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Fixed Price Quotations or Itemization?

February 25, 2008  |  from Markup and Profit Blog

I saw an article in a newsletter recently telling contractors (both general and specialty) to give out itemized estimates to their customers. Oh joy. The writer talks about the goodwill, the trust, the ability to compare estimates and the usual tripe that accompanies this type of advice.

Let me tell you why I disagree.

First, your customers won’t be able to compare your estimate to any other estimate. Common sense will tell you that. I couldn’t compare your estimate to a second contractor’s estimate, nor could you compare your estimate to mine for the same job. If you have 100 contractors estimate any given job, you will get 100 different estimates. How do I know? I have taught estimating in 44 states to over 12,000 contractors. Been through this exercise, folks. And if an experienced contractor can’t compare 2 different estimates, how can someone outside our industry do a comparison?

Second, the argument is that the estimate needs to be prepared properly. Pray tell, who is going to pay for the time it takes you to prepare such a document? Somehow the time investment you’ll need to make always gets overlooked.

Third, providing an itemization gives customers a reason to argue with your price. It gives them the ammunition they need to complain that you are charging too much for this item, they can buy that cheaper down the street, etc. Price is not the number one consideration when picking a contractor - but presenting an itemization suddenly makes it the number one consideration.

Itemization does not make you any more honest than giving a lump sum, fixed price quotation. On the contrary. Most itemizations I have seen have had the numbers cooked to bury some or all of the overhead and profit to prevent any argument. The overhead and profit of any business is proprietary information and none of the customer’s business.

Time and material contracts are OK up to about $2,500, anything higher should be a lump sum, fixed price quotation only. If the customer wants itemization, that is a lot of extra work. I would charge at least $75.00 an hour, minimum of 4 hours for any request for itemization, paid upfront. If the potential customer doesn’t want to pay for the itemization, then that is a clear warning sign to you that you aren’t going to get the job anyway so why waste the time?

Time is all you have when you roll out in the morning, gang. Those that use their time most wisely are the ones who make money in this business.

Filed: Estimating Sales-Marketing