment. Are you a remodeler or a fish with a hook hangin' out your mouth? Based on that estimate he'll come out wantin, more work. Ya know. Withdraw your estimate and quit steppin' on your dick. Okay? The $5100 about covers the window work.And the deck oughta come in close to that. That's five figures and I haven't said nuttin' about profit,overhead and contingencies. But Uncle Dan-O, you sound so aggravated. Yea, well, this guy's gotta have it told to him in no uncertain terms. The sooner you younger guys startchargin' and gettin' what you NEED the better off we' ll all be. Sound good? Be well. Do good work, and get your price! Dan-O
*In remodeling, especially in small jobs, price is not an issue. That's not because price isn't an issue to them, it's simply because they have no idea what the correct price is. Very few actually get multiple bids and if you believe your price is correct, give it with confidence, even pride, they will believe your price is correct too. And now they know what it will cost to do the project.20% of potential clients will have you do the work nomatter what price you give.80% will not have the work done at any price.Don't bother chansing the 80%. You could cut your price in half and still not sell anything to them. If you chase the 80%, you'll never charge enough to stay in business.Chase the 20% and charge what you need (or want) to make to pay your bills, put something in the bank for retirement, and still live the lifestyle you want.Don't misunderstand, I'm not saying that you need to chase wealthy clients, I'm just saying that among every group of people, 20% of your leads can be turned into sales because they want it or need it bad enough to have the work done and they will pay the "right" price (which you get to set.)And 80% can never be sold at any price. They don't want it or need it bad enough to have the work done.
*I like your analogy Ryan C. It puts in black and white for those starting out in the business. I recently helped out a friend who put in a bid on a small remodel job. He got lead astray when the client said he had lots of other bids so he put his in cheaper than normal hoping he might get it. Well we all know what happened it snowballed out of control. He has been in the industry along time but never as a contractor. He asked me as things started to spiral out of control what I would have charge. Off the top of my head I was about $2000 over his price. The company he did the remodel for is huge and does lots of renovations. It might pay off for him in the long run and he may get more work or not. It is difficult when starting out and submitting a price because I think we tend to look at and say to ourselves would we pay that price. I know that there are lots of other people who will come in under the price you submit and all I can say is good luck. I guess what I am saying is that you can't sell your business on price alone. You will fail. Top quality work and an ability to give the client what they need will take you where you need to be.
*this isn't my quote but it's one of my favorite: "Never judge the client by your pocketbook". (I have to giver Rick Ritivoy credit for that)Just did a bid for a small repair. Frankly, I would have expected to pay about $200 for this small job. And there are guys around who would have done it for alittle less. I figured it's gonna take me just alittle over half a day but what am I gonna do with the other half day? So I bid for a whole day's work. Then decided that I'd throw something else in just to see if I can get it. The customer is a regular guy, not wealthy but comfortable, modest but nice and clean home, well maintained car a couple of years old but in good shape. Just your average joe.So I bid $450 for this $200 repair. Got the signed contract in the mail yesterday. A couple of years ago, I would have bid the $200 and the material would have cost more than I thought it would have, I would have had to come up with another job for the afternoon, the work would have taken an hour longer than I thought, the lumberyard wouldn't have had what I needed and I would have been driving all over the county looking for something. In the end, I'd have worked all day, spent more than I thought, and and walked home with enough to rent a movie. At my price, I can relax and take the time to do it right and when something goes wrong, I've got enough in the budget to do it right. The only way to charge less is to provide less.
*Operating costs for a one man operation. Note, these are "real" costs:1. A good family medical program - $300 per month minimum.2. Vehicle, gas, ins., payments, depreciation, tires, tune up, repairs, etc. - $6703. Office supplies including stamps - $304. Acct and attorney, if and when needed - $505. Magzines and books $406. Business taxes - $1007. Telephone - $508. Cellular phone - $1009. Travel & entertainment - $5010. Seminars and Trade Shows - $12511. Uniforms - even just jeans and shirts - $1512. Small tools - $1513. Software and upgrades - $3014. Marketing & Advertising - $10015. Office Equipment depreciation - $7516. Liability Insurance - $10017. Workers Comp OR Disability insurance - $12518. Bad Debt - $10019. Guarantee work $10020. Future Capital Expenditures - $10021. Owners draw ($1000 weekly) - $4333.0022. Bookkeeping - ($150 per week) $650 With no provisions for retirement, it comes to about $7250 per month. Anything less and you're kidding yourself. Divide that by about an average of 32 "production" hours per week at 46 weeks for a total of 1472 man hours per year, or about 122 man hours per month. Divide that $7250 by the 122 hours and you get $60 per hour - COST of doing business. Add the profit you want.The overhead cost items listed above are far from being excessive, but are realistic as to the true cost of operating, it you wnat to treat yourself as a legimate business owner. I do't see how anyone can operate without charging anything less than a minimum of $65 per hour. Notice, I've not included the many hours spent on sales calls, estimating, typing contracts, etc. Nor do I include a reward just for being in this very difficult business and the inherent many and varied liabilities assumed.It doesn't matter if the profit is taxed directly to you as a sole prop. or if you're a corp., you must return a substantial profit.
