What would you do when clients lowball their choices for appliances when renovating and then when it’s time to purchase the appliance they switch their choices to from GE and Magic-Chef (Both fine manufacturers) to Sub-Zeros and Viking units (Cha-Ching!)?
Here’s the deal. I base my installation price for appliances as a % of total appliance cost. I am accepting delivery and am therefore taking on the liability for the unit from the time it arrives to the time I turn over the Kitchen. If something gets dented or is broken I have to make it “whole.” A screw or door from SZ costs more than one from Frigidaire (another fine brand) so in order to protect myself from the exposure the % remains the same but the cost increases.
When this has happened in the past I simply marked it up but was ALWAYS questioned and met with protests from the Client that I was gouging. They refused to understand my situation. So, I began to use a basic installation fee based on the appliance cost of those spec’d in the bid package. Appliance costs are in the Agreement as allowances and the installation fee is not itemized, though it is a separated from the allowance. This way they are free to mix and match without any interferance from me. But when they triple the appliance cost I loose out on major $ while taking on greater likability.
BTW, clients pay for the appliances directly from my supplier, so as not to have issues with warranties. I use my supplier because they are always cheaper than any other distibutor and they are very dependable. Therfore the clients get the benifit of the GC discount, though they beleive they could get that price regardless.
As I am typing this my inner voice says quit whinning and charge the HO the appropriate fee and move on. I wish it was that easy. Maybe it is. I dunno.
Comments?
F.
Replies
First, make dead sure they cannot get this stuff at the prices they have seen, unless going through your supplier with your OK. Your argument will hold little water if they in fact can get their SubZero from anyone at the price in question.
It has been my experience that the internet has been a huge price leveler in large appliances, even built-ins like SubZero refrigerators.
Then tell them that your markup is there to ensue a smooth and trouble-free installation. Everything working as it should, level, plumb, margins all good, all trim elements brought to the built-ins, etc., etc. That way they won't be looking at your markup as raw profiteering.
If they are not with you at this point, offer to take out all the markup, and let them simply buy the units and handle the unloading and delivery themselves, after you have finished with the job and been paid. See how they react to that.
There was a good thread on just this topic on JLC... markup and profit forum... losing markup on allowances.
Anyway, are you using an appliance installer or doing it with your crew? What about using a labor allowance for appliance installation.... estimate X number of hours for install of an average unit but the actual billing is done T&M. Break it out on the estimate and let them know how the actual will be billed. That way if they get tricky stuff you get paid for the extra time to install it. And, I don't see that installs can be a percentage of appliance cost... more like a set cost per item (X for a dishwasher, Y for a refer, etc.)
The lost markup on more expensive units is a tough one. Basically, you are not responsible for warranty or performance issues if the owner is buying directly, so the added risk will be a tough sell... you're just dealing with the install. You do have to worry about the scratch-and-dent issues with the goods on the job, but your contract should specify that the title to all goods transfers to the owner when materials are delivered to the job, whether or not they have been installed. Your insurance probably will not cover theft of appliances or something like a fire at a jobsite, unless you buy some hefty riders. The owner's insurance should cover that stuff, including your pile of 2x4s sitting there.
The hardest thing is usually sticking with your price. Damn near everyone comments on how it seems to cost a lot. They want to see if you'll give. Never give and they'll stop. If you park your new Mercedes near the job it happens even more! When people b!tch, tell them fine, you'll go to another job where you can get paid what you're worth.
Do the high end appliances cost three times as much to install, in time, difficulty, or parts? If not, the clients probably see your 3x installation fee as what economists call rent seeking. You're charging three times as much but adding no extra value and incurring no extra expense. I think that's pretty much guaranteed to cause resentment.
Coming at the end of the project, when they're already getting antsy(er) about costs, can't help.
I don't understand the part about the warranties. Do people typically have warranty problems because of buying through the builder.
“It has been my experience that the internet has been a huge price leveler in large appliances, even built-ins like SubZero refrigerators.â€
Maybe on an item by item basis, but not as a package deal - usually. To beat my supplier’s prices you’d have to purchase the appliances each from a dif distributor.
“Then tell them that your markup is there to ensue a smooth and trouble-free installation. Everything working as it should, level, plumb, margins all good, all trim elements brought to the built-ins, etc., etc. That way they won't be looking at your markup as raw profiteering.â€
I their eyes this should not be a function of price. It costs just as much to plug in a SZ as a GE ref. My thinking is that I am taking on a greater liability and should be covered.
“That way if they get tricky stuff you get paid for the extra time to install it. And, I don't see that installs can be a percentage of appliance cost... more like a set cost per item (X for a dishwasher, Y for a refer, etc.)â€
There are actually 2 issues: Mark-up and installation. I combined them to keep things simpler and that one likely offsets the other.
