This is Part 3 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.
Building Your Estimate
The starting point of any estimate should be the cost of the plans and permits required to build the project. To apply the concept of unit cost to this part of the estimate, we’ll look at some cost items, starting with the plans and the proposal. Time is money. This means that you should get paid for estimating and creating proposals. Therefore, you need to include the cost of preparing the proposal in the estimate. This also applies to the cost of the audit (or inspection), a key issue for home performance contractors. Charging for audits is part of screening; if the audit cost is too low, you may get flooded with unqualified prospects who will not move on with the remediation.
The key is getting enough of the audits to turn into jobs. You can reduce your audit price by putting part of the audit cost into the job, but be careful to reflect that you will not turn all your audits into jobs. A related issue is the use of the report. Too big a report and you make audits more expensive. Too small a report and you lose your positioning as a consultant. Since you may not sell to every qualified prospect, build a cost into every estimate sufficient to recover the cost of making all of those presentations which did not result in jobs sold. There should be a charge built into each proposal estimate for the cost of creating work scopes, plans, and for taking and arranging digital photos, for example.
Each estimate should reflect the cost of preparing those work scopes not just for jobs sold, but also for those plans that were rejected by the homeowner. To use the unit cost concept to figure these charges, you might establish fees that are applied to each of these activities and include as well charges based on a percentage of the selling price. This method would establish a minimum charge for simple jobs. However, this minimum charge would increase as the cost of the job increases, since a more expensive job necessarily entails a more complicated plan. There is almost no activity in home performance contracting so complicated that it cannot be shrunk down into a unit of measurement, such as square foot, cubic foot, linear foot, each, each pair, each plus per square foot, and so on.
Focus on transforming much of the tedious work of estimating and writing the specs into a system. When you have an estimating system to you can delegate the process to others and expect similar results. I worked with one ambitious father-son home performance team in Atlanta as we created an estimating system specifically for their business. Their efficiency in estimating freed up time for more sales calls quite successfully. Their ambition is to expand their business by sharing their estimating and spec writing system in order to grow their business. You can delegate yourself right into free time by installing various systems, including estimating, to run your business.