Aggressive Versus Conservative Construction Pricing
I’ll be honest—I’ve not always been conservative in my construction pricing. At times I’ve been quite aggressive. And it’s bitten me in the butt on more than one occasion. So, in this episode of NS Builders Podcast, I share some insight into why I have transitioned from aggressive pricing to a more conservative approach. And the benefits to not only myself but the NS Builders team as well.
THE HIDDEN DANGERS OF AGGRESSIVE PRICING
When I’m pricing a project, I always work line by line of my spreadsheet. I literally look at every line and make sure I’m not missing anything. Some items will end up being nonapplicable. For example, we have a line for “cold storage rooms” because we did that amazing job with the wine cellar. Of course, most of our projects will not incorporate a wine cellar, so I can skip that line. But the point is this: Look at every line to come up with an accurate estimate.
But there’s a hidden danger I discovered when doing this: If you allow yourself a peek at the line at the bottom—the total—you’ll get into trouble. Here’s why:
If I allow myself to look at the bottom line and see a number—a LARGE number—I begin to think about how expensive the job is going to be. And then, subconsciously, my brain starts to make decisions based on that number. “Man, this is getting really expensive! Maybe we could do the cabinetry for $75,000 instead of $100,000.” I start making decisions for the client for no reason other than I think the bottom line is too big—or might be too hard of a sell. This leads to trying to cut down or cut out other aspects of the project—whether time or materials—and these value engineering decisions haven’t even been discussed with the client. You realize you’ve aggressively outpriced the job—which is not a good thing for you or your team. Now it’s going to be tremendously hard for the team to execute the expected level of craftsmanship. And don’t get me started on the added frustration that you, as the business owner, will inevitably suffer.
Trust me on this. I’ve been there. I’ve learned my lesson from pricing too aggressively.
CONSERVATIVE PRICING AND OPEN COMMUNICATION
I’ve progressively adapted my viewpoint of conservatively pricing a construction project. I will continue to do so and hopefully mitigate some of the problems I’ve encountered from the aggressive approach.
When pricing a job, the first step is to establish an open door of communication with the client. You want to build a foundation of trust—one that will endure a lengthy project. So rather than assuming you know what your client wants, ask questions. Dig deeper. When you come to the line on your spreadsheet for windows, ask: “What kind of windows are you envisioning?” You might have a window allowance for $100,000, but they are dreaming of stainless steel with triple glazed and more in the $500,000 range. Or you get to the line item for plumbing fixtures: 20 fixtures at $1,000 each. Is this number more than they wanted to spend on each fixture or less? Never assume you and the client are on the same page. All of these conversations really should be had during the preconstruction phase and the details hashed out. Then you can truly give a conservative—and much more accurate—estimate.
Share your numbers—get on a Zoom meeting or in-person—and put assumptions aside and concentrate on budget realities versus budget fantasies.
CONSERVATIVE DOESN’T MEAN A CAP
Let’s say you’ve done your due diligence and conservatively priced a new construction project. Does that mean there’s no chance for the price to go up? Not necessarily. The design might get tweaked or the client wants to add on or upgrade materials or finishes.
Of course, the client may want to make changes but is firm on the budget staying intact. Here’s where your conservative pricing can benefit you. You’ve made reasonable allowances already in the budget. Now you can look line by line with the client and decide where you can add or subtract. Or reach out to the architect and say, “Hey, we’ve got to think about dropping down to a double glazed window instead of triple glazed and perhaps shrink a few sizes.” You’ll go back and forth and may have to reprice (which is why you should have a preconstruction retainer—your time and that of your team is valuable and should be compensated for).
To wrap up, try the conservative approach with pricing. And never forget the importance of mastering the art of communication—with your client, the architect, and your team.
It’s time to discover what NS Builders can intentionally craft for you! Contact us today to get started on your custom dream home. Together, we can make it happen.
—Nick Schiffer