“Do the high end appliances cost three times as much to install, in time, difficulty, or parts? “
Parts, yes; difficulty and time, sometimes. If I am tiling a room and the spec’d material sells for $10/ sqft and the client then opts for a tile that sells for $35/ sqft you can be certain that the new price will include the same % profit. So it can be stated that I am making more $ for the same work. They don’t separate the labor and the % for O+P.
F.
"There are actually 2 issues: Mark-up and installation. I combined them to keep things simpler and that one likely offsets the other. "
I don't see this.... the install time on the refer might be 2 hours for an $800 Kenmore and 3 hours for a $4000 SubZero. So, you lose an hour's pay (let's say $65 for the sake of argument) if you estimated installing the Kenmore, but you're handling an item that's $3200 more (loss of O/P at 25% is $800 if you cannot apply an increase to O/P).
I have seen the way that a number of different contractors price work to clients, and the install cost is one item and O/P is another, and usually a percentage. Are you willing to be explicit with the customer about how and when O/P increases are applied, and stick to your guns?
The other question, if you are not supplying the appliance and taking full responsibility for it, can you justify a markup on it, and if so how much? I've rarely ever dealt with appliances bought by the owner.
Hope this is helpful and sorry if I'm repeating...
"if you estimated installing the Kenmore, but you're handling an item that's $3200 more (loss of O/P at 25% is $800 if you cannot apply an increase to O/P)."
Exactly. Why should I give up thate $800? They say that I am gouging them and that an appliance is an appliance regardless of brand. Just because they decide to switch appliances I should not take that as an oppertunity to make some more $.
BTW: In terms of $, the original allowance was $2,600 for all the appliances. Now the appliance cost (that's MY cost) is $8,500. Assuming my O&P on appliances is 20%, I'm giving up $1,200 in added O&P. That's a lot of money - in both our worlds. They say don't think the $1,200 is justified. I do, on principle and don't have the time or inclination to examine every portion/ line item of my Aggreements and assess and justify a % for O&P. That's the precident I would be setting. I have stated many times in this forum that good biz is acheived by establishing and understanding the value good precidents.
F.
I've been reading this thread.
having trouble understanding what you are providing them for the additional $1200.
you've been "paid" to do the install, whether the install is more complicated is a different topic in my mind.
couple years back had a gas stove installed (thermador professional), cost me $180. he had the same risk you do.
it does sound funny to hear someone say that they want to make a profit on something they are not providing.
if the install is more complicated then a CO on that appears in order, with entailing O&P_____________________________
bobl Volo, non valeo
Labor installation cost is not the issue, well maybe it is. Hmmm. Is it the same price to install a muffler in a BMW as a Honda Civic (both fine automobiles).
What I am addressing is the O&P. If they had spec'd the high-end appliances from the outset, I would have included the "additional" $1,200. Why can't I include it now? If I don't charge it now does that make my applying it elsewhere arbitrary? Next time I submit a CO they will tell me I can't apply it to materials or fixtures. Soon I'm getting squeezed based on prior actions.
Wait a minute. As far as "additional services" does accepting delivery of an $800 item merit the same attention as a $3,500 item? Are the risks and costs the same if errors are made? I don't know about you but I make mistakes; fewer than most, more than I'd like. I try to ammertize the error costs over all my work on a consistant basis. Since errors are valued int terms of dollars, so my ammertization must be as a % of dollars.
Is there a point when you can't charge O&P? If so, who establishes this point? I can see the O&P on a $50K job might be dif than a $3mil job. But here, I don't think that's the case.
F.
I understand some of what you are saying.
but I was asking from the pespective of "knowing a little" HO.
OK this is a scenerio, all made up based on the thread.
as a business man you figure what your Overhead needs to be and determine how you are going to apply it, materials and labor or labor only or ?
so now we've got a contract for you to remodel my kitchen and install the appliance I've provided. I'm providing them because that's the way you want to do it (IIRC).
so, I figure you priced the installation work and materials and your overhead has been covered (and your profit).
you have an allowence for appliances, but is it really an allowence? since you are not providing them?
so now instead of a maytag stove I buy a Thermadore. both are gas. both go in a 30" space, bit now you want more money because it is a more expensive stove.
I've bought the stove and had it delivered, risk is on me and the appliance store until it gets through the door. then just me. when you start installing it, you take on a risk of doing damage, but hey I hired an expierenced guy who knows what he is doing.
my BIL (well me) just bought the same stove, had it installed for $180. that installer had the same risks as you but now you want more money from me because the stove cost more, not for more work, but cause the stove cost more.
I don't see what i'm getting for my money, I just see you wanting a profit ( and I see this as all profit cause you already covered your overhead) on something you are not providing.
