Should you show item-by-item cost breakdowns to a client? April 10, 2005
I have run into this once before and didn't handle it well. Now it's come up again. I'm a one man shop and no good at the business end of running my shop. I have a client that wants an item-by-item bill. He wants to see receipts for what I purchased - hardware, wood, etc. He also wants to know how I break down my labor fees. For the hardware, there is no markup, but I do add shipping to the cost. I do not feel they need to see receipts. The wood I mark up for taking it from rough to finished. My hourly labor breakdown I feel is my business. When I do a quote, I list a base price including my labor and wood, and then a price for all hardware, glass, etc., but I do not break it down. Then a total. How would you handle a client like this?
From contributor J:
I wouldn't waste your time trying to explain every part of your bid to one customer. I would give this customer an overall price without breaking down anything for him. You charge your customers what you feel is appropriate for your products, labor, etc. and be done with it. This kind of customer is usually trying to haggle with you in certain areas of your bid or ask you to search for cheaper products. If you get caught in that trap, you will waste time and money on this customer when you should be working on the next one. I would politely explain that your bid is your bid for that particular project and how you came up with it is your concern.
From contributor K:
You'll probably have a bunch of responses here that will tell you that you should know all the breakdowns/processes/prices/labor hours/shop costs/insurance/etc. and share them with the customer. This subject has been covered numerous times.
First, you didn't mention what you are making for the client. Most would probably say that this doesn't matter. Well, I make furniture. Some traditional, some nontraditional. I give the client a definite price on the piece/project. If asked, I will tell the customer a ballpark (God, I love that wiggle room word) figure for my materials and for labor. Receipts? Hell, no. It's none of their business, in my opinion. They either like my price... or they don't. Period. I'm not going to waste my time explaining "Yeah, I got the wood at this price, but had to hand select it, rip it, plane it, joint it, sand it, match it, etc." They don't ask Kroger to show their cost on a can of tuna. A car dealer tells you their invoice cost (yeah, right!).
Again, you didn't mention what your product was. Cabinets are perhaps more competitive, but custom furniture is a bit different. Would you ask Picasso for the costs of his paints and time? It's a moot point. How do you put a price on creativity and uniqueness? I have created something that they envisioned and brought that vision to life. They'll either pay my price or can go somewhere else. It works for me.
One more thing... No customer has any business looking at your receipts. What you pay for your hardware or wood is *your* business only. You worked and earned the discounts you enjoy from your vendors and sell them at your retail price. Part of what end customers pay for is for you to establish relationships with vendors and earn discounts so you can remain profitable and make a living. Besides this, receipts for materials don't reflect the true cost of operating any business, like overhead and tool/machinery maintenance, etc. Again, I would politely explain that your wholesale costs are not his concern, only the price of the product he is having you bid. If he baulks at this, he is not worth your time. Move on to the next customer.
From contributor Q:
I agree with the others. Sounds like a trouble customer to me. That said, another way to address it if you still want to go after his business, is to explain to him that your pricing includes many different items, some of which are labor, rent, electric, profit, taxes, materials, insurance, etc. and it is all encompassed in a formula, which you've developed over the years and is proprietary. Even if I were to overlook the proprietary nature of what you are asking, to break it down, item-by-item, percentage-by-percentage, would literally take hours to do, and the cost of your project would have to increase to cover the added expense of providing what you are requesting, which could be in the hundreds of dollars.
Or, if you want to really make the point, tell him that you will need his financial information for the last three years (annual salary breakdown, tax filings, copy of a current credit report, etc.).
Or, you can just say no, and move on.
From contributor X:
If this were to occur in my business, I would politely tell my customer that the information requested is confidential (for my eyes only), explaining that if information of this sort were to fall into the hands of my competitors, my company's chances of winning future (bidding) business would be in jeopardy. Of course, if you would like to pay extra and sign a non-disclosure agreement (whereas the customer becomes liable for its release)... I would be happy to fulfill your request. Please pay up front, though. Every
service is for sale. Capitalize on it.