*My Dad always says......and sometimes I remember to listen to...........You never LOSE money on the job you didn't take!.....in other words, set a price, and don't cut it.....because if you're anything like me.....half the time you're still just breaking even! Jeff
*Well, with respect to the others who have posted, I think your customer was right on and so were you. You didn't do anything wrong and neither did the customer.The way I read your post the customer thought he wanted a job done. So he asked for a quote. You gave hime one. Then he realized the house wouldn't bear the cost of this particular job. So he wisely decided not to have it done.The only possible selling you could have done that you didn't was to help him decide the house would sell for more than he thought. But then you are in the real estate business and are really opening your self up for trouble if your estimate doesn't come true.You didn't lose the job to another contractor so your bid wasn't a problem. You didn't lose it to the engineering of the job. You didn't lose it due to your numbers. You lost it just because the guy couldn't recoup the additional cost at resale time. No way to get over that.So, pick up your head and move on. Assuming it was hanging in the first place.By the way I'm not talking about whether your numbers were accurate or not. I wouldn't even try to second guess your bid amount without a lot more detail. Frankly, I don't know how the other posters can either because none of us know YOUR numbers.
*Thanks Sonny, I just raised my prices again! I can't operate on anything less than 65 per skilled manhour.Your breakdown makes a lot of sense. Sometimes we all want to get the jobs so bad that were willing to treat ourselves like second class citizens.Sonny, will I be okay if I add 20% to all subs and materials?The only reason I'm asking is because I'm giving a retail (remodeling for a friend) bid on thurs and I haven't done one of these in years.Do I markup after that? I'm going to do a search in here, but sometimes it's too confusing.blue
*Fred,I think you are on to something there.I came to about the same place from a different direction.From the description of the proposed work,it sounds to me like the prospective customer wanted to turn a 7x9 flat roof into a sundeck and to install a different window to allow more comfortable access to the deck.Once the price came in he felt $5100 was a lot for him to pay for a 7x9 deck. I doubt the prospects decision had anything to do with the actuall costs involved in producing the product,but rather the feeling that $5100 was a lot to pay for 63sq. ft. of deck.
*Blue, 20% sub markup is a minimim OK, I use 25% only because ultimately, the buck stops with me. In other words, as the GC, I'm morally AND legally responsible for work done by all subs, including work done maybe 6-8 years (I can still be sued) after the work had been completed. In those cases the sub might tell be to go whistle dixie for a problem, or even be out of business. I will not except that legal responsibilty (risk) unless I get paid for it - the flip side of the equation balance - this for that, so to speak.I use the same mark-up on materials.However, don't forget, I use the Proof Management system which means all of my overhead goes onto my labor, as my example of the operating items in my previous post indicates. So the mark-up on both subs and materials is pure net profit, since all of the overhead has been recapatured on my labor.I like the Proof system because as we all know, the labor, subs, and material percentages of any given job changes from job to job. In a deck project, material might be 30% of the total price and labor 70%, while in a kitchen remodel material might be 50%, PLUS another 20% for subs, PLUS 30% for your own labor. That's the bad thing about using labor "costs", then adding actual material "cost" and adding sub "costs" and then marking up the whole enchalata 50% to 70% to recapture BOTH overhead and net profit.Some might argue that however, if one takes his "annual" percentages of material, labor and subs, and use those as a basis, but I still contend that even on an annual basis, those percentages can change from year to year. Generally, they only stay relatively consistant is in specialty companies, like cabinet shops, plumbers, electricians.Some might question my "guarantee work" line item. Think about it. Who pays for guraantee work done to our trucks, refrigerators or TVs? We do, since that percentage or fractin thereof is built into the manufacturers price structure. Granted, most of us may have a call back or two on a job and they're usually minor so don't take up much time or material. But, that 1% covers our rear ends should a big problem occur that is guranteed. Those monies would come from that guarantee reserve account instead of our operating account.Incidentally, reserves for bad debt, guarantee work, reserves for depriciation for vehicles and major tools and office equipment are - get this - "non-taxable". Neat. So, from a tax structure view, say you wnat to buy a new truck and want to put down $8000. You can take out a "loan" against the reerve account at around 3-4% interest (the reserve