Should contractors charge for estimates?

 

RICHARD DiTOMA L.M.P.,

contributing writer

 

As a contractor, you hold an advantageous position in the consumer/contractor relationship. You have knowledge of your trade, as well as the experience of a consumer since you also buy the products and services of other vendors, both in your business and private life. This gives you the ability to envision the consumer/contractor relationship from both sides of the counter. But having ability, and utilizing it properly, are two different things.

 

As a person in business, you should be aware that you incur costs to be in business because you know you have bills to pay. Unfortunately, most contractors aren’t quite sure of the amount of those costs and relative proportion to the services they perform because they do not know how to correctly identify and calculate their true cost of operation. Then there are those ignoramuses who claim they have no overhead cost. That’s because they don’t know the definition of overhead cost. Like the proverbial ostrich who plants his head in the sand, they leave their butts in the air to be kicked by passersby.

 

As a consumer, I recently needed the services of three other types of contractors to spruce up a rental property that had been vacated by my long-term tenants. I started looking for these contractors from my own contacts, as well as the advertising media. My intent, like most consumers, was to get the best quality job at the lowest price for the best quality. After 39 years in the construction industry, and more as a consumer, I know how to determine top quality, its related cost, and how to use my knowledge as both a contractor and consumer.

 

Free estimates are expensive

 

In my investigation I found some peculiarities. Of the many available painting services, I called two that I had used in the past and three from ads. For flooring contactors, I called four from ads. The third type was more of a specialty contractor and I only found two businesses performing that specialty in my area. The oddity begins with all offering free estimates, including the two with no competition other than each other.

 

I understand (but, don’t agree with) the painting and flooring contractors thinking they have to give free estimates because they have much competition. In my opinion, they’re dead wrong. But I am dumbfounded that both specialty contractors with no competition other than each other also chose to offer free estimates.

 

Before calling any of the contractors, I made a list of questions to ask each contractor on the phone and at the building in question (should they decide to visit the site) regarding my needs and the services they could provide. I then put myself in the mode of acting like an ignorant consumer who knew nothing about the construction industry. Armed with my persona of innocence and not taking advantage of any of those contractors (after all, they’re the ones who offered free estimates) I called each of them.

 

I called five painters. One said he would call back, but never did. This makes me wonder why he spends money on advertising. Three painting contractors gave me minimum price phone estimates sight unseen. The last one told me he had to see the job before quoting a price.

 

In my mind, due to my phone interview of each, I concluded, with the exception of the one who didn’t call back, that they were all comparable. And since my time is valuable, I only made appointments with the painting contractor with the lowest estimate and the one who said he had to see the job. I could call the others after meeting these two if I felt that the situation warranted it.

 

Since painting must be done often in the life of a building rental, price is a major concern to landlords. It’s not like plumbing, heating, cooling and electric systems which may have some maintenance expense but when done correctly last for much longer periods of time. As for the flooring and specialty contractors their work should also last longer than the painting contractor’s.

 

The four flooring contractors all said they had to see the building before quoting prices. They made appointments with me.

The two specialty contractors both gave me comparable minimum phone estimates. After taking into consideration their phone styles and answers to my questions, I made an appointment with the contractor who addressed my phone inquiries in a better manner.

 

Before making any appointments, I asked each contractor if there was any charge for the visit. They all proudly and quickly said “no.” Fear, low self-esteem and stupidity are powerful negative traits. They are the only reasons anyone would quickly give away his/her (hopefully) educated professional opinion at no charge. After all, it cost them time and money to learn the complexities of their respective fields of expertise, to be in business and to give their opinion.

Pride should never come into play if they don’t recover the costs of their estimates. Any fool can give his/her services away for no compensation while paying the costs associated with those estimates. So while they proudly put forth the image of confidence when answering the question, the word “proudly” should be replaced with “cowardly, timidly and stupidly.”

My conversations with each contractor led me to believe that the quality of service I would receive from each of them would be comparable and sufficient to satisfy my needs.

 

Ten contractors gave me free estimates for three potential jobs — four painting contractors, four flooring contractors and two specialty contractors. At best, 70% of the contractors would incur tangible and intangible costs they did not have a chance of recovering because I only needed three contractors.

 

The cost of free estimates

 

Tangible costs are those for which you see a definite expense, which you pay directly. A gallon of gas costs $2.00 to $4.00 in recent past. By multiplying the gallons used by the cost per gallon, you can arrive at one of the tangible costs contractors incur to visit a site and give a not-so-free (to them) estimate.

 

An intangible cost is one which costs money in a less obvious way. With regards to the contractor giving free estimates, every estimate that he spends time and doesn’t get the job keeps him from performing another estimate or service that could bring money into his business.

 

If contractors signed up 100% of the estimates they gave and brought revenue into their businesses, they could recoup the estimate costs by including them in the prices quoted for the proposed tasks. But no contractor who quotes properly profitable selling prices gets every job. That’s due to two facts. First, there are many moronic contractors out there charging lower prices that are often below their real costs. Second, the pool of consumers not only consists of value buyers, but also price buyers, and window shoppers who may purchase nothing.

 

The average travel time in my county, inclusive of plotting the route and driving, is 30 minutes. When you add to that time another 30 minutes for speaking with the consumer at the potential job location, minimally one hour of the contractor’s time per estimate is spent by the contractor (including his/her associated costs) and gone forever.

 

If a contractor wants to put in a 40-hour workweek so that he/she can work to live rather than live to work, he/she will only have a maximum of 35 hours to perform free estimates and/or paying jobs. A one-person business will have less because that person also must perform administrative business duties.

