We try our best to receive money for our services rendered, but it is based on reading the client and atmosphere and what the market will bear. We have a letter of intent that lists the costs of all services, describes how many hours we will max out at, and what the services cover. If the market is tight, we will offer half of it back once we sign a contract. If it is a strong market, we do not return the money.
For the past six months we have been offering free conceptual cost estimates (CCE). It is a general estimate based loosely on square footage costs and our 30 years of experience. But this can get sticky. I did a CCE for a major remodeling job that took me over a week to complete. The architect said the budget was more than the homeowners wanted to spend and asked me to provide estimates for five other scenarios. That is awkward. You've already done one for free, so it's hard to ask them to pay.
We charge for our professional opinion. We won't look at a full set of plans without charging a fee to estimate. About 95% of the time, this design fee covers all the pre-production services. We usually charge between $500 and $1,000, but this amount is not set in stone. We decide how much time will be involved, how bad we want the job, and how complicated the estimate will be. When we ask for the fee, those who are willing to pay us and see the value in our service are good clients. Some prospects are not looking for a collaborative relationship with the contractor. This is a way of making them go away.
We collect approximately 4% of the project budget as a pre-paid deposit on construction to cover us during project development. It is not refundable. This is collected when clients sign a one-page preconstruction project planning document. If they continue with us through project development and construction, this money goes toward the total cost of the job. If they drop out of project development and don't go through with construction, this covers our costs. During sales calls, I discourage customers from hiring us to do just design. I do not want to be treated as an architectural firm. My profit center is the construction phase.
Chet DiRomualdo Quality-Custom Carpentry
For straight construction clients, I give prospects an initial estimate for that project. Though they have one bottom line number, I specify that it includes permits and other preproduction work. After that, if the clients want to pursue working with us, they have to sign on with a contract.
I have a second business where I am a partner with an architect. If a homeowner wants design, I refer them to this business. We give them a contract price for design based on a list of what they want. I did this to get away from free estimates. When customers call a contractor for an estimate, they are also calling for free design. This design fee gets rid of window shoppers. If clients are working with my design company, they get to know me during the design process, and 9 out of 10 times, design slides right over into a construction contract.
Auger Building Company
We have a preconstruction service agreement that is a short, one-page contract. This contract covers any time we put into a project in order to get the contract written: design, research, pricing, specs, design meetings with the architect, and meeting with the owner. My company charges a certain amount per hour for this work. If prospective clients want an idea of how much the project will cost them, we give a verbal estimate. When we get the contract for that job, we also receive a deposit toward the entire project. For example, we'll get a $30,000 deposit when we sign the preconstruction contract. We use $10,000 of that for the preconstruction work. Then, we'll sign a construction contract for, say, $250,000. We apply the remaining $20,000 of the deposit to the $250,000 project cost.