By Jim Cory The client's on the phone, saying he has lost his job, filed for divorce, or been diagnosed with a terminal illness. The project's off.
Like many remodelers, Kacey Fitzpatrick, owner of Avalon Enterprises in Mountain View, Calif., says she is seeing "more people back off on projects."
Fitzpatrick tries to protect herself and her company from the problem. If clients cancel before the contract's signed, the cost of the proposal -- a detailed estimate on which the company expends about 40 hours -- is deducted from a design retainer. Collected up front, the retainer runs somewhere between $1,000 and $4,000, and it typically is credited to the construction cost.
Just like at Avalon Enterprises, the Neil Kelly Co., Portland, Ore., charges a client who cancels before signing a contract for expenses (including sales expenses) and deducts them from the design retainer the company collects up front.
Cancellations are a more serious problem if a contract has been signed. Last year at the Neil Kelly Co., one out of every 300 jobs involved the cancellation of a signed contract. Martha Kerr, vice president of marketing and sales, says these cancellations almost always result from "catastrophic situations." When clients cancel signed contracts, the company has a clause that enables it to recover all its expenses to date, plus 20% of the contract amount. The company collects a 50% deposit before starting work.
"My advice would be to recover your costs plus a fair profit," Kerr says. "Build good will so that when economic times are more certain, they'll come back to you because you treated them as fairly as you could. But don't walk away without recovering your expenses and a fair profit for those expenses, or you're going to lose your business."