This is the first installment of a 4-Part series on pricing from Mike Gorman. It costs more to deliver quality work. If it costs more, you should charge more.
Not everyone can be the most expensive contractor. The ability to continuously charge the highest prices doesn’t come by accident; it is usually the result of careful planning and execution.
Being the most expensive isn’t a bad thing. Throw away the notion that having the reputation of being most expensive could harm your business. It’s not unusual for the most expensive contractors to enjoy a very high rate of repeat and referral business. Whether or not you are the most expensive, always deliver more than you promise and deliver with consistency to assure lots of repeat and referral business.
How do you get there? You must have a handle on several elements.
A quick and accurate system of estimating avoids the bottleneck. No matter how efficient the marketing system is at producing good leads, and no matter how well the sales system works, an inefficient estimating system can cancel out all of the advantages provided by either. A realistic goal is to estimate and create the specifications of many jobs while you are in the customer’s living room, making the one-call close possible. If there are unknowns in the equation (such as the proper size of equipment) that can only be determined after more-detailed study, price the worst-case scenario and explain to homeowners that they will save money if the hardware can be downsized.
Streamline the Estimating Process
Just as you know how much time it takes to complete a blower door test because you have done it repeatedly, so you need to know how much time it takes to estimate accurately. That question may be tougher to answer unless you have an estimating system in place. The secret is in the system. For any system to be useful,
- you need to be able to duplicate it,
- the results must be measurable, and
- the process must be simple to perform.
The accuracy of the estimate is the measure of the results. However, the best estimating systems will provide a cost figure that is either equal to or higher than actual costs in order to ensure profitability. The simpler the process, the less time it takes to perform.
Organizing the Estimate
Whether the estimate is done by the technician in the home or by a specialist in the office — use the unit cost method for coming up with the price. This method removes the emotion from the estimating process by substituting verifiable unit costs for each item of labor, materials, and trade contract work included in the estimate. It allows you to view each project as a set of components, each with its own fixed cost. A simple remediation project may involve many skills and lots of different products. However, if each activity is viewed individually, it is simple to assign a predetermined value for materials and labor per unit of measurement. $3 per square foot to air-seal and re-insulate an attic. $7.64 per square foot to insulate a knee wall to your standard spec. $4,700 for a 65,000 BTU, tw0-speed, 96% AFUE furnace, including the new transition. And so on. You bake in the specs for the standard work you’re delivering, and price which cover your costs and profit.
Computer systems simplify the estimating process further by identifying each construction cost by a unit of measurement— linear foot, square foot, pair, each, and so on, and doing all the math for you, too, quickly rolling up it the the grand total for the project.
You may find these computer systems are easy to use, depending on your computer expertise. They are available at conventions, trade shows, and seminars; or you can learn to use them by conferring with competitors and reading trade publications. You may choose a system developed and monitored constantly by professionals whose job is to keep you in business by providing correct cost figures. Currently, I prefer a database put together by RemodelMax. When you combine this database with an estimating system called ClearEstimates, you have a quick and easy way to generate the costs for the project, as well as specifications (with product images if you like) and contract language.
Note that if you choose a system created and managed by others, the database should be specific to the type of business that you engage in–home performance is different than “blow and go” insulation. At my urging, the folks at RemodelMax have put together a database for Building Performance contractors. A well-built list of tasks arranged in the order in which they occur enables the estimator to build the job mentally as he or she is preparing the estimate. During the estimating process, this list becomes the checklist, helping the contractor to minimize errors and omissions.