acts as securtiy for the loan) and you will not have to come up with the $8000 cash out of your pocket. AND, even that 3-4% is deductible. Neat again.Run this stuff by your CPA.Finally, I use a list of items to check off and consider for even if I want a job or not. Jobs I take, but for one reason or another have a high potential of requiring guranatee work later, are jobs where I might double the net profit included in the price. I just took a job that takes me 45 minutes to get to tis time of teh year due to our seasonal traffic. I included 1.5 hours per day times 3 days in my estimate and still got the job. So, I'm getting paid for driving. If I weren't driving, I'd be working oanother job and getting paid anyway, right? The original post here is another classic example - a roof over a finished area to be used as a deck. High risk (liability) factor means to me, high net profit factoring. So, when estimating any project, always think in terms of "risk": legal, physical injury potential to you or occupants (kids too), guarantee, etc., and add an appropriate amount for that.Blue, one more thing. I'm really thrilled to know that you raised your labor rate appropriately. You deserve it and if you can't get it, you don't really want the job anyway.
*Follow a lot of business threads. This one has summed a lot of things up in a few posts. Also see a couple of "hidden jewels".
*Sonny, thanks for the reply. Everything makes sense, especially the need to see and allow for unusual circumstances such as increased liability and others items.I also am very thankful for the heads up about the accounting techniques regarding reserves. I have just this week decided to educate myself (thanks to the inspiration of Robert Kiyosaki the author of i Cashflow Quadrant, Rich Dad's Guide to Financial Freedom,) regarding financial matters and the entire process of bookeeping and accounting is high on my list. I'm also thrilled to finally have a true grasp of the need to create these "reserves". It wasn't too long ago that a regular in here came out challenging your "need" to define these reserves. His argument was that all the money went into one pot anyways, and no matter how you entered it in the bookeeping process, you still end up with the same amount. I now can see that there is a tax angle that must need to be addressed. Your advice to see my cpa is well founded. I maut admit that I have used the cpa's services without actually ever visiting his office. I really don't have any idea about this man's skills. On the advice of Kiyosaki, I am now in the infancy stages of assembling my fiancial "team". I can't believe how deep I've buried my head and am shocked at how much money I have already pissed away by refusing to take an active role in my financial situation. I suppose I always assumed that my carpentry skill would enable me to make enough money to get ahead, but have come to the stark realization that I was really engaging in wishful behavior.I'm going to take your advice and price the installation at 65 per man hour and at 1.25 materials and labor. It will be a simple job, minimal risk, and an easy one to figure. I'm actually thankful that it's an easy one to estimate because I've been out of the loop for so long. I can figure a complicated custom rough in less time than it takes you to smoke one of your mental masters, but these retail sales jobs always had me reeling. Thanks to the knowledge and insight that I've gained in here, from you and the many others, I feel I'm ready. I'm almost looking forward to it, which is a far cry from where I was many years ago when I burnt out in the remod market.I'll keep you posted. I'm going to start a new thread soon on the importance of capital gains, so brush up on your tax angle stuff.blue
*Blue,If you need any help with that quote, call me. Since you live near me and I know remodeling cost, I can help you with what this market is paying.I need to call you anyway, so maybe we can get together Friday?Barry
*Bluyem also be creful of which CPA you use. A couple years ago I decided to go with one of Naple's totsy-totsy high end CPA firms as used by many wealthy people here. I think it was back in 1998. Anyway, he did my '98 taxes and asked to see them from '97, which I had done (person only), myself. I screwed them up and he got a refund check for me for around $7400 that I'd overpaid. Of course it ws also then that he found I'm not one of the Naples rich, so my "account" got relagated to an underling. Last year, this lady almost made me pay about $5000 more than I had to - I caught her error. For 2000, she called me about 10 days ago saying I will owe roughly $8,600. I called my son's new CPA, had him check everything out and found the other CPA lady underling screwed up my stock portfolio profits & loses and didn't calculate the "proper" way to reduce my taxes by my stock losses. Short story is that I only owed $326, but since Barb and I will each create an IRA for the $2000 maximum before 4/15/01, we will actually get BACK $756.00.Moral of the story is be important to your CPA, not just another client number. Now I have to have the new CPA check my 1999 taxes. Sh*t, maybe I'll get money back again.
