# Open book policy to customers



## SmithBuilt (Jan 25, 2007)

Does anyone have an open book policy with customers? By that I mean show the customer the entire estimate including the details of markup's and labor. Also a page showing the details of why it costs so much per hour to operate.


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## Winchester (Jun 29, 2008)

SmithBuilt said:


> Does anyone have an open book policy with customers? By that I mean show the customer the entire estimate including the details of markup's and labor. Also a page showing the details of why it costs so much per hour to operate.


nope


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## WarnerConstInc. (Jan 30, 2008)

SmithBuilt said:


> Does anyone have an open book policy with customers? By that I mean show the customer the entire estimate including the details of markup's and labor. Also a page showing the details of why it costs so much per hour to operate.


 
People that ask those kinds of questions and want things spelled out like that, are the one's you want to, run, Forrest run, away from.

If someone balks at the price, I tell them we could install junk materials and not provide a warranty but, I would have to sub that out then.

Dont dirty up my good name.


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## eastend (Jan 24, 2006)

does your customer show you their bank statements, brokerage accounts, mortgage, household expenses, and salary/earnings?


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## kevjob (Aug 14, 2006)

They won't show me their tax info or bank account info so why would you ever show operating costs, markups etc.. only thing they see is one price with breakout sheet for materials everything else is company info and unless they work for me or aremy accountant no one ever will see that info.


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## JonM (Nov 1, 2007)

Only if they let me look at their bank statements, tax returns, and the wife's underwear dresser drawer......:laughing:


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## SmithBuilt (Jan 25, 2007)

WarnerConstInc. said:


> People that ask those kinds of questions and want things spelled out like that, are the one's you want to, run, Forrest run, away from.


I plan to show them my full profit margin and not budge. I'm not doing this as a bargaining chip. I plan to show a handsome profit right on the page and not back down. I want customers that will look at this and see that I'm paying my help and me enough to send our kids to college and still hire us above another contractor. 



WarnerConstInc. said:


> If someone balks at the price, I tell them we could install junk materials and not provide a warranty but, I would have to sub that out then.
> 
> Dont dirty up my good name.


I have had some customers balk at the price. I would like to lay it out in front of them and say here's why we charge what we charge.


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## BobsLandscaping (May 25, 2009)

I think it'd be a real good way for a customer to beat you down on your price.

"$2,000 profit? That seems a bit excessive, let's take that down to $250 shall we?"


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## silvertree (Jul 22, 2007)

It's none of their business, you give a price and they accept it or not.
This type of honesty only works against you.


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## J F (Dec 3, 2005)

While I agree with pretty much everything stated, I do know of some who do this. Don't know any personally, but would love to know how they make it work.


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## J F (Dec 3, 2005)

I'm sure it comes down to being good at sales...


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## SmithBuilt (Jan 25, 2007)

kevjob said:


> They won't show me their tax info or bank account info so why would you ever show operating costs, markups etc.. only thing they see is one price with breakout sheet for materials everything else is company info and unless they work for me or aremy accountant no one ever will see that info.


I don't really care about their bank account as long as they pay what I ask. I just want them to see why it costs so much to operate a business. I don't think most of them know what it takes. 

If I go to a customer and take the unknown out of a proposal I think we will be on better terms from the start. Like I said I'm not doing this as a bargaining chip. They may look at it and say "you must be crazy charging that much profit". If that's the case I don't want them as a customer. I have found I can't (or more correctly will not) compete with the less expensive contractors.


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## SmithBuilt (Jan 25, 2007)

J F said:


> I'm sure it comes down to being good at sales...


I'll admit I'm not that good at sales and I'm never the lowest. I would rather a customer not get three other estimates. I'm thinking that they may get a good look at mine and realize I'm being honest and flat out telling them I will make a profit. If they don't agree with my honesty and go with a lower price that's fine by me. If they take mine then I know I have a good customer.


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## DDGconstruction (Mar 13, 2009)

SmithBuilt said:


> I don't really care about their bank account as long as they pay what I ask. I just want them to see why it costs so much to operate a business. I don't think most of them know what it takes.
> 
> If I go to a customer and take the unknown out of a proposal I think we will be on better terms from the start. Like I said I'm not doing this as a bargaining chip. They may look at it and say "you must be crazy charging that much profit". If that's the case I don't want them as a customer. I have found I can't (or more correctly will not) compete with the less expensive contractors.


I don't think you gain much with an open book policy. If you are trying to earn their trust, I think you are better off earning it by showing a nice presentation of past projects with good references to back them up. And if you know you are bidding a job where you know you will be higher than your competitor, show your customers why you are worth the difference in price (sell your value).


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## finehomes (Feb 4, 2007)

I'm completely open book with all of my clients. They see a complete line by line breakdown and copies of all bids from my subs when we sit down to go over the proposal. I do all of my homes on a cost plus basis so they see the cost of all the subs plus a line item for my supervision, overhead, and profit. I rarely get anyone that complains about the numbers and they are pleased that I am so open with them about my business. 