Ok now back to the real world. I can't offer you any ideas about the situation because how you have determined your pricing strategy is in your head. how you feel comfortable about pricing is very important to you. I think this situation will come up for you again, since you want to have your customers provide the appliances IMO you need to divorce the cost of the appliances from your income stream. different appliances needing different installations needs to be handled. and the perception that you are profiteering needs to be addressed. maybe increasing your SH account % a little.
the SH Account really is a self insurance account, isn't it?
the perception of your profiteering is an important situation to deal with, cause its your reputation.
As an HO I like the Proof system. it makes me feel that i'm not getting socked on materials and I know the contractor is getting his costs and profit.
one thing I learned is that if one side is losing money, there are problems. even the perception of losing money is a problem_____________________________
bobl Volo, non valeo
Thanks for the responses bobl. I understand your perspective as the HO but at the risk of butting heads, I don't think you have made some important disticntions.
1. The HO is not providing the appliances, I am. I schedule it, take time to be at the site to accept delivery, thoroughly inspect the units for damage and sign-off on the invoice. The appliance stor guy takes on the same liability but his cost is in the store's cost of doing biz. I asure you, you can't get my prices and then only get charged $180 for delivery and installation. Otherwise I would do that and let someone else have the headache.
The HO is only paying for it directly. It is still part of the contract sum. They only pay for it directly so the warranty issue is kept as simple as possible.
2. I maintain the appliance figure as an allowance to permit flexibility - changes of model #s, fluctuations in pricing - totally out of my control, and availability. Also, clients like to know how much the WHOLE Kitchen costs. Having the appliance pricing in the Agreement they feel they have a more conclusive cost of their renovation.
3. Are you saying that I shouldn't charge a % on any fixtures, or just appliances? Where do I draw the line?
4. If I am working off a % basis, is there a certain dollar amount I should stop adding the % or scale it back? When/ Where?
5. If it costs more to insure a BMW than a Yugo ( both fine automobiles) shouldn't it cost more to insure proper delivery?
6. One last peice of info: I charge a 20% upcharge but I usually save the client 15% - 20% on the appliances. Basically for me taking on the owniss the client is only paying 5% or less, additional to what they could get it for.
Thanks again for your time, effort and thought in your responses.
F.
Hand them a change order, if they don't sing it, don't supply the appliances. Sometimes, you just have to think like a plumber.
Absolutely brilliant!!
The K.I.S.S. principle in action.
Thanks,
F.
Edited 8/10/2004 5:23 pm ET by Frankie
That's what I was thinking ...
"this is my price .... if U don't like it ... fine"
I'm now completely 100% out of the equasion. I can't even promise to be here on delivery day to unlock the door and show them the holes ... if there are any adjustments to be made ... I'll do the fix ... at the hourly rate and percentage as quoted in the original contract. I'm not responsible for anything involving applicances ... the least of which is installation damage.
You may call my dealer ... but I will be surprised if you are quoted the same price as I was .. as I shop there because I've developed a working relationship with them and over the years I've earned the trade discount. You will probably get a price break from someone walking in cold off the street ... but I'm positive in the end ... my price .. which includes my service .. is the better bargain to my customers.
I'm either all in or 100% hands off.
If I can't yell at the guy I don't want to talk to him!
I wouldn't put anything in a remodel that I didn't get my percentage off. That percentage pays for all the wasted time, phone calls, babysitting the installers and time spent fixing the installers mistakes.
BTW ... to who ever asked ... Yes ... it does take 3 time slonger to install. Euro appliances are famous for having the necessary mechanics completely wrong in their install cut sheets ... for some appliances ... my electrician will just run a line then wire it after it's set ... he goes to the trouble of resetting it himself ... as half the time ... putting the recptical where they said to puts it exactly in the wrong spot.
Jeff
JeffBuck Construction, llc Pittsburgh,PA
Artistry in Carpentry
I misunderstood part of the real scenerio
the way you discribed it does makes it more complicated.
dealing with the appliance wareenty type stuff to be sure the customer is covered is important.
what i'm thinking now is that your customer is getting a peek at part of your business, your cost of the appliances. since they are writing the check, they feel they are the appliance store's customer, and not "the bank" (disinterested 3rd party)
legally this might be true, but it doesn't matter for this discussion.
since part of the way you do business gives your customer a peek into your costs, then somehow you need to insulate that peek so that it doesn't effect your O&P in a significant way. Unfortuneatly I can't think of any thoughts on that.
I do believe you have a customer perception problem, and perception can be as bad as real.
sorry I can't help_____________________________
bobl Volo, non valeo
"so now instead of a maytag stove I buy a Thermadore. both are gas. both go in a 30" space, bit now you want more money because it is a more expensive stove."
But... but... but...