*Barry, thanks for the offer. Friday sounds good, and I'll bring my drawings.blue
*Sonny, I kinda had to laugh when I noticed that you had losses in the stock portfolio. It's certainly a big swing from the year before when I was bragging about 100% gains! I think I was lucky and only had to give about half back myself this year.Your story about the CPAs is certainly noteworthy. I don't have enough finacial intelligence to catch a mistake, but I will promise you this: by next year I will. And I'm going to pull out the last few years returns and look for myself since I've always just signed them without looking at them.Let me guess about your losses. The cpa didn't properly apply the maximum $3000 limit against your ordinary income and instead only used it to offset capital gains?By the way, which type of IRA do you use? Roth, or regular?blue
*This thread has taken off on a tangent, like a lot do. But I'd like to make sure we don't forget the basic reason why bcarter didn't get the job. To me it is just as important to know that as it is to know how much to charge. By the way the info in this tangent is very much like what was in Adrian's post just a couple months ago.The basic reason was that the homeowner had an idea for a remodel. But he didn't have the foggiest about how much it would cost. He Did have an idea about how much he could get out of the house when he sold it, which everyone will do sooner or later. So he asked for a bid.Bcarter produced a proper bid. Once the homeowner knew the numbers he also knew the remodel didn't make any sense because the resale price of the house wouldn't bear the additional cost. So he cancelled. Good move.What could bcarter have done other than what he did; which was to make a good bid that made money for him and did what the customer asked? Depending on his business plan maybe nothing. After all that is how you get business, you keep asking for it on the idea that a certain percentage of bids will turn into real jobs.Or, he could have educated himself on the real estate market in that area AND decided that he would only bid in certain price class neighborhoods. By only bidding on jobs in areas where he knew the houses would bear the cost of his work he is more likely not to be in an overbuilding situation. Then he stands a better chance of turning his bidding work and time into real jobs.In other words, take a look at the neighborhood and the prospective job. Do what the real estate folks do, prequalify the homeowner. But take it to the next step and also prequalify the house and job. Now this isn't formal. All you are doing is making a gut level decision whether the homeowner and the house can afford your work. Yes? Then make the bid. No? Then only make the bid if you have extra time on your hands and want to throw a dart.
*Fred, or he could have done what others are starting to do - charge a fee for the SCA. I wonder how many total hours he spent on the meeting(s) and Proposal generation?Blue (got it right that time), you're righ. That $3000 was part of it. I want a Roth and Barb wants a regular IRA, so we've still debating. Will confer further with our CPA about the pros and cons of each.
*Charging for estimates is the only way to go. When I am asked to give a price for a job I tell the client that I will give them a preliminary estimate based upon my cost histories for similar projects. They get a price range ( from $$ to $$$). I do not let them see line items at this time. They have to pay me for that information.If the client feels that these numbers work in their budget and we think that we would like to work together, than we go to the next step which is the non-refundable construction deposit, which is credited to the job, if the job goes forward otherwise the deposit covers me for the time that I spend to get an accurate price together. The deposit should be enough to compensate you for your time as well as lost opportunity while you were focusing on this bid. I usually spend 1hr. or less on the preliminary bid and this method has definitely weeded out the tire kickers. No more Free Estimates.
*Boy, Fred's right about getting off onto another tangent.However, it's started. Mark, do you view what goes into generating a Proposals similar to what's called IT in the computer technology, legal, financial or medical industry? By that I mean, it takes literally years for each of us to (1st) develop the trade skills of what needs to be done, and apply it in the proper sequence, and (2nd) knowing the time frames for every single operation contained within any project - all necessary IT to generate the total cost of a Proposal. If so, why should such expensively acquired and specialized IT be given away at no charge?
*Sonny,I couldn't agree more. It's like any other Profession where the price of education and the capital investment in buisness are reflected in the fees charged. Its time that skilled tradesmen place more value on their skills. We are getting harder to find these days!With the laws of supply and demand this should work in our favor. This forum is a great place for us to help each other raise our level of income. It's long overdue.
*Amen !
