by Anthony Noel
The third in a five-part series on developing a good client base discusses preparing and presenting prices to new prospects.
If you've been following along in this series up to now, you've seen some ideas for prospecting for new customers and how to handle your first face-to-face meeting with prospects. Now, it's on to pricing jobs and presenting your price to the potential client.
In the first article (see A Selling System, Part 1), we stressed the importance of focusing on one question above all others to establish and maintain a good working relationship: 'If I were the customer (or potential customer), what would I want to know about this company before I agreed to work with it, and what kind of treatment can I expect when I become a regular customer?'
The stage at which you begin formulating and providing pricing is not the time to forget this question. In fact, it is one of the more crucial moments for remaining true to it.
In the last article (see A Selling System, Part 2), I discussed the form I use at my first meeting with a prospect to explain my pricing process. Whatever system you use to price work, consider putting together a similar form - and filling it in - when the time comes to present your first price to a new prospect. Showing how you price work in a matter-of-fact manner helps you build your reputation as a 'square shooter.'
For the actual pricing, I use a pretty simple formula, one which covers my overhead costs, materials and labor, plus a small profit margin. I base the amount of profit on the size of the project and take a smaller percentage in profit as the scope of the work increases. This is because, in theory, the more work a job puts in the shop, the longer the shop is busy. The longer the shop is busy, (the more volume...) the more consistently profitable the shop becomes (...the more money you make).
Theory and practice, of course, are often two different things, and nowhere is this more true than in the above-stated rationale. As you become busy, remember: it is very easy to get busy and not be profitable if your prices are too low, just as prices which are too high will keep work coming in only sporadically.
Cost accounting is an important, and mandatory, facet of learning how to become profitable, and the sooner you get in the groove of analyzing what made one project a boon and another a bust, the more quickly your business will become consistently profitable. (For more on cost accounting, see 'The Other Side of Estimating'.)
So your price is done and you're ready to present it to your prospect...or are you? Might a drawing help sell the job? Answering that question correctly is important, because time spent at the drawing board (or on the CAD program) almost always falls into one of two categories - 'necessary' or 'waste of time.'
If you're working with an architect or interior decorator, you might already be working from a drawing to establish pricing. If so, jot down notes for any changes you feel might be needed and be sure to discuss them when you present your price.
You'll most often need to provide drawings when you are designing as well as building a project, and that most often happens with homeowners or other prospects who are working without a designer.
Carefully weigh the options before you decide to draw. I try to avoid doing detailed drawings until I have a contract in hand; I do them without having an agreement only when I feel very strongly that the job is mine. Even then, there are times when somebody else gets the job, and all I've done is burn time at the drafting board. It does happen; your goal should be to keep it to a minimum.
How? For starters, let your prospect know what your ideas are, and take a little extra time to be sure the two of you are on the same page. Get as specific as possible, using rough sketches and descriptions, about what you are pricing. Then present a price that includes an allowance for drawing time and get a payment to cover it. This way, you can present drawings for final approval prior to starting the work and do them in the knowledge that you've got the job when final approval happens.
If approval never comes, you can turn the drawings over to the prospect and at least cover your investment.
Whether you are dealing with a design professional or the end user directly, prepare for your price presentation thoroughly. Have your pricing form, any sketches or drawings and, most importantly, a contract with you for the meeting.
The price on the form should be included on the contract and should only be changed by mutual agreement, due to changes to specifications; never because you want to make a deal to land your first project from a new prospect.
Remember, first impressions count. By using and sharing your pricing formula, you should have impressed your prospect as a detail-oriented pro who is honest and anxious to provide the project the way he or she wants it and to explain how you arrived at a given number.
If a prospect is going to try to get a deal after being shown that your pricing leaves no room for 'dealing,' question whether doing the job is worth the headaches that are bound to come in working with such an individual. Remember, too, that you are only deceiving yourself if you believe that, after the first job is under your belt, you'll be able to win more equitable pricing in the future from this prospect. If you were in the prospect's shoes, would you willingly pay any more than you feel you had to, especially knowing that your counterpart has lowered his or her price in the past?
Dealing with rejection is never easy, but keeping your goal in mind - profitability - will help you through those times when you refuse a job because you are uncomfortable with lowering your price.
In the next article, we'll look at contract specifics, following through to assure work is done to match specification, and how the relationship with prospects changes once they become customers.
A checklist for presenting your price
- Develop a price, taking into account overhead, materials, labor and a profit.
- Decide whether to supply drawings and, if so, include drawing time in your price.
- Prepare thoroughly for your presentation and bring the contract with you.
- Only adjust the price on the contract to accommodate changes in specifications, never to make a deal.
- Don't be afraid to refuse a job if you think it won't be profitable.
Anthony Noel writes, consults, and teaches woodworking and journalism, along with doing an occasional custom job in his shop in Macungie, PA.
Have a business related question? Visit WOODWEB's Business Forum. The Business Forum is co-sponsored by ISWonline and is moderated by Anthony Noel. All business topics are welcome, from sales and marketing to dealing with difficult customers.
This article is reprinted by permission of Custom Woodworking Business Magazine.