Professionals pay professionals and know they must. I charge for estimates and keep the money because I believe that a contractor's time is extremely valuable. The homeowners receive 45 minutes to an hour of free consultation during the first meeting. After that, they pay for our time. For projects over $20,000, I charge a 2% estimating fee and a 2% design fee. Those two things form what I call the 4% feasibility fee. I ask for 50% of that 4% down and the other half after I present the feasibility study to them.
It's not difficult to sell this, because I set up the scenario and mind-set during my first meeting with the clients. I spend time selling my company, my trust, my open-book system, and myself. I explain that all projects have an infinite number of variables that need quantification and the 4% fee allows us to do the necessary quantification to solidify the final design and budget. I say that 4% of the preliminary budget will give them a project "reality check" for a very low investment. If homeowners pay you a little to get started, then they're entering into the unknown in a small way and it's more palatable to them. The key is their understanding of the process and their affirmation that my time has value.
Sending the wrong message
After I've spent time convincing homeowners of the value of my time, I can't turn around and give the fee back to them by applying it toward the cost of the project. Givebacks erode the bottom line/net profit of the company.
The fee also helps separate the tire-kickers from the serious players. The tire-kickers are looking for something for free. If the project moves forward, it will be with another contractor and that contractor will be denied proper profit.
Our project development agreement is set up as a retainer. We talk about the project and a range of what it might cost. If the prospects like us, they sign the project development agreement. We charge $65 per hour for the designer and $45 per hour for estimating and product selection.
The agreement includes the budget range we're targeting and states that we will put eight hours into design and eight hours into estimating and design selection. If agreeable, the homeowners hand us a check at the first meeting. After this is done, we have a second meeting where we present the preliminary design ideas to make sure the clients and designer are thinking alike. At the third meeting, our goal is to get a construction agreement.
In the construction agreement we include all the design and estimating we've done, plus any additional work we will have to do to prepare for the construction stage. If the clients sign the construction agreement, they receive a credit of the $880 paid at the first meeting as money they've already spent.
Sell the trust
We credit the money because it's easier for people to know they are putting their money toward something. We have thought about not applying the charges to the contract, but that would not work for us. We tell the clients that the time we spend on estimating and selections is included in our estimate; that's why we can credit what they have paid us back to the final construction contract. I believe that our clients feel good about us, and that is why they have agreed up front to pay us a retainer for estimating. They view the payment as a deposit on work they have every intention of going through with.
North Wales, Pa.