There Is No Apples To Apples

My last two newsletters were about building a number you can defend. Cost first and rate last with the gross margin priced as a fee for your company’s capacity instead of a percentage of somebody’s tile budget.

Many readers wrote back with the same question. Ok, I built the number and I know where it came from but the client still printed my proposal and a competitors, put them side by side on the table and asked why mine was $9000 more.

Lets start with what’s on the table. Two documents, from two companies, with different overhead, different crews, different subs, and different definitions of the word “included”. They both end in a dollar figure, and that is the only thing about them that your client compares. They do not take into account the differences in what each company brings to the project until they take the low bidder and wonder why they have to let the tile guy in every morning and clean up after him.

Like Michael Jordan in The Last Dance this behavior from clients is easy to take personally. Get a group of builders together and it will not long before they start to recount all of the slights foisted upon them, just as #23 did while enjoying a bourbon on camera for Netflix.

But this isn’t really about you. Your client is doing this because every other purchase of their adult life was engineered to allow it.

A car has a trim level and a window sticker. A house has an MLS listing, square footage, and three comps on the same block. A mattress has a model number you can price at four stores. Buyers have been trained by every market they’ve ever shopped in that a like-for-like comparison exists somewhere, and that finding it is the careful buyer’s job.

Then they try to buy a construction project and they reach for the only tool in their toolbox. It’s not a character flaw or a negotiating tactic. It’s a competent buyer running a competent method in the one market where it doesn’t return an answer. When all you have is a hammer every problem looks like a nail.

Lets be real about what we hand people. Allowances that substitutes dollar figures for missed decision deadlines. Lump sums that obscure the methodology. “Labor and materials” lines that say nothing about how long any of it takes. Overhead sprinkled into the cost of goods so the gross profit margin looks smaller than it is, the electrician who bid $10K showing up on the estimate at $15K from my previous article.

Some of that is ingrained habit or learned behavior. But some of it is defensive, because we learn early in our careers that an itemized number is a number somebody can argue with. This all leads to a document where the total price and the markup percentage are the only two numbers that can be compared to anything. So those are what get compared. We have made price the only legible thing about us, then got frustrated when people shopped on price.

You will never make your proposal line up against another builder’s. You don’t control that document. Comparability takes two cooperating parties. Verifiability takes one.

You can be the only proposal on that table where every number is transparent.

The sub’s own proposal. When I say the electrician is $15K, it’s because he is charging me $15K, and if you want to see the document I’ll show it to you. Ask your trade partner first. That number is his, not yours. And when they tell you that they know an electrician who is cheaper it is an invitation to speak about your vetting process and how your trade partners are what allow you to manage risk, keep the job on schedule and keep your margin as low as possible.

A scope of work written in a what’s in and what’s out format. Every allowance is a place where two proposals disagree with each other. Say which of yours are real prices and which are placeholders, and say why. Provide a plan for how that number becomes real.

Duration in calendar days, with a completion date you’ll stand behind. There’s a good chance the other builder hasn’t priced the time at all. An answer to “when will this be done” is the thing your client wants most and is least equipped to compare.

The gross profit margin fee described as time and attention rather than a slice of the goods.

A clear change order format, what it costs, how many days it adds, and what your completion date becomes.

Transparency isn’t a pricing model. Fixed price, cost plus, T&M, design-build, design-bid-build. All of it can be run the same way.

Some clients will take the sub proposals and try to buy them direct. Some read your line items as a menu and start crossing things off. Some hear “here is where the number comes from” as “here is where the number could go.”

Two things keep that from getting away from you. Transparent is not the same as negotiable. You are showing where a number came from not asking for an opinion on it and it is hard to say that out loud in a pleasant voice. The client who weaponizes your transparency was going to do it eventually. You found out in the second meeting instead of during the drywall.

We as an industry taught buyers that price is the only comparable thing about us and they believed us. You aren’t going to fix that from the seat of your truck. What you can do is be the one proposal in the pile that answers a question when somebody asks it, and let a client learn over the course of a single meeting that there’s a better question than which one is cheaper. Most of them have never been offered one.