Recovering from an Estimating Mistake

If a rookie salesman accidentally sells a job way, way under cost, can the shop owner back out of the deal? There's more than one side to that question. October 25, 2006

One of my rookie designers recently quoted a job for a potential customer. She quoted our high end product at our base line product price. The customer jumped all over it, wrote a check for the full amount and signed a contract ($8000.00 job and she sold it for $4000.00). The designer came back to the shop to finalize her design and realized her mistake. She phoned the customer and advised him of her error. The customer is insisting we do the job for the originally quoted price.

Forum Responses
(Business Forum)
From contributor F:
Swallow hard, do the job, and learn from this. By the way, someone needs to be checking these quotes before they go to the customer, no matter who does them.

From contributor W:
Sounds like the customer knew all along it was a mistake. Never had a customer to write full amount before anything started.

From contributor K:
I know that right off the bat, the reaction would be to suck it up, and work for a loss of money out of your pocket, but consider a couple of things first... If you haven't cashed the check yet, the deal is not finalized. If your contract has a 3-day Rite-of-Recession in it, you may be able to use it to cancel the deal, if that's what you ultimately decide you want to do.

Possible ways to address it...

1. If your costs are covered, no commission paid to the designer (as a life-lesson that mistakes cost everyone money), complete the order, move on with life.

2. If costs are not covered, call as the owner of the company and start the conversation with a smile (it comes through on the phone) "Mrs. Jones, my name is Frank, the owner of XYZ company. I understand there was an error on your agreement made by one of our freshman designers (which focuses on their newbie status); I understand that he/she has called you to discuss this situation already, and after speaking with he/she, I felt it necessary to give you a follow-up call to clarify the situation. I'm calling you personally first and foremost, to apologize for the misunderstanding, and to let you know that we take it seriously whenever human error is introduced by one of our employees. Nobody's perfect, and people occasionally make mistakes on their job, and this is one of those occasions. Second, to let you know that although we want to make you happy, getting the high-end cabinetry that you want at the low-end price cabinetry is not possible, as they are calculated at two separate price-points for a reason, and this does not cover our costs to produce the high-end cabinetry that you want. I know that this is disappointing, and I know how much you want these high-end cabinets at a low-end price, but it's not possible for only $4000. That said, we want to make this work for you somehow. What I will do is move forward with your project, and split the difference with you; this way you still get a great deal along with the cabinets you truly want, and we make the situation right for our customer and a little more balanced." (If they balk and won't budge, take one last stab…) "Mrs. Jones, we are not a huge corporation that can absorb such a loss. I'm trying to make this right for you, but please understand that we have to at least meet our basic costs. Now, we will not make any money on this project, but it will be necessary for us to add (don't say charge) an additional $xxx.00 to cover the costs of building the cabinets. The alternative is that we will need to issue you a refund."

After you have done the above, you have done everything reasonable that you can. No judge in the world will force you to make cabinetry at a loss, and would think the customer unreasonable for asking you to do so, especially after offering the above.

From contributor D:
Let's flip the equation. If your rookie sold a four thousand dollar cabinet job for $8k, would you give them a bonus or would you call the customer and insist on returning your profit? Your agent formed a valid contract. Whether you make or lose money is immaterial. Follow contributor F's advice.

From contributor C:
Sounds like someone thinks they deserve a windfall at someone's mistake. Any reasonable person should at least split the difference. Who knows, you'll probably spend the 4K on lawyers if he really wants to be an ass. I've been at custom woodwork a long time and seen all types.

From contributor U:
Give the check back uncashed, and apologize for the mistake. If they want to play hardball, they will lose. In CA, anything under $5000 is small claims anyway, so no lawyer's fees to pay. Depending on what state you live in, your mileage may vary. If they cannot prove that they have sustained a loss of money, there will be no compensation ordered by the court.

From contributor K:
If a rookie sold a $4K job for $8K, it would depend on how you price things as to whether or not a refund is necessary. For example, some would keep it if it were cabinets in any case, as the costs to make them are covered, and charge what the market will bear, which is fine with me.

In our case, if it was for cabinetry, which we have a price schedule for, yes, the customer would get a refund. However, if it was for a custom furniture piece, which there are tangibles to be considered (i.e. - one-of-a-kind, heirloom, customized specifically for customer, etc.)... What the market will bear is fine, and if the "rookie" were able to go above and beyond, they would get a bonus.

