Price Negotiations

      Ways to handle a client who asks for a line-item breakdown of your estimate. June 29, 2005

Question
I've been faced with this nosey nuisance a handfull of times during estimates, and the problem is, this takes time and tolerence of their request which really bugs me. At the risk of not losing the job, what do you guys think & do about revealing our professional financial process of profit?

Forum Responses
(Cabinetmaking Forum)
From contributor R:
X$ per door, X$ per drawer, X$ per sqft of FF, X$ per LF of moulding and so on, I know from experience that you can get more money for the same amount of work with a very detailed itemized estimate, and it looks like you really know what you are doing. I always include that only the work on estimate is being done, and that there should be no assumptions as to the work being done, detailed and itemized. That is what is required by insurance companies, and really gets the bottom line up.



From contributor A:
I always give the customer a detailed breakdown on an estimate. Things such as shop drawing cost, dressing rough lumber, running molding, assembly, sanding, finish, all materials, etc. These are only a few of the examples. This helps me get my estimate right too. On my spread sheet I have hours, $/hr, material cost, mark-up, waste, etc.

The customer sees the description of each line item and the extended cost, not enough info so they can determine my costs and profit. Gives them an idea as to where all the money goes.

Doing it this way, most of the line items are relatively small dollar amounts and they can see how fast it adds up. If there is any really high dollar items they can see that to. I hardly ever get anyone nit-picking anything and if they do I can usually explain it to their satisfaction.



From contributor J:
I set my software (Quickbooks Pro 2000) to print the quantity of each item and the bottom line NET/NET/NET(total with taxes ect.) on the estimate. If they accept the estimate, they then recieve copies of drawings for their project (another well shopped item). I print their invoice broken out by line item/quantity/and cost of each item and a total of each line item when I complete the job. If I give it out on the estimate, invariably a competitor takes my estimate apart, uses my drawings, and ganks me by normally $300-$500.

Giving a breakdown per item on an estimate gives everyone a map to your pricing/your cost of goods and ultimately your profit margin. That is my business, how I get there, to deliver X amount of cabinets or doors for X amount of dollars. Those that aren't hip to this can hit the bricks. This usually separates the tire kickers from the drivers.



From contributor H:
We had this happen several times. We have learned through experience now to never price out each and every individual item or process in the job. We do detail the material and what work will be done but the price is given as a whole. One time, a client had me build a cherry wall unit - the price was $6600 including delivery and installation.

After the job was installed he wanted me to itemize on his final bill how much delivery and installation were, and I did. And he promptly deducted those costs off the bill and wrote me a check for the balance. I accepted the check as a payment on account. I then had to take him to court to get the balance. The $575 he ended up paying me went to my lawyer. But he did not get to keep the money. Don't itemize unless it's a time & material contract. If you do your leaving yourself open to be beat.



From contributor T:
In situations like this I like to reverse perspective. Would your lawyer (or any other profession) break down his/her hourly rate or case fee to show rent, secretarial salary, Westlaw subscriptions, association dues, Brooks Brothers suits, etc.? I highly doubt it. They offer you a product or service for a given price and you can decide whether or not it is worth it. What it costs is what it costs. You pay their price, they should pay yours.


From contributor D:
I will only give a breakdown to a builder and that is so he can use it to bid on future jobs.


From contributor N:
I sometimes break down cabinetry cash and carry, demo, delivery, installation, finish cost. Doors have been broken out as a percentage. I have been asked many times for this after they see my first quote with one price. Most of the time if they ask for this kind of a breakdown they decide to do installation and/or finish themselves and I get the job anyway. I would never give anything like markup, overhead or material costs. NONE of this is a customers business at all.


To contributor T: These people who insist on Financial Breakdown are usually those who could well afford givin it up to us (the craftsmen). These sneaky negotiators will pay rediculous amounts for material stuff, but when it comes to our well deserved labor charge...LOOK OUT! I strongly feel not having to justify my pricing on labor (especially) to these "stuffed shirt people".