*Well in the spirit of professionalism and maximum income, both of which as y'all know I heartily endorse let the games continue!I don't agree that charging for estimates is at all the way to go. Look around you at who does and does not charge for estimates. Lawyers, Auto Mechanics, Body Shops, Dentists(in most areas), Accountants, Engineers, Moving Companies, all Do Not charge for estimates. Quite a range of occupations.So, who does charge? Electronic Repair shops are the most notorious. That is because they charge for an estimate to tell you that the cost of repair isn't worth it when compared to a new vcr, tv or whatever. Frankly I can't think of any other business that routinely charges for telling the customer how much the job will cost.The cost of giving an estimate must be paid. It is much better from a customer relations point of view to pay for it in the overhead you charge to the jobs you do get. This is the way it is done in all the professions I am aquainted with. In other words the costs of marketing/customer education, estimating and bidding are cranked into your overhead. Sure, the customers in whole do pay the bill but the customer in specific is not put off by an up front charge.
*I do give free estimates but the time spent is very little. How much effort do these other professions put into their estimates.Preparing an accurate price for a 2500 sq. ft. home takes more than a couple of hours.If I dont have to waste time bidding projects that I am not sure of getting than my costs are going to be lower, and I can concentrate on getting profitable jobs.
*Fred, I think you're partially right. 1. Most of the above you mentioned are "single skill" professionals.2. Many of those have the client bring their "problem" to them.3. Most like lawyers or CPAs have standard fees and only because the "work" they do is standard. Otherwise, they only give a "rough" price. So much ($$$) for a "simple" divorce or "simple" tax form.4. Most dollar amounts are also substantially less than our typical remodel. Lets call it, "simplicity of estimating." Mark's point.So, we must visit their site, obtain many, many forms of info like elec, plumbing, framing, cabinetry, etc. say for a kitchen or bath remodel. Each one of those must be calculated separately, often after only conferring with the respective subs - more time.Framing a wall in a new house is one thing. Framing a metal wall in a condo after first pulling the carpet, or tile, or dome ceiling and it's related trim prior to building the wall is another thing. And each of those "operations" must be considered for their respective time frames. More estimating time.How many contractors even charge for design work. Even something as easy as setting up for a simple kitchen in a remodel job. Though many are not complicated, doing a detailed scale drawing is not a 5 minute job. Wish I had just $10 for everyone I've done for free in my 30 years.There's a reason why appliance service companies charge $40 for a trip charge just to look at an appliance. Even then it's usually another charge for the examination. Too many other industries have already realized the simple fact that - time is money. And the more "expert" the time, the more money per hour.OK, you say overhead for that time. If I were to actually verbalize it, as a client who hired me, how would you like to pay me for your "fair share" of the 4 hours I spend on Mrs. Smiths kitchen?If anything, Mark has the easiest thing to do. No more thtn 1/2 hour at a free initial consultation. Anything more, like when that specialized expertise kicks, in is charged for.If you do want to increase your overhead to cover a substanitally large amount of a salary for yuorself to cover those weekly extra hours, calulate it this way. 40 hours working on jobs, plus another 20 hours on sales calls, estimating, proposal writing and meeting subs means if you're currently charging $50 per hour for your work, than add another $25 for those extra 50% more "non-productive" hours and you now have to charge $75 per hour.But - you're still working nights and weekends on the non-productive work - not and enviable position to be in with a family. Or are you going to do that non-productive work during the day. Aha! The plot thickens - less time working on jobs then. Ok, time to refigure that labor rate again and raise it to over $100 per hour since you are now only working 20-30 hours per week on jobs.Finally, many of those other industries, and some within our own, have full time salesmen. Don't they get a commission? How much do you pay yourself when acting as the company's salesman? What, you don't include another 5% - 7% commission for yourself in every single estimate?
*fredb.. this is where we part company... as a remodeler.... unless i know the customer and we've done previous work.. i am going to charge for my work...1st.. we don't give estimates... we give proposals.. and in order to generate a proposal it requires a commitment of resources..no commitment by the customer..no commitment by us..why should my paying customers be charged for the time i waste on non-paying customers ?if the company is set up to generate ""leads"" and it requires a salesman to close them... then the free estimate becomes a sales tool..but we're set up to respond to serious inquiries..if they aren't serious enough to commit.. why should we ?it's hard enough following up on the serious ones without wasting time on the fruitless ones...b but hey, whadda i no ?
