How to manage fixed priced quotes. Now in the previous video, I talked about fixed price quotes
compared to cost plus quoting and I was very clear and even convincing I think in my in my view
that fixed price quoting is the way to go. It's the professional grown-up, fair and lowest risk
way to price up a job and to manage any changes as a job progresses. I also said
I would explain how to manage a fixed price job and that's of course what this video is.
I tell my clients they should shift to fixed price quotes which I always do obviously. I forget some
resistance and it's mostly around their concern that a job's going to take longer than they are
allowed for and they're going to be out of pocket. They're going to lose money, nobody likes to lose
money, do they? Me included. So look, a part of managing a fixed price quoting job if you like
is getting your quotes right in the first place of course and that's difficult and that's why
people sometimes do a cost plus because it's difficult to manage all the variables. Getting you
quoting right in the first place is an important part of this, it's a whole other topic I'm going
to return to it another day but for now, I'm going to say this. If you're systematic
about how you prepare your quotes so you have a process and a system and it's documented. You
do the same every time. You don't just go that's two weeks. If you do is just do it systematically
and you make a mistake you go and fix your system up and not make that mistake again and that can
be an iterative process. You can limit how much damage you can do if you f*** something up and
your quoting can get more and more accurate. And like I say, it's an iterative process, it's one
I'll encourage you to put in place especially if I'm coaching you. I'll probably push you
to put it in place if I'm coaching you. Another issue people have with a fixed price quote is that
they're just so expensive, aren't they? If you do a fixed price quote, you're gonna have to put some
contingency in there for the inevitable variations and changes that come that you didn't consider.
So a fixed price quote is always going to be a bit higher than an estimate based on a cost plus
actual contract. It's always going to be higher. By the time you've included everything,
you've included some contingency - the numbers can be quite big and you can be concerned that you'll
scare the customer off or look too expensive and lose out. Much easier you might imagine to explain
you're much less scary and very reasonable hourly rate and margin and a cost plus environment and
kind of fluff over the true total and the risk that the estimate you've given blows out. Don't
pretend this isn't tempting because everyone's done it. I've seen it so many times. It's
dangerous though for the reasons I outlined in the previous video. The potential for misunderstanding
for wrongly set expectations around the true total cost of a job and that can be damaging for you.
So fixed price - do it and do it like this. Be very clear. This is item one, be very clear
about what you're quoting for, what's included and what's excluded. Be clear about what provisional
costs you've included or allowed for tiles, or pavers, or whatever taps and be clear about what
happens if your customer decides they want fancier ones than the ones you've quoted for. Be clear
exactly what the scope is, exactly what you're building or making for them
and what not. Be clear about the unknowns. If you specifically assume no rock, when you dig explain
what happens if rock is found and be clear about variations of course, what happens when not if,
they change their mind about something or want upgrades along the way, be clear.
Item two - explain a fixed price quote and what that means, they might not know. They might not
understand the difference between a fixed price quote and a cost plus quote with an estimate. So
explain. Remember your naive residential customers and probably your naive commercial customers too
might not really know the difference between a fixed price quote and a cost plus quote with an
estimate, they might not know. Make sure they do or make sure they don't pretend they don't know.
Make sure they're clear that your quote is the fixed price one and make sure they're clear
that the other trade businesses, they're talking to. Make sure they're clear what type of quote the
other trades businesses they're talking to are giving them. Remember the other traders they're
talking to might be giving them a fixed price quote and they might not. They might be giving
them a quote that when you look a bit closer is really an estimate of the cost of services
provided on a cost plus basis, might be still called a quote but it might not be a fixed price
quote. There's a difference in there, encourage them to check. Encourage them to look closely
and ask the questions. If you've gone to the trouble of building a fixed price quote,
they need to understand that it's better for them than a cost plus quote with an estimate. Help them
understand the difference. Make them understand that your fixed price quote protects them
from things you hadn't considered mistakes you've made in your quote, things like that.
With the clear rules about what can change of course, whereas a cost plus quote and a contract
because it's important too doesn't protect them. It might look cheap but the estimate is just that,
isn't it? It's only an estimate. There's no commitment behind it. The fixed price quoting
approach is one of your strongest weapons to help you reassure your customer that they're
in self-hands, that they're being looked after and that they can trust you. And your clarity,
remember this is all of it being clear, your clarity can put your competitors
much less clear quotes into stark relief and make you look much better. It's a powerful
sales tool, you should use it. Now how to use it to protect you along the way and your customer,
protect you from the misunderstandings, the risk of it all going probably wrong whether you use a
written acceptance of your quote with its terms and conditions attached or whether you use a
proper formal contract and that will depend on how big the job is won't it, whichever way you go it
you go with it. Your documentation should be very clear what the scope is as I was explaining just
now, what are you going to construct, it doesn't matter if it's a house, a pool, a deck, a fence or
a bathroom, or a fit out, it doesn't matter. If there's any deviation from that scope for whatever
reason you have to stop work then you have to get clear on what the new scope is and you have to
document it, the price could go up or down couldn't it, you have to then prepare a variation quote -
a quote for the additional work or a variation that reduces the scope and reduces the price.
You have to make the customer accept that change in writing before you go and do the new work.
And I know that's difficult. I also know it sounds obvious
and I also know people keep doing it.
People will be working on a fixed price basis and then they don't document the variations properly
and then they don't get paid for them all at the end because the customer goes oh I didn't realize. I know this happens,
I know it happens, again and again, the customer seems happy to accept the variation but there's
nothing in writing and then later when invoices get presented for the additional work, they're
not happy and they don't want to pay. People forget things, people are disingenuous sometimes but you
don't want to stop work either while you wait for the customer to accept the charges, do you? So often
you can carry on on the promise that they're going to accept it in writing later and then
it all gets a bit forgotten and you end up in the same situation raising your additional invoices
no paperwork, paper trail to back you up and an unhappy customer not wanting to pay more than they
thought they were going to pay or more than they told their boss they were going to pay. You
might be under pressure to meet your deadline. You might not want to stop work. You might not want to
wait for an unavailable project manager to accept the child the charges in writing but you have to.
Please understand me you have to and if I'm teaching you to suck eggs I'm very sorry
but if you don't document it and get documented acceptance, there's a very good chance
you won't get paid and then you'll be pissed off. Remember that if you don't do this
and you don't get paid, you've only got yourself to blame. The variations to the original scope can
be because you found rock or rot or termites. They can be because you found that more work was needed
that you could not have foreseen without you know lifting up
something, without doing chargeable work to look underneath but you told your
customer was possible. You did alert them to the possibility that additional work might be
required that you were excluding because you're a good guy and you were upfront and you were clear.
The variations can be because your customer chose the more expensive tiles or taps
or whatever or because of a design change that suggested itself along the way. It doesn't matter
why the original quoted scope gets varied. You need to document it or you might not get paid. Now this
has become quite a long video and I'm sorry. I'm going to finish off by commenting that you're
probably feeling like this is a massive pain in the a** - too much red tape and documentation.
It's going to get in the way of the job, it's going to jeopardise profitability or productivity or the
relationship with the customer or something. It's necessary. It protects
you, it protects your money and it does protect your relationships, it doesn't jeopardise them.
It brings issues out or to the front early not later when it's too late when the work's done.
You have to do it. If you want to grow up and be a professional trade business, you need to
do it. For a bit more tough love for me like this and for business coaching of course, get in touch,
book a 10-minute chat to talk about business coaching right now or call it. I might call it
a do we fit call. It's a 10 minute do we fit each other call or of course come to a Tools Down
Workshop and listen to me for two whole days before you make up your mind. See you later!