If your costs are not covered, and the customer is not willing to work with you, even though you are going to make zero money, refund the money, apologize for the error, and move on with life.

You can charge whatever you want in this business, but if your costs are not covered due to a rookie mistake, who, I assume, was using a company pricing schedule, I don't believe you should automatically not only work for free, but then cover the materials shortfall, and then on top of it, pay the rookie full commission who caused the shortfall in the first place?!

If the designer only charged the customer $800 for an $8K set of cabinets, still an error, you would still build the cabinets if your costs weren't covered? In my opinion, you as the owner should have the right to reject any deal that comes across your desk, which does not meet your minimum pricing standards as set forth in your pricing schedule... This is to offset human error, which is part of anyone's job.

From contributor O:
Does your contract state everything that is included? Like pull outs, trash bins, lazy susans, dovetail drawers, etc? If not, then give them the bottom quality product. If they complain about not getting everything they thought, then write a change order to add it in. Say 4,000 worth. Otherwise, at least tell them you can't take less than 6 and be ready to give their check back. If you haven't started a demo or actual work, it could be no harm, no foul.

From contributor S:
How is it that your salesperson sold for half price? Did she know the difference between the product quality levels? Did she have clear guidelines on pricing and discounts, etc.? To me, this is the biggest problem. You certainly can't have this happen again.

I find the biggest challenge with employees is the communication factor. I too often want to give quick instructions without getting into a 3 hour discussion about what we're doing and how we're doing it, and they want to do things the way they want to do things. Unless it's something we've done many times, it seems that the only way to have any confidence in communication is to have detailed written instructions along with drawings, photos, and physical samples.

The sales responsibility is way too important to leave any gray areas where the salesperson can free wheel.

From contributor R:
The customer can insist until tomorrow that you do the job for that price. Just mail them back their check if they are making too much of a commotion. Even if they took you to court, they did not have any damages, as you gave them all of their money back.

I would not even split the difference with the customer. I would politely explain that a mistake was made and that you cannot do the job for less than the full price. I learned a long time ago that it's better to have a sore customer than to work for free. Don't get me wrong; if I took a job and screwed it up, then I would do whatever it takes to make it right, even lose money. Thank god, the previous only happened once where I actually lost money.

And another thing: if the customer is being difficult from the get go, then why would you even want to work with them?

From contributor C:

These are all quality responses. If your sales rep deposited the check and in effect consummated the deal, then you are pushed into the negotiating point of trying to recover and resolve differences, not just refund. Time and communication with this customer will lessen the pain in your backside.

From contributor M:
I am curious, did you deposit the check? Did your quote/contract specify high end product? Did you specify a start date and completion?

I am sorry this happened to you. One of the problem solving models that I use is PACA, where the first step is identify the Problem, explore Alternatives, weigh Consequences, and finally take Action.

We know the problem, and you have heard many alternatives. But now you need to decide how comfortable you are with the consequences. You can return the check, but what will the consequences be? Probably the most obvious one is that you will not get referrals from this person. That may not be a bad thing... more people like him/her. Hopefully any reasonable person hearing their side of the story would not hold it against you. On the other hand, this kind of person may be willing to smear your name, and tell a lot of people. This could impact your business by tarnishing your reputation. I think only you can assess the potential of this client, and the damage they could inflict. There are of course many other alternatives and consequences. You have more of the details and you can best decide what you should do.

At best, when we make a mistake, I look to do 3 things with my customer (and I expect others to do the same when they make a mistake). First, I identify the mistake and take responsibility for it. Then I try to restore confidence by telling the client what we have done to make sure this will not happen again. Then, I offer some gesture of good will demonstrating that we are remorseful. And let me say about the last step, I don't discount my price, I include an extra. Otherwise you have created a pattern where they have a complaint and you give money away. They will more than likely find many things to complain about.

Look at the alternatives and consequences, then take action. But just as important, take responsibility and restore confidence.

From contributor G:
The cashing of the check has little or nothing to do with it, period. The contract, if you have one, and without seeing the agreement it is impossible to say, was entered into when there was an offer and an acceptance. I suspect that your agent, unless otherwise provided for in your contract, was able to accept the homeowner's acceptance of your offer.

