One of the first pre-qualifying questions that remodeling salespeople often ask prospects is, “What is your budget?” After following that script for years, Darius Baker, owner of D&J Kitchens & Baths, in Sacramento, Calif., decided that it didn’t make sense. “People assume you will want to spend all their money and are often reluctant to even tell you a budget,” Baker says. “I hate using the word ‘budget’ up-front. It’s not a valid term at that stage. You don’t have a budget until you have a design you can break down in some form.”
Two years ago, Baker decided to recast the whole process, which he now calls “ reverse budgeting.” “I wondered, for example, how much of any given project the cabinets cost or the plumbing cost,” he says. “What percentage?” He looked at 50 kitchens that he had completed in the previous six years, then grouped them by total contract price of the job in ranges from $30,000 to $40,000; $40,000 to $50,000, etc. He came up with an average job price in each price range.
Then he identified eight categories: labor, cabinets, countertops, appliances, flooring, electrical materials and fixtures, plumbing materials and fixtures, and miscellaneous (which includes items such as drywall and painting).
He went through each project and printed costs from QuickBooks for each of the categories. He could then see what percentage of a job each category represents. He put all the information into a chart that he brings with him on sales calls. For example, Baker can show clients that in a $65,000 kitchen project, the average labor costs were 17.5%, cabinets were 19%, and appliances 9.5%.
“Now we have a road map for design. Often a designer brings in a nice project and we bid it out and it’s way over budget,” Baker says. “This is a way to stay on target during the design process.”
Although it took Baker several days to put together the charts, doing it this way has worked out well and helps with value-engineering. “It saves me from having uncomfortable conversations,” he says. “People like the idea that there are targets to shoot for and rules to help hit those targets.”
—Stacey Freed, senior editor, REMODELING.