I'm also completely open with them when it comes time to do monthly draws. They see an invoice from each sub. If the lumber, plumbing, concrete, etc bill comes in under budget....the client gets the savings and can use the money elsewhere....if they go over....they have to come up with more money!!! 

This has worked well for me for over 10 years and has kept my clients very happy.


Sam
www.morganfinehomes.com


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## SmithBuilt (Jan 25, 2007)

finehomes said:


> If the lumber, plumbing, concrete, etc bill comes in under budget....the client gets the savings and can use the money elsewhere....if they go over....they have to come up with more money
> Sam
> www.morganfinehomes.com


I can see if you are cost plus that will work. What happens when you bid one aspect of the project too low or a problem comes up? Do you just explain to the customer that you made a mistake in the estimate?


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## bwalley (Jan 7, 2009)

SmithBuilt said:


> I can see if you are cost plus that will work. What happens when you bid one aspect of the project too low or a problem comes up? Do you just explain to the customer that you made a mistake in the estimate?


Yes, that is what happenes on a cost plus, they take the good with the bad, as long as the contractor is honest and can back up why he chose one sub over another one, even when he was more expensive.

When I run cost plus jobs I boost the projected numbers a bit just in case there is a problem, we also include a contingency cost to cover things we miss.

You also don't want to leave out clean up and hauling away trash, that always costs more than you think it will.

If it is a big cost plus job, I open up a seperate checking account and will give them a copy of the quickbooks register and copies of all checks and bills as well as all bids from subs.


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## finehomes (Feb 4, 2007)

I do it just like bwalley said....there is a MINIMUM of a 3% added in a line item called contingency for items that go over budget or things that might have gotten missed. If we don't end up using the contingency amount the client can use it for upgrades or they don't use it at all and save that amount on the cost of the home. 


Sam


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## AmeliaP (Apr 22, 2007)

No. We usually come in mid range if they have multiple estimates so I don't feel a need to explain anything. If they have specific reasonable questions about something I can entertain them. 
One guy tried to do the math based on what his "buddy" told him the timeframe should be. He called up all pissed off about paying X amount per hour (he was way high)! 
"I won't pay you that! I'll pay my buddy!"....Bill (spouse/Mason) didn't say it this way but basically he said......ok dude, I don't give a sh*t, go ahead and have your buddy do it. 
He's on a main road and soemtimes I drive out that way. 3 years later the thing still isn't done.


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## ModernStyle (May 7, 2007)

WarnerConstInc. said:


> Dont dirty up my good name.


I been telling people I know you, I have been beat up twice by disgruntled strippers and a small child kicked me in the nuts and said you were late with the child support this month.


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## OGStilts (Aug 30, 2007)

I'm with finehomes. My cost plus customers see it all. 

It really doesn't matter that much on a big job that goes through the title company anyway, they are going to see the numbers on the draw no matter what. If they have a problem with me earning a living then I'm better off not working for them. 

As a related story, I actually had a client once who I guess builds resorts and hotels. He wanted me to do cost plus for the same amount he claimed he paid the GCs who builds his resorts. He claimed they only charged him 4%. So after I finished laughing, I told him I would not budge on my number. Guess what, I still got the job.


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## custrel (Jun 30, 2009)

silvertree said:


> It's none of their business, you give a price and they accept it or not.
> This type of honesty only works against you.


Yeah I've had mixed results with this so far. One job insisted I take more money so I could make a profit, the other couldn't care less and still wanted a lower price.

I've been really open with why my labor cost is so high - we're union, we pay health & welfar benefits, living wage, etc. - and most people I've encountered just don't seem to care about those things. They'd rather have a lower price.

Maybe its just the customers I've been dealing with, but even realatively well off customers don't seem to thrilled to know that they are helping to feed someone else's family.

Several times I've heard the 'couldn't we just get some mexicans to do that?' And this from diehard Democrats.

When push comes to shove, it seems more people care about their own pocketbook than the political ideals they espouse so vocally.


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## bonz (Mar 23, 2009)

I will sometimes use the "open book" policy with customers if they are:

business owners who understand what it takes to run a business, pay employees, insurance, taxes, maintain equipment, maintain a descent profit (enough to cover the occasional job that costs more than charged), etc...

past customers that are almost ready to give me the job without other quotes (open book policy often gives them an added "comfort feeling" that keeps the competition away).

friends that want to hire my company to do a job (I almost insist on the "open book" policy) just to make sure they understand I would never take advantage of a friendship to cushion my pocket.



I will never again use the "open book" policy for:

Homeowners that are new customers

Realtors

Property Managers

Anyone I don't know that asks for the open book information to review my proposals .


If you are even remotely susceptable (sp?) to letting a customer use your "open book" info to beat you down on price, NEVER, EVER, reveal this info :shutup:. 


Bonz


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## Techie (Jun 18, 2009)

I compare it to my auto mechanic shop. They will show me the cost of parts, labor rate, and hours worked. That's it. Am I to believe they're not charging overhead and a bunch of other fees to keep themselves in business? Of course not. They've hidden and distributed those costs in the labor rate. Otherwise I'm in the wrong business and should switch to being an auto mechanic! I wouldn't break down the costs anymore than you see other businesses doing. Customers want many things, but just compare yourself to the competition and you'll know where you can/should draw the line.


