Let’s Discuss an Acceptable Hourly Rate . . .

Last week we talked about sales, specifically what can happen when you don’t get critical questions answered during a sales call.

This week we want to share a note that came into our office from a new contractor:

I recently got my Contractors License; I specialize in home improvements and repairs. I’ve been in the trade for 15 years, but I do not have experience as a business owner. I have been working on Associates Degree in Construction Management at a local community college, so far, I have done 75% of the program. I ‘ve been reading your books, blogs, book recommendations and trying to read as much as I can. I had also studied your videos on estimating. I want to thank you for the great content on everything you write. Since I started reading your books and articles, about a year ago, I have trying to assimilate as much as I can.

I just want to share an email from a prospect after he asked for itemization and what was my hourly wage, and I sent it by E-mail. I failed to qualify the prospect and I agree with him in one point, I don’t carry liability insurance so he may be at risk, even though the project was about $2600.

I totally agree with you in all ways Michael, don’t provide bullets to clients. If you can share my comment with other contractors that read your blog, that would be really helpful. Please excuse my grammatical errors, I’m not a native English speaker.

His prospective client sent the following note after reviewing the itemized estimate:

Hi Contractor,

Thanks for your email and I have given thought to your proposal and there a few points I’d like you to consider.

1. $65hr is the equivalent to $135,000. per year and I do not pay that to my software developers that have master’s degrees in computer technology, what I’m sharing is that your hourly wage is too high in my estimation.

2. I believe you told me that you did not have insurance and that is a risk, so I am concerned that if you become injured, we would be at risk.

Please, if you would like, call me at xxx so we can talk about an hourly rate that is acceptable and the insurance issue. I like you and think you would do a good job, but I have made my concerns known to you.

The client’s note is a painfully perfect example of why you shouldn’t provide details on your pricing; you’re just giving ammunition to the client to use against you. I’ve talked about this before, you can read a few of those articles here and here. Quote a firm fixed price for your work and learn how to sell.

Most people have no idea what that $65/hour covers. This client is apparently an employer and he’s comparing the contractor’s hourly rate to an employee’s wage, without giving credence to the fact that the contractor is the business owner. He doesn’t value the contractor as a professional; he’s just a hired hand. In my opinion, $65/hour is too low to begin with. However, giving the client that figure let him think he had the right to negotiate “an hourly rate that is acceptable.”

Getting into a discussion on the hourly rate before the job even starts has effectively limited this to a breakeven job at best. If anything happens along the way, the client will trot out a few more ill-informed ideas on how things should be and what things should cost. He’s made it clear that he’s the one driving the car. It’s a no-win situation for the contractor.

Trying to educate a client like this is like stopping the tide with a roll of toilet paper. It’s a waste of time and energy. It’s time to move on.

I admire this contractor’s dedication to learning the business side of construction. He knows what he’s done wrong, and he’s acknowledged that the liability insurance needs to be taken care of. I hope in the future he starts providing firm fixed price quotes and stays away from charging by the hour, unless it’s a small job. By small I mean jobs under $2,500.

He discovered, the hard way, that you have to be on the alert for clients who can become a problem and walk away before you invest much time. There are many good prospective clients out there, there’s no need to waste your time and lose your money on ones like this.

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