The classic measure of damages is the difference between the cost of goods you promised to supply and the cost of the same goods bought on the open market. According to your scenario, the homeowner will now have to go out and pay $8000 for something you promised to supply for $4000. The damages for your breech of the contract is $4000 (and you have to give her money back), or whatever amount it costs to get what was bargained for, less the cost you promised to supply it for, again presuming the facts support that an agreement was entered into and there was reasonable certainty as to what was to be delivered at the agreed price.

The rights of a consumer to rescind a deal may vary in different states, but I would be much surprised if it applies here to you. It most generally allows a consumer to cancel a deal they may come to regret that was solicited by "door to door" or telephone; it is most likely a one sided right wherever you are at.

Merely saying "I don't like the deal I made" and sending the money back does not cancel a contract and avoid damages. The entire concept of a contract is an agreement that is legally enforceable. It is not a deal where you can just walk out and say "I don't feel like it, here is your money back," nor is it a deal where you say "I promised to do it for $4000 but I want $8000." The law may or may not provide some relief for "mistake", and whether or not there was an enforceable contract entered into is a matter to be enquired into, but that is for a local attorney to determine, and a brief consult will be inexpensive.

No matter how much you may not want to pay for legal advice, you need it. While you are there, have the guy write you a decent contract form and teach you what each part means. It will be money well spent.

From contributor Y:
I don't see any acceptance of responsibility from the owner of the shop. If the designer/salesperson represents you, then ultimately you are responsible for agreements made, and product delivered. The designer bears some responsibility, and should pay for this mistake is some way so she does not repeat it; if she is on commission, and has just sold a job at a $4000.00 loss, maybe she gets a negative commission taken out of her next check. If a $4000.00 mistake is big enough to have a major impact on your shop, then I would assume that your shop is small enough that you should be checking and monitoring every aspect of every job that goes through the shop.

The bottom line is that you can give a customer 2 of the following 3 things;
1. Price
2. Quality
3. Delivery

If your customer insists on the price he was quoted, and the quality he was quoted, then you can determine the delivery time, and do this job in between other jobs, when you have time; this will help you absorb some of the decreased profit on this job, as you take in income from more profitable work. Maybe it will take you six months to get him his stuff, but that's the way it is. If you give your customer all three of the above-mentioned points, you will not be in business long.

From contributor K:
Contributor G, as I'm sure a lot of guys here would agree, I wish it worked that way. I wish that when a client did not pay on time as in their agreement, the 18% per annum clause, along with all costs of collection including reasonable attorney fees, was actually backed up in court; the reality is, just because it is in your agreement does not mean it is enforceable, or rather, that a judge will enforce it.

With regard to Rite of Recession, a contractual condition applies to both parties. Because of the one customer we ended up in court over years ago due to non-payment, we changed our agreement to ensure that we are not left holding the bag. We receive progress payments and have removed late payments and any chance of us not receiving payment from the equation. My one piece of advice to all of you, whether it's remodeling services, cabinetry only, custom furniture, countertops, whatever - make your final payment in the form of certified funds or money order.

With regard to the check, if it was not cashed, payment has not been provided. For all the questioner knows, the funds are not there. Just as if a credit card number was provided but not swiped or authorized.

The questioner said in his original post that the designer realized her mistake after returning to the office and she phoned the customer to inform him about the mistake. Doesn't sound like the ink on the check was even dry... lol. It doesn't sound like it had even been 24 hours, for that matter. Had it gone into production, I think it would have been a different situation, but the fact that the designer called right after meeting with him to make the customer aware of the mistake, in my opinion, negates the possibility of the customer being able to exert that they have suffered a loss, in any form, especially if they are refunded their money. It would be deemed as unreasonable. The customer could argue it all they want; the only one who will make any money off that situation is the lawyer.

Now that this horse has been beat into the ground, with me taking my share of strokes, if you still feel you need to check into legal advice, being that none of us are lawyers in your state, and you don't want to pay an arm and a leg for legal advice, join a legal co-op like or some other. For $10-$20 a month, they will answer any legal question you have... and more importantly, it will be from lawyers in your state familiar with your state law.

From contributor G:
Contributor K, thirty years ago, I finished three years of law school, received a doctorate degree, passed the bar exam, and was admitted to practice before the State and Federal courts here in Indiana. I am current on continuing legal education and my license fees are paid up to date.

I would not dream of giving specific advice to the questioner based on a contract I have never seen and based on the short description of events, other than the general discussion above and to suggest he spend a few bucks and get someone local to advise him.