Yeah, I want more money. That's a helluva expensive stove you want me to handle. If it comes up with a scratch in the stainless steel who ya' gonna come after for it? Me, right? If I'm not being paid appropriately for the risk, then please take your expensive stove away from my jobsite until I'm done swinging stuff around.
I've installed some mirrors for folks. All carpenters have. One recent example was an antique bought by an interior decorator who went shopping in England. It cost 20,000 quid. It came thru customs into the U.S. and was brought to the house in a hardwood crate. Four of us opened the crate and got out the mirror. It was probably the most irreplaceable and expensive item I've handled, elaborately carved by some guy who has been dead 200 or 300 years. Big, heavy, delicate, not even in very good condition. We had some custom brackets made and hung that puppy on the wall in earthquake country. Good thing we didn't drop it... and if we had I hope the guy running the job was charging muchos dolares for the risk. Same concept applies to anything expensive.
"Yeah, I want more money. That's a helluva expensive stove you want me to handle. If it comes up with a scratch in the stainless steel who ya' gonna come after for it? Me, right? If I'm not being paid appropriately for the risk, then please take your expensive stove away from my jobsite until I'm done swinging stuff around."
some of my scenerio was based on some misunderstanding, see below.
but what I described for me was real
expensive stove
plumber removed old stove, assembled new stove, installed new stove
no 20% up charge just cause it was a an expensive stove
did I pay more? doubt it, 2 hours of a plumbers time plus some materials. don't think I did. this wasn't part of a learning curve.
your mirror is more of a one off, then installing a stove, even an expensive one. but that's just my opinion.
to repeat, my scenerio was based on a misunderstanding_____________________________
bobl Volo, non valeo
In your situation, did you price search, schedule and accept delivery or was another party involved?
If the client was willing to do all this AND not install the units until I have completed my job and been paid, I would not have any problems. No upcharges, nothing.
Thanks for your input.
F.
In my situation (HO) I found the appliances, scheduled the delivery, acceptence and had the plumber there to install.
did this for both the dishwasher and stove.
I installed the refrig after having an electrician install a receptical.
it was appliance replacement more than kitchen redo situation
It is not like what you are describing
as I said before my scenerio was flawed for your situation.
you've been providing the complete package
it's the peek that is causing your problem IMO.
When someone is providing a package deal, then the pricing stratagey is part of that deal.
and please don't get my post to the other fellow confused with my thoughts/posts to you. that is a microsytem, more akin to my scenerio than your situation.
your markup is consistent with your pricing stratagy and I'm not arguing against it. I know there are many ways to do things. getting your customers to understand that ...._____________________________
bobl Volo, non valeo
You're right. It's the "peak" into my pricing that's causing the problem. Usually I am a better judge of what the client wants and if they select a dif unit that is $100 or $200 more I don't stress out.
When the appliance budget doubles or triples, then I got issues.
F.
What kind of trade discount do you get? Could you use this differenc to cover your risk while not costing the client any more for purchase? Then you could figure the install at your regular rate.
Jon Blakemore
From an earlier post:
6. One last peice of info: I charge a 20% upcharge but I usually save the client 15% - 20% on the appliances. Basically for me taking on the owniss the client is only paying 5% or less, additional to what they could get it for.
F
It's amazing how customers will sometimes pick at the small things... but yet take a pass on bigger things.
If I were in the same situation, I would simply explain exactly what you posted here.
In situations where the customer questions a price or wants a lower price than I am willing to offer... I always ask the same question. "What would you like me not-to-do to meet your price expectations?" I do it in a way that is not smart-allecky or anything... simply in a tone of negotiation. I always get a concession any time I reduce a price.... if I can't, there is going to be an ongoing issue with pricing throughout the entire job. Better to get them focused on "what concessions to make in return for .." than to have them strictly focused on "cost only".
In this situation, you could offer not to cover any scratches, dents, etc., in return for a lower cost. You could offer to have the appliances titled in the owner's name at delivery (which I believe they would be anyway, given what you described) and all liability transfer to them.
Unfortunately, the customer only sees the "plugging in" of the appliance. Typically, however, once a customer realize that there is more to it than that... they begin to understand, if not agree.
Would I charge a %? No. I would charge an installation fee and a factor for the liability involved with the speced appliances. If the specs change... the factor for liability changes. If the installation changes... then that cost changes too. I am NOT saying that how you are doing it is wrong... there are many ways to skin a cat and this is just another option.
frankie
think your answer is in your first post... you work on "percentage" of appliance cost structure it that way in writing also in writing that upgrades/downgrades of goods will carry a work change order to reflect the higher/lower cost of appliances but also stress that they are getting COST on the appliances thru your account AND the liability you assume to cover these goods the reasonable will understand
often give clients cost on different accounts i carry, great sales tool but don't let them run your business, you have to pay the bills IMO some of the people getting the best deals you can give don't appreciate it... they're not Shriners, they're Whiners