*You said it good, Mike.Every industry has someone or a few people who have the guts to leave the pack and take a different route. They explore a routes others here previously declined to explore. Once these innovators have successfully plowed the way and proven another profitable route, one my one, the rest follow.I started charging about 1-1/2 years ago. Others started after me and the smarter ones before me. Change the rules. Leave the pack, and follow the new routes or be a change leader and start even new ones. Our industry needs them - desperately.
*Good stuff; Glad I found this site. I just had an experience that was awkward. Set up appt. for customer who wanted a bid for kitchen remodel and some other work that entailed removing walls/ capping plumbing/moving elec and so on. Upon meeting with her at our scheduled time my partner and I find that she has also scheduled another contractor at the same time (awkward). No drawings - had not made up her mind on EXACTLY what she wanted to use for materials etc. We left scratching our noggins while she did a walkthru with the other contractor. We did a little footwork and then I called her back and told her that we could not proceed without a detailed plan...stating that this work would require permits and this will have to be done anyway ,and in the end she would save money and headaches so why not start out on the same page? She then asked me about doing the drawings and I gave her a price ($400.00) and she became indignant I explained that it would take several more hours with her then cad time etc. Now all the sudden her fathers a contractor she's got a buddy that can do the drawings..I wonder why she called in the first place huh?
*" I wonder why she called in the first place huh?"Guess everyone figured why waste their precious time if they could net some nitwit to do all of the design work for natta. Nitwit's time is worthless anyway, right? And how many of us have been only to willing, even eager, to wear the "nitwit" cap for year after year?As someone else said on one of these threads, too many members of the public think they have a "right" to our time, expertise, etc., etc. - for free. See, we're really not contractors, we're really in the designing, estimating and specifying business. Scratch that - not in "business" - we're really philanthropists. Yea, that's the ticket. Yea, and "they" do have a "right."Guess it's just another "entitlement", eh?I laugh at the term "award" as it has been used for decades in our industry. People like that lady are "indignant" because here she's willing to "allow" you the opportunity to do all of this prep work for her for nothing, and in return she will promise to consider "awarding" her project to you, as though any project is a one way proposition. You should have been on your knees in her presence, salivating in anticipation of being "awarded" her project.And you have the audacity to be indignant and thankless yourself. As Costello used to say, "You're a baaaaaaaaad man!"
*don,I think what you found is the customer that doesn't even trust her father the contr. nor her buddy the designer. She wants input from you and the other poor bastard to judge her projects design/cost. It would be too easy if these type of people would just ask you (at a charge) to give your opinion on whether they're getting ripped or the design sucks. On occasion you can see this coming. Sometimes not. Best of luck avoiding these pitfalls of our trade.
*Guess I should have been a bit more detailed in my post. I was talking in the framework of bcarter's original post. To apply what I was saying to the more complicated jobs mentioned I need to add some detail.First of all Sonny as far as how complicated a job you bid on using your own money I only have to turn to the commercial field. Multi-million dollar jobs are routinely bid by contractors using their own money. The contractor who gets the job is paid not only for that job, but also for the overhead cost of all the jobs the contractor didn't get. The losers just crank in their costs for the next job. Of course if any contractor is so far out in left field that they never get a job they get to exprience another part of our free market economy; they go bust.Now in the commercial world the first items up for bid are preparation of the plans and the specifications. After they are prepared and a cost estimate is in place the owner then puts the main job out for bid. Dan Garrison furnished a golden example of how a customer can be pre-qualified. He went to the house, looked at the circumstances and then decided the owner either didn't really know what they wanted or was playing games. But, since he called the owner back I assume he thought the neighborhood and house would bear the cost of the anticipated project.So, he called the owner back with a bid for the plans(and specifications I suppose). Then the owner was able to make her decisions and he was able to finish the job pre-qualification. Very neat and tidy with limited cost exposure to him.As it turned out the additional facts chased him off. But, it could have gone the other way and he would have been hired to do the plans and specifications. Then he probably would have been hired to do the job itself. Had he been unwilling to even go to the door without getting paid as has been advocated here he wouldn't have had the chance at anything.
*Fred, we have a ton of commercial work constantly being done due to the fact that construction here is our #2 industry, down from tourism being #1. Almost all commercial work is done by larger GCs who don't do design work and don't meet with the owner serveral times. In fact, all they do is buy multiple sets of plans, give them to their respective subs and have their own in house esitmator (full time) work up the final price.Net profits are tight but then again, they act mainly as facilitators and project managers of the subcontractors. It's a completely different world from residential remodeling, and certainly nothing like the operation type of a typical 1-3 man residential remodeling business.