While we can banter back and forth as to what he might or might not get away with, and whether or not a lot of the guys agree, and despite anyone's wishes as to how it might, should or could work, it will remain my opinion that your approach is unsound, your legal conclusions are either overly broad or simply wrong and your opinion as to what a judge would say, based upon some experience you once had, is highly unlikely. I will go back to working on a harpsichord in the shop, my preferred occupation, and leave the last word to you.

From contributor E:
Everyone is right about needing some real legal advice. My 2cents is that if you return the check uncashed, there are no damages. No money was taken from the client, no product was made by you. Maybe my legal theory is totally wrong, maybe the client will take you to court, in which case you may instantly change your mind and agree to provide the product at the deeply discounted price. It's probably not worth a court battle, but it's worth trying to back out of that deal, that is, if $4,000 is as precious to you as it is to me.

From a negotiating and sales point of view, this transaction is not finished and more negotiating is necessary. It's tough, but not impossible, to negotiate a higher price after the deal was supposedly done. You might want to split the difference, for example, and sell the item for $6,000.

Your next step is to meet face-to-face with the client and work out something mutually agreeable. Don't try to wing this over the phone. Start off by returning the check, apologize for the mistake and see what you can negotiate.

From contributor L:
The customer has no grounds to take you to court with. The worst case scenario, he does, and you represent yourself. Either way doesn't cost you anything. I would not work at a loss or no profit for anyone, not even family.

From contributor T:
Make it simple. Offer to split the difference with the customer or be forced to return the check.

From the original questioner:
Thanks for all the responses. Some real good points. I did, in fact, return the check. I met with the customer personally and explained that I simply could not do the job for the original contracted price, but that I felt so bad I would extend a 30% discount. The potential customer said, and I quote "I am offended and insist you install it for the original price". I once again apologized, put his check on the table and invited him to seek the services of one of my competitors and walked out the door. I still feel sort of bad but I'm not sure if it's for my designer (she is pretty broken up over this) or the customer. Anyway... thanks for the input!

From contributor A:
I thought you got the best free legal advice one could get from contributor G. What you did afterward was shoot yourself in the foot, in my opinion. Why do so many businessmen insist on a contract, and then think they can unilaterally cancel it when they realize they made a mistake or don't like some portion of it? A contract is binding on both parties, and since your customer presented a check with the signed contract, he has upheld his end of the deal. Your employee who made the mistake, whether properly supervised or not, is your responsibility. If you let an employee consummate a deal without your review, you have to live with the results. Unless you can prove that the funds were not available to cover that check, it doesn't matter if you deposited it or not. A judge isn't going to care if you make a profit or not; it doesn't legally matter.

If I was your customer, I'd be out getting bids, and if they are higher than the $4000 contracted price, I would be suing you for the additional costs and the costs associated with the delay in the job now that I have to start all over again looking for a cabinetmaker. Your customer may well pay $8000 for the job; and after winning in court, the additional $4000 will be coming out of your pocket, plus legal expenses... yours and theirs. Never, never, never put yourself in a position of needing a lawyer.

Talking to the customer was a good opening position, but when the customer insisted, you should have swallowed hard and performed as agreed in the contract. Now, instead of telling her friends what a great deal they got on their new cabinets, they are going to be telling their version of how you tried to screw them out of an additional $4000 after they had a contract. This could have been turned into a bunch of new contacts (not at the $4000 price, but you could explain you made a mistake and had to live with it, which most would understand and take as a sign of integrity). They won't be calling you now. Think of it as $4000 worth of advertising, it makes it easier to swallow. And besides, we all know you're not losing $4000 in actuality.

From contributor Z:
From the customer's side, it could look like the old bait and switch that is illegal in most states.

Another story, same idea. I had sent my daughter's saxophone in for a cleaning and evaluation along with a check for the quoted amount. Some weeks later, I called to find out what was taking so long. I was told a mistake had been made - it was in the middle of a complete repad and overhaul. The work was done and I was not charged for the additional work, about 10 times the original amount. I offered to pay for the parts and some of the labor, but they insisted there was no extra charge and refused my money. Over the years, I have sent them a lot of business for repairs and new instruments. Everyone I have sent to them has been very happy. I get the feeling this is going to cost you a lot more than $4000 in the long run, mostly in business that you will never get a chance to bid on.