Homeowners aren’t ready for inflated prices
I’d like some feedback on some bidding issues I’ve been having and to see if it’s happening across the board.
I’m a General Contractor in Sacramento California specializing in high end custom homes and remodels.
Being a small operation I have a lot of bases to cover including sales and marketing. Lately I’ve been wasting incredible amounts of my time meeting with homeowners who are trying to build or remodel on impossible budgets. It seems every time I bid with a homeowner these days I’m exceeding their budget by almost double. My standard joking answer to friends who ask me what to expect to spend for whatever is “Just figure what you think it should cost and double it.â€
Ironically, I bid a job through a General Contractor yesterday who called me immediately after I faxed the proposal to tell me that he thought my bid, ($20+ thousand) was “Way too cheap.†Of course when he presented it to the homeowner, after he regained consciousness, he said he had budgeted $12,000.00 for this and some additional work.
My point is, and I’ll try to make it short, whenever I’m bidding, as a sub to a general contractor, I’m almost always awarded the job. But homeowners are oblivious to the effects of increased cost of doing business and are wasting 20-40 hours of my time every month only to have their hopes shattered.
How can I screen these people diplomatically and still maintain a professional presentation, while avoiding all this wasted time?
Thank You,
Phil Vanderloo
Hiline Builders
Replies
One idea is to ask the homeowners what their budget is before you quote. By their answer, and the way they say it, you can get some insight into how realistic and receptive they may be.
Yes but it's often difficult to tell exactly what your dealing with without spending the crosstown drive time to go over and view the sight, conditions, plans, etc. Homeowners descriptions over the phone are often very vague and unclear. Another problem is that quite often, maybe even more than half the time, they really aren't sure what they want and would like my input.
"we'd like to push the back wall of the kitchen out about 10 feet and we're considering building a room above the garage with a bathroom but we're really not sure how to configure it. We need someone like you to give us some creative input."
That's a very common type of request for me.
"we'd like to push the back wall of the kitchen out about 10 feet and we're considering building a room above the garage with a bathroom but we're really not sure how to configure it. We need someone like you to give us some creative input."
Phil,
A favorite former employer of mine is a man with strong business skills. He took a lot of calls like the one you use as an example. He quickly turned those calls into a proposal to provide design/build services. He had a decent architect readily available to him in a loose partnership, and offered clients a two-step process: (1) we come out, take a look, talk to you about what you want and your budget, and then come back in a few weeks with a handful of possible 'schemes' and estimates for the project, followed possibly by (2) we turn one scheme into permit drawings, finalize the budget, get the permit and build the job. Step 1 cost about $2000. This process worked well because (a) it separated out the folks who were not willing to spend $2000 to get a $100K+ project in the works, (b) it provided an actual architect for the project, which was valuable to clients and was perceived as such, (c) allowed my boss to stay involved in the design phase and prevent the architect from designing a Taj Mahal when the budget was not there, and (d) let clients agree to a small proposal and work with you a bit before agreeing to a big proposal. If you're getting a lot of calls from people who haven't got a designer, get one for both of you and use it to your advantage. You need to provide good service and good design work. You also need to emphasize discussion about cost starting right away, because people who are not sure about spending the money usually won't.
I doubt most GCs can charge $3K for a proposal. Mike can because he's been in business 30 years in one place and done a good job. Most of us are not that established and can't get that kind of dough for a proposal. The alternative is to arrive at a ballpark number quickly and give that to the owner. If they want you to do the job and the number doesn't kill them, you need to invest the time in a preparing a firm price... maybe charge a few hundred bucks for it if you can. Eventually you might arrive at a place where you get paid for proposals, but I'd say that's 20 years or more into the game, or if you specialize in a trade that isn't as desirable or competitive.... sewer replacement comes to mind.
Awesome advice dave,
It's been an eye opening thread as I've come to realize that charging for proposals is a very wide spread acceptable practice. I have also been in the business for over 25 years in the same area and get most of my "potential business" from referrals. I have been specializing in design drafting more so over the past few years which offers my clients a kind of one stop shop.
Hard part is that a huge portion of my clientelle are repeat clients, friends, and friends of friends. It's going to be difficult to transition into a proposal charging contractor and I may sour a few long standing relationships but I've come to the conclusion that this is the way it has to be. The one comment in this thread that stuck the most was to the effect that I'm charging my paying clients for all of the wasted sales time. Not fair is it?
