A Guaranteed Price

When you sell projects using a firm, fixed price and with a detailed, written contract, you have an advantage. That’s because homeowners are often told to expect extras on a job. They’re warned to expect their job to be more expensive than the quoted price because the contractor is going to surprise them with extra costs once the job starts.

There are only three reasons for a job to cost more than the quote. If a homeowner decides to make changes, they should expect a cost increase. That’s not a surprise, it’s the homeowner’s choice.

Another reason is when unforeseen conditions are found. It’s the estimator’s responsibility to take the job apart mentally so you know exactly what’s going on. If you can’t see what’s under the slab, up in the attic, under the house or behind the wall, and you suspect a problem, suggest a Demolition and Discovery agreement (we have a sample in the Profitable Sales book), then “demolish and discover” until you know the whole story and can build an accurate and complete estimate.

The third reason, the one I want to focus on in this newsletter, is when a contractor quotes a price too low to build the job. There are too many shade tree mechanics (also known as flakes, con artists, fly-by-niters, irresponsible hacks, etc.) who are willing to throw out a lower price than yours. Too often their price is lower because they’re quoting either a smaller job or a different job, and the homeowner doesn’t know the difference.

The flaky contractor leaves out things that they know that the client will want or need, or they provide unrealistic allowances to keep the overall price of the job low. We talk about allowances here.

The flaky contractors know that at some point in the job, they can come back to the owner and offer some nice extras or “needed or necessary changes.” These are often items that the owner thought were included in the original quote, so of course they want them. These extras are marked up 2.5 or 3 times the cost and it isn’t long before the total price of the job is more than what a legitimate contractor would have quoted in the beginning.

Sadly, there are also contractors who don’t know how to price their work and believe they can do it for less. Once they get started, they realize they’re in trouble and come back to the owner asking for more money to finish the job. If the owner doesn’t or can’t pony up the difference, the contractor might delay the project while they try to bring in cash by selling the next job, or just walk away with the job incomplete.

When you’re dealing with a homeowner and you get a sense that they’re heading down this path, what can you do? Consider this:

Owner:

“Joe quoted me a much lower price”.

Your response:

“Are you aware that virtually all the companies you are talking to buy their materials from the same suppliers? That means if (and that is a big IF) everyone is building the same job, the cost of materials for your job should be the same regardless of whom you select to do the job, correct? Can I also assume that you don’t want the cheapest materials that we could find used on your job, do you?”

“Labor rates are going to be about the same – if one of those companies is paying their help enough less per hour that it makes a difference in the overall price of their work, that might not be the quality of labor you want working on your home.”

“If we are building about the same job, we will come up with about the same price. Common sense tells us that if a company comes in with a very low price, then they have willingly cut their profits just to get your job or they have done a bad job of estimating their costs. If they expect to build this job at breakeven, which is the same as no profit, what do you suppose is going to happen when they find out they have made an estimating mistake or there is another problem on the job and it is going to take more money to finish the job? They will come back to you asking for money to pay for the mistake. We see this all the time.”

“There is also a chance they are deliberately leaving things out of the job, knowing you will have to agree to them down the road and you’ll be asked to pay a premium price for that change. That’s when the lower-price contractor will get his profits back for your job and then some.”

“We offer you a guaranteed price, Mr. Owner, and a detailed contract so you know what you’re getting. Unless you change the job, our price to you for the job will be the price on the contract.”

Now, if you’re going to do this, you’d better have an accurate and complete estimate. If you don’t know how to estimate, learn how. You need to be using allowances that are reasonable and that the homeowner understands. Your contract needs to detail what you will and won’t do on the project. And you should have already established yourself as the Contractor of Choice as outlined in Profitable Sales, A Contractor’s Guide.

Sometimes this approach will work, sometimes it won’t. It requires your client to be willing to walk through the logic with you, and if they are hell-bent on low price they probably won’t. But if you don’t try, it won’t work, and if you do try, you at least are letting them know the position they are putting themselves in if they decide to choose the lowest price.

“Each of us has been put on earth with the ability to do something well. We cheat ourselves and the world if we don’t use that ability as best we can.” — George Allen, Sr.

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