My dad taught me providing solid estimates was the only way to contract. He was right, and there are multiple benefits to doing so. Not only is there increased potential to make more money on a project, but thoughtful estimates diminish the likelihood of miscommunications because expectations are set right at the start.
These days, a client’s expectations can vary dramatically. There is a great deal of information available to establish the cost of a project or contractor, with much of it false or misleading. Look at the home improvement reality shows that seem to get through a full gut bathroom remodel in one week! Clients want to know what they are paying for, and why. Even if they don’t ask those kinds of questions, it’s a good idea to educate clients about quality, materials, and time of labor. Failing to provide verification through reasonable communication might be the single biggest reason why time and material projects become so adversarial.
Here’s a truth: Price is important, but trust is paramount. Trust should be continually maintained because it is so hard to gain, but is easily lost! My company—Westbrook Restorations—performs a lot of time and material projects simply because we get into projects that are difficult and unquantifiable. Here’s the process I created for establishing time and material projects with clients:
Step 1: Create positive first impressions and confirm them
Provide your company’s working expectations on your website, by PDF, and as hard copy flyers that can be distributed to potential clients. Articulate your company’s work ethic, and well as your own expectations for employees and subcontractors. Talk about the materials you generally use. Be consistent by using the same language in every kind of communication you provide. This will set a precedent in the mind of your potential client, and will help them decide if you are the right fit.
Step 2: Create a format for preliminary budget estimates
Preliminary estimates should be provided as a way to establish a working knowledge of your company’s execution services, hourly rates (including markups), and project scope. The preliminary estimate must define working expectations and responsibilities set for the owner and contractor, along with an overall budget. I created a Word document that has sections for the phases of each project. More than that, the budget estimate includes informative introductions explaining how we work, log hours, and invoice. All I need to do is cut and paste a few things or add items to customize the preliminary estimate template.
Step 3: Create a format for labor verification
Keep a detailed daily log that reflects the hours worked each day. The log should be verifiable against your timekeeping records for each employee, and measured by what was discussed between you and your client. The log then becomes the client’s invoicing at the end of the week.
Step 4: Verify material costs
Keep receipts in PDF format. I recommend saving these documents to a project file that can be easily accessed and submitted with your invoices. A great thing about this step is that it retains a record of the quality of materials used.
Step 5: Verify subcontractor costs
Have subcontractors provide a bid before they start, even on a time and material project. It’s easier for subcontractors to quantify their portions of the project as much as possible. Keep copies of their contracts and invoices in PDF format, to be provided with your invoicing.
Step 6: Insist on full disclosure
I have had clients who think I’m expensive, clients who tried to discover what I pay my employees, or suggest I cheat on my taxes—all in an attempt to pick apart my business costs so they can save a dollar. This doesn’t happen very often, but if someone thinks I’m too expensive—they are welcome to choose another contractor. When doing time and material projects, I provide copies of my material receipts, subcontractor invoicing, permit fees, dump fees, and more, along with my daily log invoicing. I have already established what my markups are, so there are no surprises. In this scenario, I charge for all energy spent in that client's direction using 15 minute increments, including time for recording the daily log, managing subs, and client or project-specific communications. In affect, my client is renting my business by the hour, so I believe they have the right to see the costs of that project. They do not have the right to see what you pay your employees, what you pay in taxes, or your business costs, because this is private information. All these business costs should already be reflected in your hourly rates.
By following these few key steps, you can protect your profit margins while delivering quality results to clients, and all within their expectations. As always, relationships built on trust are good for both parties, and will generate positive word of mouth.