From contributor T:
I'd give him what you've got and be 100% honest, even if you are really expensive. I hope you are very expensive like me. People will either pass you by or get real. Either way, you will be okay. This happened to me once and I showed him what I had, my working estimate. I got the job. $5000.00 to build some coach house doors. A plum for me. I too am a one man shop.
From contributor A:
I don't go to GM and ask for a breakdown on a new truck. Why should our business be any different? I don't even tell my customers what goes into my proposal (I don't bid). It costs what it costs.
From contributor R:
As general procedure, I show the lump sum at the bottom. However, sometimes people are wondering if that number got pulled out of the air, so in those cases, if I feel my chances of securing the job will increase and this will not lead to nickel-picking, I will give general breakdowns per room or major feature. This is also important if they still want me to do the work, but need to pare something to bring the project closer to their budget. I find it really helps build trust.
From contributor B:
I would not have a problem providing a client with a detailed estimate that had each item as a line item (including all my markups), but my markups are not relevant, nor is there a need for the client to know anything about how my labor is applied. The client either agrees to the proposed price, or does not.
If you give the client the kind of detail he is asking for, then I would have to presume he would most likely challenge you on each and every item. I would proceed with extreme caution if I were in your shoes.
From contributor F:
Unless you are doing a time and materials based job/proposal, then they don't need markups or costs. If it is T&M, then you need to agree on the charge basis before you start.
From contributor E:
I would say that a lot depends on why the customer is asking. It is possible that this customer is trouble looking for a victim (you). It is also possible that the customer is (as has been alluded to by previous posts) merely looking for ways to maximize his value or understand what parts of the job may cost him/her more than they wish to spend, i.e. 18 caret gold pulls.
I would encourage you to ask why the customer feels the need to know such details. You may find a more efficient way of dealing with their indecision. Explain your quoting method, and what you can provide in the way of details of the job based on your current quote. If they wish a more detailed quote, ask what specifics they feel they need to know, and that such effort on your part will result in a revised quote that will reflect your investment of time, provided you get a down payment, of which $X is nonrefundable because the labor investment for the service (of providing proprietary information) will have been rendered, and must be paid for.
Or... you could just spill the beans if this customer is someone you are willing to trust with that information. I once spilled the beans to someone I thought I could trust. It was an expensive learning experience.
From contributor L:
Most likely this is not my kind of customer. I would never give a customer the prices I pay for materials or what percentage I mark them up. I don't think most people understand what it costs to operate a business, overhead and risks. There is also the problem of estimating how much time a project will take. If there is a snag, would he be willing to pay the extra time it takes? When you buy your next major tool, ask for the same info! This customer looks like trouble!
From contributor C:
When you buy a diamond ring, you don't ask the price of coal. If the customer doesn't like the price of your diamonds (product), he can buy diamonds from someone else.
From contributor O:
You should charge by what a job is worth, not by what it costs you. Most people/customers have no idea of the cost of doing business. Ask this guy for a copy of his paycheck and then ask him why he got paid that much. Grin and move on. There are people in this world who do value what you do.
From contributor W:
I only let that happen to me once. By the time he nickel and dimed me to death, I lost track of what was going on and lost my shirt. Over the years, it has reared its nasty little head 4 times. Each time I told the client that I was sorry, but I was no longer interested in the job. When he asked me why, I just looked at him and said because it was none of his business how much I was making on labor or markup. I also said that for him to ask me for that info was like me asking him for details on his sex life. Needless to say, he was a little stunned. He came back two weeks later and asked me to do the job. Of course I said I would. But I also raised the price 25% and told him he would have to pay for the design work.
From that job on, I get a minimum of $1,000.00 nonrefundable design money (I ask for this on jobs worth at least 8k. I'll ask for 2k or more for larger jobs, and $500.00 for 2-5K.) as well as a nonrefundable 50% deposit to start the job at the time of signing the contract. This may seem like a lot, but when you think of the time spent doing all this work, it really is not. Besides, it has cut down on all those nonprofit jobs I use to get. Also remember that from time to time, the job may be canceled or the client may "forget" to pay you when you're done. When this happens, at least your materials and some labor is paid.