Phil
phil... as a sub to a GC... you are bidding with a known quantity...
when you are bidding to homeowners... tell them you don't give free estimates..
you only give "Proposals " and you get paid for preparing them....
really !
Mike Smith Rhode Island : Design / Build / Repair / Restore
Thanks Mike,
I hear this alot on the national level but around here it's pretty rare. I think I'd loose 90% of my potential clients by responding that way. Funny thing though, the problem sort of feeds on itself because I have to raise my overhead costs in my bids to cover all of the sales time that goes unrewarded. That would contribute to a decent chunk of the reason my prices may seem so high.
Realistically though, if I don't find a better solution, I'll have to start charging for my sales time as you suggest.
Thanks again,
Phil
>> I think I'd lose 90% of my potential clients by responding that way.
How many are you losing because they think your bids are too high? Wouldn't you rather lose them before doing a lot of free work than after?
Phil,
It's a Catch-22. You have to work around that and realize that you shouldn't be bidding on something everytime your phone rings.
You want serious customers, not just tire kickers.
Someone calling through the yellow pages may indeed scoff when you tell them you need a C-note or two for a proposal.
Someone calling by referral? That gives you a leg up, so to speak. They already want you, they just don't know it yet.
It's not a bad idea to let them know that you'll knock the cost of the proposal off the cost of the job should they hire you.
You just have to realize that your time is worth something. Actually you already know that...you just need to take it to the next level and enforce it. Make the people who are wasting your time pay for it instead of the ones who hire you.
Next best thing is to offer a preliminary range on pricing, example, $22K to $28K, depending on details, etc. The want something more specific, they write a check to see it.
When you discover their budget is unrealistic you need to determine which catagory it fits into:
a) They haven't a clue regarding cost, have too much free time and are just plain dreaming.
b) They are just confirming their "chosen" contractors numbers. The low budget might get you to justify what the "true" lowest cost this project could be done for. Then they'll have something to take back to their contractor.
c) They are really asking - in code - for help, but also don't want to write a blank check. By lowballing you they feel you will be more diligent to keep costs down.
On that last option, it's amazing how many times a client tells me their budget is X and the more I stick to it the more they add more items or upgrade fixtures. Sometimes this is their method of retaining control.
F
>>"We need someone like you to give us some creative input.">>"overhead costs in my bids to cover all of the sales time"
Phil,
You've got 2 problems here. The first is that you are not selling them what they want. Second you are taking too much time trying to sell them something else.
You must put a strict limit of one hour from the time you first meet the client at their job location to get a contract.A contract for Creative Consulting, orA contract for developing a Specifications and Cost Analysis, orA contract to build.All with a deposit.
A creative contract is easy as you've built more homes than you clients have been in, you automatically think in terms of easy-to-build and cost, and, you know what works. Charge a substantial ($500-$1000) fixed fee/deposit plus by the hour.
A contract for developing an SCA is easy because you can ballpark a figure to start the budget talks in your head as needed. Charge a fee/deposit large enough ($2000-$4000) for the SCA to cover your business costs while you create it.
If you sell a contract to build in the first hour, it is going to be a very open ended contract with someone you trust a lot.
The first task on the critical path of this 1 hour sales job is to Determine whether or not you want to work with these people. The next phase is to Discover what they want. Now that you both are talking about funding the same thing, Elicit their budget.
As soon as you Determine that you don't want to work with them, apologize for wasting their time and leave. If you Discover that they don't have a clue, give them some hints, apologize, hand out brochures, and leave.
D's are for Desist. You have to prepare for the next sales job.
If their budget is too low for the work, perhaps you could arrange financing for them, A lot of successful salesmen do. Talk to your banker re this beforehand, he can steer you in the right direction for your location.
Else wise, stay for the hour developing a rapport and trust. Let ideas flow.
You are going to work with them, you know what they want, the budget is in line with your ballpark. Get the Signature!
DDESH
No matter what happens, be gone after one Hour.
I know that you already know all this, but writing it out really helped me. Thank you for listening. I'm going to call it "Production Sales."
SamT
Phil--
Having been in the market for quality contractors lately, I think I would hestitate just a teeny bit over the charging for proposals and then would change my mind and plunge right in after:
If you can do anything to take the fear out of hiring the wrong guy, you've hit upon the magic formula. Generally, as a prospective client, I'm in one of two places:
The best questions I've ever been asked by a contractor over the phone:
And, MAN! You would have me at "What do you expect....?" Only one contractor has ever asked me that and I would hire him over and over as well as refer him EVERYWHERE. The man is a genius, artist craftsperson working in electriicity.