 

In the contracting business, the overhead expense for a person in a vehicle for each of those hours is minimally $75.00 without that person’s salary. On that basis, 10, one-hour estimates minimally give a contractor $750.00 in overhead cost. In a year, the contractor who only does estimates for his company could accrue over $128,000.00 in overhead expenses.

With regard to the 10 contractors I called, seven didn’t, and couldn’t, get the job. If they had the intelligence, courage and confidence to tell me that they would charge me a $75.00 fee for the estimate, they could have recovered the expenses they imposed upon themselves by offering free estimates. And they would have placed me in a position to make a decision. I could choose to pay for my window shopping and/or do less window shopping. Regarding my decision to buy, I could choose to “excrete or remove myself from the commode.” Either choice would cost all 10 contractors less money.

When contractors charge a fee for their estimates, consumers would not be so willing to call every contractor under the sun. This would, in turn, lower the competition of every contractor for any project, while it increased the contractor’s opportunities to get each job. The point I am making is that there is no such thing as free estimates. If contractors don’t charge consumers for the costs they incur to deliver their expert opinions and valuable ideas, consumers will keep window shopping at the contractors’ expense.

 

The question

 

Should contractors charge for estimates? Many do. But many contractors see this as a dilemma. They are fearful that if they charge for estimates they will lose work. But that’s not a certainty. However, if they don’t charge, they surely will lose money. If they never try to charge, they’ll never know if it’s possible. And if they persist in giving (not-so-free) free estimates, they shoot themselves in the foot by placing themselves in a competitive arena of fools.

 

Giving prices over the phone is no less detrimental. If they don’t give the lowest phone price, they probably won’t get an opportunity to land the job. But giving prices for a service when they haven’t seen the conditions of the potential job could be fraught with financial peril. If they do give the lowest phone price and try to increase it after they see the circumstances regarding the job, they may tick the consumer off and not get the job anyway. In which case, they would still minimally have the cost of traveling, inspecting and estimating.

 

Should contractors charge for estimates? That’s not the question that can solve the quandary. How do you charge consumers for their window shopping? That’s the question!

 

The answer

 

First, you must develop a higher testosterone level than the frightened dopes that really don’t belong in the contracting business because they are the people who create and/or support stupid business practices such as “free estimates.” There is not one of them who wouldn’t rather charge a fee for their estimating service. They are just too ignorant, fearful and stupid to do it.

 

Next: 1) correctly calculate your costs per hour; 2) determine your average travel time to the consumer to inspect potential jobs inclusive of the time you spend performing the inspection; 3) multiply your hourly cost by your average travel time to perform the estimate/inspection; and 4) minimally charge the consumer that amount so the consumer pays the cost you incur for their window shopping consumption.

 

I call this a service call charge. Done properly, you will discover that this is the smart way to handle estimates. It gives you the opportunity to recover the costs you incur through consumer window shopping. After trying it and realizing you can recover those costs associated with estimates, your testosterone level will rise. Then, you will have the opportunity to muster the courage and confidence to charge more than it cost you so you can make a profit above your cost of those estimates.

 

If the consumer gives you the job at that visit, you can apply the service call charge to the job. In calculating the price you quote for the task you must always include all travel times including the travel time for the estimate. After all, it’s a cost that is only incurred because of that consumer’s window shopping. Therefore, it should be charged to that consumer.

By applying the service call charge to the job, you have given the consumer an opportunistic financial benefit. They will envision the fact the service call charge will pay in part for the service you perform for them if they choose to use your business.

 

That’s a win-win situation. If you don’t get job, you minimally recover your costs. If you do get the job, the consumer pays for the price of the job not the service call charge.

 

Before deciding whether or not to charge a fee for estimates, look in the mirror and pose the following question to yourself. “Would I like to charge consumers a fee to recover the cost of my resources that are spent on consumer window shopping?” Think about it before answering.

 

If your answer is no, then keep wallowing in your own self-inflicted misery. I believe all of you would rather get paid. It’s the only thing that makes smart financial sense (and cents). And I know the only thing stopping you is fear. I can show you how to do it. That would take care of the factors associated with ignorance. But you have to have the courage to face your fears and suppress foolish tendencies. You hold your future in your own hands. You are the only person who can decide to keep doing the wrong thing and stop yourself from succeeding, or start yourself down the road to success, less stress and more financial security.

 

If you need help with any of my contracting business theories and methods, give me a call at 845/639-5050.

 

As always, I wish you good health and much prosperity.      

               

Richard P. DiToma is a business consultant and contractor with 36 years of experience in the P-H-C industry. He conducts seminars, evaluates business operations, publishes customized price guides for contractors and offers continuing support.

His book -- “Solutions Management Theories & Methods for the Contracting Business” -- deals with solving pr-oblems contractors face; identifying & calculating costs; developing proper profitable prices; addressing consumer questions; hiring and evaluating technicians; and logical management procedures

It’s also available as a “Workshop On Demand” for individual businesses (from one person to multi-person businesses); contractor groups  (organized or informal); trade associations; and wholesalers to the trade.

Date: Arranged according to your schedule

Location: Wherever you wish. Richard P. DiToma will come to you -- or you can come to him. Contact Richard to find out if there is a workshop coming to your area.

His other book -- “Readily Available Pricing Information Digest 2006” -- for the plumbing-heating-cooling contractor service price reference book is available with plumbing &/or heating &/or cooling section(s). To receive more info about his services, to order his books or to contact Richard at 845-639-5050, by fax at 845-639-6791 or via email at richardditoma@verizon.net