*Fred, I want to expand on this idea of charging for Proposals, or SCAs as I call them.In the book, "The Profit Zone", the authors talk about "no-profit zones." The authors state that these no-profit zones are everywhere, and are growing. No profit-zones are the black holes of the business universe. How many does our industry have?By not charging for Proposals, two things happen: (1) Profit is lost, even if that profit is a small amount, it is still lost, and lost because it's a lousy use of our time - a resource. (2) The time spent on free Proposals actually reduces existing profit - no profit is generated from our Proposal time -, so in effect, hard earned profit is literally "given" to others who may or may not contribute to the capture of profit. At best, it's like throwing a pair of dice. We may get the job, or we might not.We must realize that as business owners, our time is the most valuable of anyone within our respective companies. By acting as production managers or working on jobs, we are still in a "capacity" of creating profit for our company. Our time is our #1 asset. Offering free Proposals (the time involved), exhibits a cavelier attitude toward the best use of our time - throwing the dice.Profit is something that we are "allowed" to make, permission given from our customers, and their permission is given because of their anticipation of our "promises" and/or our reputation which was conveyed to them from another satisfied customer. It's up to you and I and other owners here to create that confidence in our potential customers so they will be happy to pay us for what goes into creating a Proposal, as Mike Smith does.Any business book will state that one should not "give" anything more than is needed to create the perception of value in the customer. Free Proposals does not create value. If they did, then everyone we gave a Proposal to would be a guaranteed job. That's why what is discussed and how "we" handle the first sales meeting is so important. That meeting, and our presentation, is what creates the potential customer's "permission" to pay us for a Proposal. Anything else is not "selling" but instead, is "buying" the job - and worse yet - on their terms. The key during that first meeting is to picque thier interest and confidence in us so as to "allow" us to charge them to continue to the next phase - a paid for Proposal.Perhaps to make it easier to get permission to pay us for Proposals you should create something like my "The Process" to hand to a customer and go over each detail of exactly what is mandated for you to assemble that accurate and comprehensive Proposal - the Specification & Cost Analysis. Most members of the public have no clue and is one of the reasons why many are adverse to paying for it. The other reason is that the public has been spoiled by currently getting all of that valuable and tremendous expertise and information, on paper, at absolutely no charge.First it's the original design. Than it's a second design, followed by the Proposal, and finalized by the inevitable "Can't you sharpen your pencil a little." - the final slap in the face. After already just receiving several hundreds of dollars of valuable "service" - free.It does get old after a while. Plug that black hole.
*Once again Sonny you are right on target.Not making a profit and giving away existing profit will, over time cause you to go broke.It is hard enough to make a profit without giving it away. This is a high risk business that we are in and we must strive to be profitable to offset that risk. How about Retirement?College for your kids?What about sickness or death for the business owner? All are part of the risk of being a business owner. We cannot prepare for these types of issues if we are continually sacrificing profit.
*Well unlike Mark I think you miss the mark on this one Sonny.If you read my posts carefully I am not proposing that the customer get a freebie. Frankly I am amazed at anyone's assumption of that given my business posts over the last year or so.What I am saying is that depending on the job and the customer it is much better marketing to crank the cost of the proposal into your overhead. It is not important from an financial point of view to match costs up to specific customers unless there is a contractual requirement. It is only important that make sure they are covered.The lesson from the commercial world is the process. The proposal is rarely, if ever, charged for as a separate item. Often even preparing the Plans and Specifications isn't even specifically charged for. But, you can bet your last dollar that both are always paid for by some customer.So, it should be for residential contractors. Size up the job and the neighborhood in which it sits. Take a good look at the customer. Then, and only then, make a decision about how you are going to sell the job to that specific customer. A key part of that selling process is figuring out just how you are going to structure your payments.There is no need to use the "One Size Fits All" concept that you and others are proposing. The small business owner who does that is missing one of the biggest tools he has, the ability to tailor each job to that customer.So, a contractor, and all businesses, needs to make sure all costs are cranked into prices. If someone doesn't know how to do that they need to make time to take an accounting class at the local community college. Be sure to include the class cost in your overhead to be passed on to your customers. Then the contractor, or any small business, needs to be cunning about just how to approach each job to make sure it is profitable and the customer is happy. Without both you sure won't be in business long.Long post, but we've wandered to far for too long down a mechanical road that both misrepresents my postion and costs the small business person one of their major tools.
