Great article from the Journal of Light Construction discussing cost versus value and how much construction costs actually cost. If you are thinking of renovating or building, read this insider article.
Tips to Skip the Sticker Shock When Pitching to Clients
Mark Maltry, co-owner of JEMM Construction, in Gainesville, Ohio, says that the current version of his company’s website is a work in progress. Even so, JEMM, founded in 2007 by Maltry and business partner Josh Edgell, prominently features Remodeling’s Cost vs. Value Report from 2014, which clients and prospects can easily reference. It’s one way of averting the sticker shock that can sometimes hit homeowners who are unfamiliar with renovation costs.
A Tool To Help You Sell
Cost vs. Value provides you and your customers with two things: The sense of what a project costs, and what its return on investment might be. And while homeowners have more access to project cost information today than they ever have—thanks to the Internet and websites such as Houzz.com—few will have a clear idea of price on a first meeting. (The exceptions are those clients you’ve previously worked with.)
“One company’s bathroom might be $10,000, and someone else is saying $30,000. [Homeowners] might have an expectation, until they sit down with the remodeler in their local area.” —Bob Lutz, operations manager of DBS Remodel, Poughkeepsie, N.Y.
For instance, most clients of Hammer Contractors, in Olney, Md., still begin with no firm idea of cost or, if they do think they know about what the project is going to cost, are often misinformed, according to director of sales Greg Buitrago Jr. “They might do a bathroom in the basement with Chuck in a Truck for $6,000 plus materials,” he says. “Now they want to talk to a company about remodeling a master bath that’s maybe three times the size, with different materials. The math doesn’t translate to the company or the scope of work.”
These days, the problem is just as likely due to too much information as it is to having too little. Between what’s online, home renovation programs on TV, and what they might pick up via local home shows, it’s easy for homeowners to get the wrong idea, notes Bob Lutz, operations manager of DBS Remodel, in Poughkeepsie, N.Y. “One company’s bathroom might be $10,000, and someone else is saying $30,000,” he points out. “[Homeowners] might have an expectation, until they sit down with the remodeler in their local area.” At that point, Lutz says, they can begin to get an idea of how, above and beyond cost, service levels play a role in the price of a renovation project—often a big role.
On simple projects such as door or window replacement and siding or roofing jobs, the Cost vs. Value Report provides a cost that’s typically a little on the high side, not because the specifications are inaccurate but because discounting is rife in specialty contracting, which is more the province of one-truck operators. If a homeowner wants to know why your estimate for their (roofing/siding/window) job is so much higher than the estimates from low-ball competitors, direct your customer to Cost vs. Value and explain.
On midrange to upper-end projects of complexity, such as additions, whole-house remodels, and even kitchens, Cost vs. Value provides the homeowner with a ballpark figure. Not every contractor wants to go there, especially on jobs that are expensive and entirely custom. For remodelers such as Patty McDaniel, owner of Boardwalk Builders, in Rehoboth Beach, De., what past clients paid for similar projects in the same or adjacent neighborhoods, is the better reference point. It’s her company and her clients in the same locale, so those comparisons mean more.
Many homeowners, though, want some kind of idea that lets them know the project is at least affordable, so that they can begin to set a budget. If that idea comes from a third-party source produced by the National Association of Realtors and the renovation industry’s leading trade publication, so much the better. “They need some kind of ballpark,” says Michael Mroz, of Michael Robert Construction, in Westfield, N.J. “It’s a resource,” he says, “but more importantly, it’s a guideline.” So, in the case of the attic-to-bedroom conversion remodel, typically about $51,000 and change, for homeowners otherwise clueless, it’s “a base to build on,” Mroz says. “You know it’s not going to be $25,000, and it probably is not going to be $100,000.” If your prospect had no idea before, now he or she at least has a sense.
Establish Price Without Giving the Price
Many salespeople deflect the request for ballpark numbers when homeowners ask. The standard reasoning: Every job is a custom job because every building has its own unique set of conditions and (on kitchens/baths/additions) a universe of products to choose from. That argument is both obviously true and obviously self-serving.
What’s behind it, of course, is that salespeople are reluctant to address price before they’ve had the chance to show value. Value here doesn’t mean what the project adds to the market value of the home—often an afterthought—but rather, what the quality of the job is relative to what competitors could build it for. Those remodelers who are selling projects and elect to omit guidelines about ballpark pricing run the risk of arriving at a price so disconnected from homeowner expectations that the result is sticker shock.
For K & B Home Remodelers, sales manager and Remodeling columnist Mike Damora says that the most effective time to introduce the Cost vs. Value Report during the sales process is right before presenting the homeowner with the contract price—something he often does on a second visit, when he takes homeowners to the report on his iPad. The value, Damora says, is that you can use this to establish a price without giving homeowners the actual price of the job. And since Cost vs. Value provides a third-party reference by a known and accredited source, “nobody ever says a word,” he says, “because I’m not the one saying it.”
Remember, you’re dealing with both value and cost. Cost makes little or no sense until prospects understand the value that’s going to be delivered. In cases where multiple contractors are bidding on the same job, for instance, a company might low-ball the price by failing to include key costs. The Cost vs. Value price, prefaced by a scope of work that includes contractor overhead and profit, is going to give you the marked-up price, Damora says. In selling a roofing, siding, or window job, that eliminates the need to “come up with a fictitious way of lowering the price to create urgency. I’m showing them a price based not on what I say but on what the National Association of Realtors, plus other contractors, says.”
Whether you’re selling a complex project or a simple re-roof, the sales visit eventually centers on asking the homeowner two questions: What is your budget (can you afford the project)? And, how long do you plan to stay in the house? To the first question, a ballpark number provided by Cost vs. Value can dissolve prospects’ fears that they’re about to pay too much.
“Ask about what their five-year plan or 10-year plan may be.” —Mark Maltry, co-owner of JEMM Construction, Gainesville, Ohio
The second question, about how long they intend to remain in the house, goes directly to the information in the report. “I ask about what their five-year plan or 10-year plan may be,” Maltry says. “If you’re not going to stay in the house for a while, maybe you’re not going to spend $40,000 on a bathroom. You may spend $25,000 or less. We’ve done $8,500 bathrooms and $70,000 bathrooms. It ranges.”Since, for many contractors, so many variables—such as the quality of the work, change order process, etc.—factor into the final cost of the job, the question of how long prospects plan to remain in the home becomes a way to help close (see “Where They’re At,” this page). Tim Shigley, owner of Shigley Construction Co., in Wichita, Kan., points out that “in 27 years, I’ve never done the same bathroom twice.” That said, he asks prospects to tell him what their long-term plans are for the house. If homeowners are moving within two or three years, they need to be aware that an updated kitchen or master suite helps sell a property that’s on the market. “If those things are looking swell, people who come looking are going to stick around and maybe become a buyer,” Shigley says.