Wednesday, February 14, 2018

Should You Charge for an Estimate?

Before I remodeled my kitchen I went to Home Depot to look at cabinets. Not the ones on the shelf, rather the ones in the kitchen vignettes. I used to design kitchens for my customers when I was general contractor so I assumed if I took my Chief Architect drawings into the store they could give me a price.

“Nay, Nay!” They looked at my drawings and told me if I wanted the ‘off the shelf’ cabinets I could use the limited price list they handed me. But if I wanted a real estimate, I had to have one of their kitchen installers visit my house and do his own measurements.

Thinking I could save the installer a trip I explained that I have designed and built over 100 custom kitchens in my former business.

Again, “Nay, Nay!”. If I wanted a prices on the upper end cabinets instead of the particle board boxes on the shelf I must have their installer measure my kitchen. Well, we all know that Joe the Installer is so much more accurate than me and as my wife pointed out, “you’re not a young as you used to be, maybe you missed something.”

So I shelled out $99 and waited 3 days for Joe to come and measure. Guess what? My measurements were accurate to within ⅛” but Joe didn’t like my layout and told me he had to take his info back to the designer for her to draw out my kitchen.

After waiting over a week, we got the call that our kitchen drawing was ready. She had done a nice drawing of the exact same kitchen I had walked into Home Depot with 2 weeks earlier.

My new Millwood Kitchen I installed myself

Needless to say that Home Depot lost a sale and I lost $99.

That experience started me wondering if custom new modular home builders should charge for estimates and answer is yes!

This isn’t 2009 when you had enough time to do estimates all day long because you had nothing to build. No, this is 2018 and if you are like most modular home builders today, you are very busy almost to the point of turning down work.

That doesn’t stop new home buyers wanting an estimate on the highly inaccurate drawing they did while sitting at their kitchen table.

Unlike my adventures at Home Depot, these folks have little or no idea what they want or how to go about designing it, let alone pricing it.

Now let’s look at charging for an estimate.

In 2009 your time was probably worth next to nothing since you didn’t have any homes to build. Today is different. Craving out some time to do estimates is actually costing you time in the field and/or working with the people who signed contracts to build a home with you.

To better understand why I am telling you to charge for an estimate we have to have an understanding of the difference between and estimate and a quote.

The first thing to understand about quotes and estimates is that they are NOT just two different names for the same thing. Estimates and quotes each have distinct uses, benefits & disadvantages. Knowing these is key to avoiding problems that can cost you time, customer goodwill and even money.

An estimate is basically a ‘guesstimate’ or rough, educated guess based on what a job MAY cost. Often it is supplied either before you know all the details of a particular piece of work (such as during an initial call from a prospective new customer) or during a site visit.

Estimates are your first thoughts on costs and can change drastically when you get further information, when unexpected complications crop up during the work or the scope of what you have been asked to do increases.

Let’s face it, we only build 4 types of modular homes. Ranch (includes split and raised), Cape (includes finished and unfinished 2nd floors and chalets), Multi-story and contemporary.

Within 5 minutes of looking at a customer’s paper and pencil drawing you probably could give them an estimate on the ‘basic’ home with your standard features. That’s really all you should give them at this point.

Buyers are funny though. If you give them a ballpark estimate within a few minutes of arriving, they may feel cheated and may not respect your price.

Years ago I had a very successful builder tell me estimates weren’t worth the paper they were written on but they do lead to sales so you have to make the buyer wait at least two days so they think you worked hard doing it.

Instead he simply looked at similar homes he completed and used them to prepare the estimate. Gut feeling was his estimating program. Funny how that still works today.

Here is where the hard part for builders enters the picture, actually asking these potential buyers for $99 to do their estimate. Your time is worth something, why not $99 for the ‘two days’ it will take you to give them an estimate?

Once they have skin in the game, they will be back to get their estimate and if they like it you can move on to working on a quote for them and hopefully a contract. If they don’t like your estimate for whatever reason, you simply tell them you will do another “estimate” for free. They already paid you for time and doing another one won't really cost you anything. A third or fourth one however is reason to charge them again.

A quote on the other hand is an exact price for the job being offered. As such it is fixed and CANNOT be changed once it has been accepted by the customer (unless the customer changes the amount/type of work required or you discover something completely outside of the scope of what was agreed).

Quotes are only issued after an onsite visit and you are confident that you have established exactly what is needed.

Key point: It’s important to remember that quotes are presented formally and represent a contract between you and the customer. As such they can be used as legal standpoints for price should a dispute arise.

Understandably, quotes give customers peace of mind; safe in the knowledge that they know exactly how much the work will cost before the job begins.

Key points to remember:

Estimates are a rough idea of price. They should be used as an initial GUIDE PRICE ONLY.

Quotes are legally binding and should ONLY be used when you are certain of the costs involved.

NEVER label a written estimate as a ‘Quote’ – You can be held to the figure provided.

ALWAYS ensure that the customer understands whether they are getting an estimate or a quote.

Charging for an estimate will also keep them from coming back every other day with a new drawing and wasting your time.


Anonymous said...

Nay, Nay Coach. We should never charged for an estimate or a quote. Are you out of your mind?

Josh Margulies said...

It is neither quote nor estimate you should charge for but an “analysis”. And it damn well better be at $2500.00!! And it takes six to 12 weeks.