*Fred, your approach is sound, and covers the inevitable failures by raising your rates to pay for the anticiapted waste of time that occurs due to the inevitable lost sale.I prefer Sonny's approach. Even though he will not close 100% of his leads, he probably will close as many as possible after the iniatial consultation. His method might not be for everyone, but it certainly would result in a high percentage of quality jobs, and quickly weed out the losers. I like the idea of working on winners and leaving the competition to handle the losers.blue
*Mr Blue Eyes:No plan will "...quickly weed out the losers". Neither will any plan close 100% of the leads. To think this is to misrepresent what has been stated.Also, I like the idea of only working on the winners and leaving the losers to others. Unfortuntely that just isn't possible if you have a growing business with maximum profitability. If you aren't at the edge of your possibilities you aren't making maximum profits. One, only one, of the ways you know that is to have some losers. A part of the foundation of a successful business is to test the limits continously. If you never have a loser you aren't pushing limits enough. If you have too many losers you are way beyond the limits and need to back off some.Charging for proposals is certainly allowed. It is just that doing that mechanically as has been proposed here is a management and financial managment failure.Don't build a box too small to hold the size wallet you want.
*Well, I agree with FredBb andSonny!They are both looking for the same results (be sure that all your costs are covered), just going about it in a slightly different way.From what I can gather, Sonny would recommend consistently charging for proposals and FredB would counsel us to have some flexibility and leave the door open to discretion.What I have found in similar situations is this -- when making a big policy change (eg charging for proposals), many times it is best to make a consistent jump and do it every time to start. Otherwise I get timid and say "This one is the exception, I'll do it the new way NEXT time." Then, after I get comfortable with the change as the rule, I can become more flexible and make exceptions as I see fit -- but no longer because of fear, but in the wisdom of reading the individual customer.
*Fred, I think I can support my statment that Sonny's method "will quickly weed out the losers." Of course, the definition of a loser will still be arguable.If you walk into a "tire kicker's" kitchen, or worse yet, a "lowest price shopper", do you think they will agree to commision your SCA?Once in 1000 sounds about right! Since you have attached a fee for your efforts, you will get paid for that process or at least will have something to go to small claims court with. That is my definition of weeding out the losers.blue
*Consider the economy. Procedures must be flexible based on one's own geographic economic conditions. If we were back in 1981 with 21% indterest rates, I'd probably give SCAs free. As Fred said, flexibility is crucial. Equally, is excellent qualifying over the phone. - part of that flexibility.I realize that using my "system" or Marks's, does allow for the loss of an occasional sale from a client who would otherwise award a project to us if we were to provide a free SCA. Considering that most of my peers usually loose from 25% to 50% of the projects they provide SCAs for at no charge, I can live with the loss here and there if my system, or Mark's, generate roughly a 90% -95% closing ratio. I mainly think of all the time I "didn't" waste.Fellas, which ever way you want to "address" this issue is up to you. My main comments were to get each of us to stop wasting our most valuable asset - our time.In fact, in the book, "Co-Opetition", the authors have an entire chapter on being a "player" in the bidding process, and one segment on how to "Get paid to play" in the bidding game. We should not forget that the "bid" process occurs in many, many other industries - many in which this game has been very fine tuned and by many real pros. That's why I've always advocated reading business articles or books about other industries that have similar "systems" or similar aspects as ours. One scenario the above book mentioned, which translated to our industry, is that most members of the public know of someone who does remodeling, builds decks, etc., from asking their neighbors, co-workers, etc. So, when one does call us blind from an ad or some other source other than a referral, we have to immediately ask, why? Was it because they are just tire kickers; was the other contractor's price too high, even though he was recommended? Are they the type getting 3-5 bids, which of course means the lowest bidder gets the job?Qualify! Before the first meeting.BTW, for those conservative/moderates of you out there, good speech last night, eh?
*Another opinion:http://www.jlconline.com/jlc/archive/business_computers/competitive_bidding/index.html
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Recently submitted a bid that I thought was high but double-checked the #'s; still looked accurate. Client decided to reconsider scope of work and whether or not he could recoup the investment when selling the house. I was to cut an opening in masonry wall, install wood window w/custom ripped extension jambs and trim; match pebbled stucco on outside; remove old tarred deck (7' x 9')and railing on second floor porch; rebuild deck with plywood and membrane roof to shed water; install floating cedar deck system and new railing (total of 16'). My price was $5100.
After reading some of the posts, looks like I fell short on the selling.
Help!