If you are like me, you were lucky enough to have a cool science teacher in junior high. That teacher who encouraged hands-on experiments, introduced you to the art of dissecting a frog, and proudly displayed on his desk the coolest plant ever—yup, a Venus Flytrap. It was thrilling to watch a fly land on the trap of this ninja-like carnivorous plant and you jumped back when the trap snapped shut suddenly, the teeth forming an impenetrable cage, and it was game over for the fly. The boys cheered while the girls complained it was “gross.”

I was asked to answer questions about how to bill a job, and I couldn’t help but think of the Venus Flytrap. Because if you don’t understand the various methods of estimating and calculating your price, you could end up trapped like that fly. So, I’m going to expound on this subject again and hopefully offer some meaningful insight into billing and potential traps to avoid.    

UNDERSTANDING THE DIFFERENCES IN BILLING

Here’s a quick breakdown of the billing methods: 

• Time & Material: This method bills the customer for a standard labor rate per hour plus the actual cost of materials used. Keep in mind what your actual cost per man hour truly is by factoring in payroll taxes and benefits. Price your “time” accordingly. Your cost for materials may be marked up to include a fee for overhead costs related to ordering and handling the materials.

• Cost-plus: This is all of your costs—labor, materials, contractor costs, payroll costs, etc.—plus a fee. That fee can be a percentage such as 10%, 20%, 30%—whatever your business structure allows for.

• We typically operate at cost-plus because most of our projects aren’t entirely defined yet in the preconstruction phase. It’s hard to have every single detail ready or know what surprises await us once we start demo on a remodel. We are basically agreeing to take on the job, start with outlining a preliminary design and schedule, and begin tracking expenses line by line. As the scope of work unfolds, we can then deliver a very accurate budget. At this point, we could offer fixed-cost, but the cost-plus method protects us from the unknown—what could go wrong and cost us time and money. We’ve had great success in using the cost-plus method and tracking our costs daily and presenting them on a monthly basis. It does add a level of complexity to the entire process, but it makes sense for us.

• Fixed-cost: This is where you look at the whole project, consider all labor, materials, expenses, what you want to make off the job, etc. You put together a price that covers all of that and present it to the customer, sign the contract, and start working. You and the customer both know exactly how much this project will cost.

AVOID THE TRAPS OF FIXED-COST PRICING

The Venus Flytrap lures its prey by secreting sweet-smelling nectar. The insect smells the hard-to-resist nectar, lands on leaves, trips the trigger hairs on the trap, and within seconds the trap slams shut. If you only use fixed-cost billing to price a job, you are opening yourself up to a potential trap.

Many people like using a fixed-cost, and I’m not saying you can’t. It’s often a more straightforward approach to pricing and depending on the project you might be able to throw it together pretty quick. However, the reality is that things go wrong—something got overlooked in being added to the price. The customer didn’t decide on certain materials to be used or started asking for multiple changes. Now you’re dealing with change orders and perhaps frustration because of a lack of communication. You committed to doing the project this way for this price—but the customer now wants it done a different way but for the same price. Fixed-price can lock you into a situation that should have been a straightforward job but has suddenly become much more complicated due to circumstances beyond your control. The scope of work may have changed abruptly, but your customer is expecting you to keep to the original price. This can lead to sticky, uncomfortable conversations, losing money, and possibly losing a customer.  

So, my advice is to carefully weigh the pros and cons of using fixed-pricing. Of course, what works for one person may not for another and vice versa. Ultimately, it’s up to you to determine which pricing method will work best for each situation.  

THINK BEYOND THE MONEY

Making quick money can be as alluring as that sweet nectar on the Venus Flytrap. But it’s important to think beyond the immediate cash—what you’ll get for one job. Sure, we all want to make money and have a successful business. But if we focus too much on the pricing and invoicing, we may forget about why we are in this business. I love what I do, I love the NS Builders family, and I’m proud of what we deliver to each and every homeowner. When the focus is on ensuring you exceed the homeowner’s expectations by providing the highest quality of work, strictly adhere to safety standards, and use the best materials, then you are setting yourself up for success for years to come. Protect your reputation and it will serve you well.   

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