As a member of the "customer" class, I'd have to agree that someone should get paid for doing the design and proposal work. When we considered adding onto the house, I had an architect friend come by to do some preliminary planning. From that, we decided to not go ahead with the project, but we paid him for his time even though no drawings were made.* I think customers are trying to cut the designer or architect out of the picture by getting the contractor to do that work for free. If I were a GC, and a person asked for a bid without having prepared papers in hand, I'd suggest telling the client that they have two options, either pay someone else to prepare plans, or pay you to prepare them.
* When I used to photograph weddings, I did the sales presentation as required, but I never went to the church or reception hall in order to plan the shoot until I had a deposit check in hand. I sure wasn't going to put in a bunch of work and planning so they could give my suggestions to a friend with an instamatic.
I proposed a biggie today with only per square foot units used, derived from recent similar work. Cost plus terms. Told them would prepare a detailed estimate when given lots more information re finish, selections, engineering, etc. What should I charge for the more detailed piece on a large custom vacation home?
The consensus in my reading seems to be $1-$2 per sqft.
Samt
i would agree... when i sit down to discuss these custom home / major remodel projects.... my catch -all number is about $3K...
i can easily invest 100 hours in a proposal... so i may only recoup $30/ hr.. but it definitely seperates the maybes from the wannabes
this is if they have plans and specs... it doesn't include any design fee on my partMike Smith Rhode Island : Design / Build / Repair / Restore
In advance?
in advance... sometimes 1/2 to start, balance with proposalMike Smith Rhode Island : Design / Build / Repair / Restore
Eliminate the window shoppers before they waste your time.
A lot of times I respond with "unless you give me a figure to work with how can I possibly tailor your project to fit your budget?" You can't tailor the budget to fit the job.
"Give me the figure, I'll show you what you can get for that money. If you decide to give me the job then we can nail down the exact cost for changes and upgrades, but not before I get a deposit."
An educated consumer is best, and often you'll get prospective clients who just don't know how much things cost, and have no idea how much of your time they are using by "just kicking the tires". Effectively, what you're looking to do is get people to the point where they are well-informed and ready to move forward to do business with you without taking up a lot of your time.
One of the most common mistakes that people make in business is that they try to be all things to all people. They try to attract as many potential customers as possible, and then spend a lot of effort on people who are never going to turn into customers, but are perfectly willing to milk themfor information. It's better to attract a few of the right customer than to attract a lot of the wrong ones.
I'm not in construction, but I am in marketing, and here are the things that I do to separate looky-loos from true clients.
1. Identify the characteristics of a "high-value" customer. Who are the people you are trying to attract? What do they have in common? How do they usually find people like you to do work for them?
2. Orient all of your advertising (e.g., website, yellow pages ad, classifieds, etc.) and marketing activities around those people.
3. Provide as much educational information on your website as possible. If you find that people ask the same questions over and over again, put the information up there for people to read it. Don't be afraid to include information that may discourage people that aren't a good fit for your business (e.g. The truth about your business may be that a kitchen remodel will cost anywhere from $250-$600 per square foot. etc. If this information makes a certain prospect's heart stop, then they weren't really ever a serious contender as a customer for you). Self-education gets people closer to the "ready-to-buy" point. When people call you for a preliminary estimate, make sure that you send them to your website.
4. Don't underestimate your value. In my field, I get a lot of inquiries where people will ask, "How much will it cost to do "X"". When I respond with a price that represents a fair value of my work, I'd say that I probably turn away about 60-65% of my initial contacts. But the 35-40% that I retain, are happy to pay what I expect, and are happy with the results, and come back for more. I am always busy. I always have enough work, and my field is pretty competitive. Never confuse Value with Price. Good customers don't buy based on "price" but on the value of what they're getting. You want referrals to hear "He's not the cheapest, but his work is worth it."
I'm sorry if this is all a little "marketing 101-ish". I guess my bottom line is that good customers self-educate and are respectful and willing to pay a fair price for your work. The more you orient your business and advertising around "the good customer", the less you'll deal with people who are going to waste your time.
Best Of Luck-
Bridget