From contributor F:
Funny. I could do incredibly better nailing the job at estimate time, if the husband (in the husband and wife confrontation) would just try and let the wife be happy. I can relate my thoughts and ideas so much better to the woman, and is not knocked out by my pricing. The husband many times thinks he could do what we do if he had the time and right tools. To the husband our job could be his spare time project, which he would never, and couldn't complete for the wife, but many times will promise her this to eliminate us.

Of course, in the reverse situation, I also feel the pricing of outside help, (repairmen, etc.) is sometimes not justified, because with spare time I could do the job.



From contributor B:
Here's your breakdown for a problem customer - cabinets= x amount of dollars, but free installatin and delivery that would avoid jerks like the guy above had to deal with. Anything beyond that would require a prebid and signed changeorder to proceed. Or you could also explain that it is almost impossible to break down every item since alot of the cut out and assembly are intermingled between several different boxes and parts not to mention delivery costs mixed in with packaging and blanketing your loads, tie off etc.

I have to agree, it is usually the people that can afford our products that seem to get like this, maybe that's why they can afford our products?



From contributor M:
None of their business. I spend a little time trying to find out why they want a breakdown. If they want to know how much an item is, i.e.-pantry unit, I will let them know. If they are fishing for profit, I tell them that profit is the greatest cost of this project. Then I offer to sell them the materials as I receive them - 20 sheets of ply, 120 bf of lumber, 20 slides, 40 hinges, 40 base plates.

While I have had people who want to know how much I would be making off their job, I have had no takers when I offer to sell them the materials. The way I see it, when they ask for information about pricing, that is just more information for them to argue about a lower price. It's not an option.



From contributor K:
I agree that it is not appropriate or useful for the client to know all the intimate details, so the way I approach it is... "Mr. Customer, as with most businesses, our costs are variable througout the year, and encompass many different factors, and an estimate detailing all of these factors could literally end up being pages long, and hard to decifer. And my guess is, that you would most likely flip to the last page to get your price.

So to make it easy for our customers, and to bring you a true cost of working with us, our pricing formula incorporates all of these factors into a common figure which we like to call the "total", (big smile now) which is what you are really interested in anyway, right? The actual investment of money coming out of your pocket for the product you want?"

If they continued to push after this (can't recall a time that they did), it would raise a red flag, and I would politely explain that compiling such a detailed estimate would certainly go beyond their free estimate threshold, but that we are here to serve (just not for free) and that it would have to be billed out on an hourly basis, otherwise, the added cost would throw off our standard pricing formula, affecting other customers. "You can understand why that would be necessary, Mr. Customer, right? Now, which estimate would you prefer?!"...

If they still push, consider it administrative (like drawings), contract them as such, bill them, and write the deal. Oh, and add 20% - 25% above your normal rates... compensation for the headache you are about to give yourself. Do it once, you'll have the template, although if you use the above, it will be rarely used......funny, after re-reading it, it comes out a lot quicker to the client than it does reading it...



From contributor I:
If you give your client a breakdown, you are likely to HAVE a breakdown. A nervous one that is! I once told a client that the price for his kitchen was $35,000 plus labor and materials. When asked if my price is negotiable, I always answer yes, it can go up!!


From contributor W:
Itís really simple. Without getting smart with a new client all you say is we sell cabinets not material. The only jobs I do break down for are time and material jobs and then I even charge for the time I put into making up the invoice. I would love to build kitchens purely on T&M.


From contributor C:
I've only done one, more as an aid to me than to get the job. It was very detailed as Rosco suggested and I used a $96.00 per hour shop rate. At the end I added a line: "Market Area Competitive Discount", bolded and in italics stating "Less 16%". I was still about 20% over my normal price, but I got the job and put my heart into it. Us small guys do undervalue our work.



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