Comprehensive vs Itemized Proposals
As an Austin Builder I interact with many clients. Each has his or her preferred way to do business. A client asked me, recently, if I itemize my proposals. I replied that the proposals I submit are comprehensive and extremely detailed. A few days later he sent me an email with an attached itemization chart. He indicated that the attached document contained the format he desired for my proposal.
Was he acting in his best interest? Perhaps. There is a polarizing argument for and against itemized proposals. A few years ago I worked with a prominent remodeling firm that insisted upon the practice. Subsequently, there are many builders who provide no more than a hand-written order blank form. I believe there is a minimum standard for any contract or proposal. The document must protect both the client and the builder. We have found that most banks require itemization as a matter of course when financing a project.
Austin Builders, by-in-large, avoid itemized proposals for one reason. When reviewing the proposal, the client will ask to deduct a task he or she feels they can do. They believe in this way they can save money on the project. The unavoidable result is that the builder is forced to price each component as a stand alone event.
The Danger of Stand-Alone Pricing
Let me give you an example. You request a bid for the prep and painting of 10 individual doors. Subsequently, the total budget for the proposal is $500.00.
You decide you can paint 9 of the doors. The last door , however, requires more prep than you know how to do. You instruct the builder to paint only the one door for the individual price of $50.00. It is not feasible for the contractor to buy the materials needed. He can’t drive to your project and roll out his tools. He cannot provide the labor, clean up or roll his tools. He is unable to perform the necessary administrative duties involved with processing a job for only $50.00.
Under these circumstances, the individual door price would likely be around $200.00. If the contractor had priced the original job at $200.00 per door or $2,000.00 to paint 10 doors, he would have priced the job outside of a competitive market value of the job.
Three Cost Factors in our Industry
In our industry there are three cost factors that determine how we bid a job.
1. Material cost: this cost includes purchase price for the actual material item; cost of delivery to the job site; credit or cash flow utilization; and cull costs for poor quality material delivered.
2. Labor: this cost includes artisan effort to install or apply the materials; transportation to and from the job site; taxes, insurance, consumable tool costs (blades, bits, nails); and skill level pricing. (A master carpenter is more expensive than a carpenter’s helper.)
3. Administrative/Management costs: these include, overhead, management payroll, communication methods and time, scheduling and planning, taxes, insurance, profit margin, etc.
How Can You use these Factors to Save Money?
There are two areas in which a builder can achieve wiggle room in pricing. Those two are time on task and profit. In our example, a single door can be prepped and painted in about 2 hours. However, 10 doors could be painted in 8 hours.
All other costs involved are static and must be charged. How the time is spent is the key. Your painter has the same drive time, roll out and administrative costs. If he painted 10 doors individually at different times his static costs would occur 10 times instead of once. If he does all the doors concurrently he only pays once for the 10 door project on everything other than time. During the drying time for the first door he can paint and prep the other doors. His per-piece labor cost factor drops exponentially as a result.
His other discount option is to reduce the amount of profit he is willing to earn.
This example is admittedly basic. However, the theory applies to all phases of a project. If the project is priced where each task is a stand-alone event, the price point becomes too large to be feasible for the consumer.