One of the questions I would hear periodically when selling remodeling services was “What’s your markup?” Here are some thoughts and suggestions about how to handle that question, which I learned and/or developed over time.
Be Clear With
To respond with confidence to the question, you must be clear with yourself that you, your family, and your company are worth what you have decided to charge. If you aren't confident about this, you will not be taken seriously by potential clients when talking about it.
Reverse the Question
A remodeling contractor typically will answer any question a potential client asks him. By doing so the remodeling contractor gets in his own way and loses control of the sales interaction. The best thing to do when asked a question by a potential client is to respond with a softening statement, such as “Several of our potential clients have asked me that question,” followed by a reverse, such as “Why are you asking that question?”
You have to find out the question behind the question the potential client has asked you, because otherwise you will likely put your foot in your mouth responding to the initial question. For example, they might simply be asking about your markup because a good friend told them to do so. Your potential clients might not even care at all what your mark-up is. You just need to walk them through the conversation so they can go to their friends and say they did ask.
What Step Did You
Miss in the Sales Process?
If you have been interacting with a potential client for the early parts of a sales call, one of your goals was to learn about the client’s pains, the emotional reasons, for going through the hassle and distractions that are inevitably part of having a remodel planned and done. If a potential client is asking about markup late in the sales interaction it means it is likely an earlier part of the sales interaction was not addressed as completely as it should have been.
If that is the case, go backward. Ask about the problems the potential client had brought up to you earlier in the conversation, what he or she thinks about your understanding of them and why that client believes you and your company might be the right partner to help get those problems solved. Without helping the client remember what was told you earlier it is very likely that client will stay stuck on the markup question.
The Answer to the
After doing all the above here is some of what I would say:
“We do only a certain amount of business a year, because we want to be able to deliver a consistently good experience and product to those valued clients who chose to have us work with them. This means we do not expand and contract our business as opportunities present themselves, as doing so would not allow us to be what we are telling our prospective clients what we truly want to be, one of the best partners when having your home remodeled.
“At the same time,” I then would add, “we know what our costs of being in business are, what we have to spend even if we have no work going on. This is our overhead, which includes things like phones, rent, stationary, training and so on. We know what these expenses will cost for our business year.
“Additionally we have expected return [otherwise known as “profit’] which we hope, truly hope, we will generate as a result of taking on all the risk we do by providing a fixed total price for our clients’ remodels. That expected return also is to help us with the fact that we can only truly accurately estimate the cost of a project after the project is done and that we need some security to cover the inevitable inaccuracies in any estimate. The expected return will also allow us to continue to improve our systems and tools, all of which help make any project we do more likely to be successful.”
I conclude with: “What do you think of what I have said so far?”
The Second Response
However the client answers, respond with something like “I have heard that from some of our clients. Why are you bringing that up?” or the like. Always probe before responding.
If the potential client is still interested in our markup, here is what I would say: "To cover our overhead, the costs of simply keeping our business open and improving, we charge 30% of the sales price. To provide for the possibility of an expected return we charge 10% of the sales price."
Notice I am NOT telling them what we are “marking up” the costs of goods sold. Instead I am telling them what portion of the sales price includes the overhead and profit, or, in other words, the margin (which in the example I am giving is 40%).
Now if they say that is higher than what they have heard from others, go back to asking them why they were interested in your company in the first place, and are those characteristics and qualities worth paying the difference? If they don’t think so, wish them well and ask if you can check back with them in a month or two to see how their project is unfolding. You never know.
The main point I hope you take from all the above is that you MUST make money when running a business and to do so you cannot let your potential clients tell you how much to make. After all, you are the expert about running a remodeling business, not them!