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## jimmys (May 1, 2009)

*no*

We don't show o+p; we DO say "all line items include installation, taxes, delivery, overhead, etc." I've found people actually DON'T like to know exactly how much you're making. They're not naive - they know you charge more for a widget than they could get it for online. But they pay for the experience and the job control and the workmanship. I agree with those who say basically - this is our price; do you want to hire us?
I sometimes mark up a large ticket item less than the rest of materials, so the discussion about what to actually spec is simpler. I've never had anyone gripe about markup unless it was about an individual line item.
Jim


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## usdevelopersjou (Jul 20, 2009)

I'm thinking that they may get a good look at mine and realize I'm being honest and flat out telling them I will make a profit. If they don't agree with my honesty and go with a lower price that's fine by me. If they take mine then I know I have a good customer.


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## Bob Kovacs (May 4, 2005)

OGStilts said:


> As a related story, I actually had a client once who I guess builds resorts and hotels. He wanted me to do cost plus for the same amount he claimed he paid the GCs who builds his resorts. He claimed they only charged him 4%. So after I finished laughing, I told him I would not budge on my number. Guess what, I still got the job.


Shoulda told him "no problem- just adjust my contract value up to the $50 million range that your typical project costs, let me bill everything related to the project as direct work or general conditions, and I'll be happy to take a 4% fee!"


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## Leo G (May 12, 2005)

Techie said:


> I compare it to my auto mechanic shop. They will show me the cost of parts, labor rate, and hours worked. That's it. Am I to believe they're not charging overhead and a bunch of other fees to keep themselves in business? Of course not. They've hidden and distributed those costs in the labor rate. Otherwise I'm in the wrong business and should switch to being an auto mechanic! I wouldn't break down the costs anymore than you see other businesses doing. Customers want many things, but just compare yourself to the competition and you'll know where you can/should draw the line.


Do you really think they are showing you what their cost of parts are? They have a near 100% markup on most parts. They also have something called a book rate for labor. They look it up in a book and it tells them how long it should take them to do a job. If it takes them 2 hours instead of 3 1/2, guess what, they still charge you the book rate of 3 1/2 hours. And if they go over the book rate, guess what...They charge you that amount.


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## bwalley (Jan 7, 2009)

Leo G said:


> Do you really think they are showing you what their cost of parts are? They have a near 100% markup on most parts. They also have something called a book rate for labor. They look it up in a book and it tells them how long it should take them to do a job. If it takes them 2 hours instead of 3 1/2, guess what, they still charge you the book rate of 3 1/2 hours. *And if they go over the book rate, guess what...They charge you that amount*.


Book rate is what a job pays, if it says 3.5 hours, you pay 3.5 hours no matter how long it takes, 20 minutes or 10 hours.

The mechanic gets paid the book rate no matter how long it takes them.

Parts have markup, so does the labor, you don't think the delaership mechanic is getting paid $85 per hour do you?


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## Leo G (May 12, 2005)

Well I have heard different about the book rate from a guy at a Chevy dealership. Maybe you have a more ethical dealership over there.


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## bwalley (Jan 7, 2009)

Leo G said:


> Well I have heard different about the book rate from a guy at a Chevy dealership. Maybe you have a more ethical dealership over there.


What is wrong with the book rate?

The way they come up with the book rate is by having different techs do the job and the come up with a time in which it should be able to be done by an average tech., a good tech can beat the book and make more money, but there are always some jobs that the book is wrong and the tech takes a beating on that job.

If they don't use the book, it is hard for a shop to tell a customer how much a job will be, unless they guess and do it T&M.


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## Leo G (May 12, 2005)

I never said anything was wrong with it. It is just that most times the book overestimate a job and the customer pays more than the shops rate.

But I use the same thing when I use a contract. If nothing goes wrong I can make more money per hour.


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## Techie (Jun 18, 2009)

I think we're drifting off topic here. I usually find the parts don't have a 100% mark-up, least from my dealer. Might be b/c it's easy to look up these things online but I dunno their exact strategy. But yeah their labor rate is around $90 on the sheet. Most of their overhead and markup for the job is in that rate b/c there's no other line items to put it in. 

In the end it's the final price that matters really. Don't let a customer tell you how you should price. Just be diplomatic and say the final price is the final price. We could play with the numbers all we want but that's what it's going to come out to every time.


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## DBBII (Aug 28, 2008)

The key to making money on a cost-plus job is to know what your costs are and to bill for everything. While that seem obvious, you can do things like "rent" your tools to the job. If you have a generator on site, you can "rent" it from yourself, plus, the cost for the gas for it. Maybe it's only $5 a day, but over how many days? Look at an AIA contract (I think it's A121) -- it defines what is "cost of the work". Yes, it's a lot of paperwork.

For labor rates, you can include a lot of things in your labor burden. Here in Florida, if you have a GC license, you need 14 hours of continuing education every two years. Therefore, if I am being billed to the job, I build 8 hours a year for "education and training" into my rate.


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## Micvanlen (Jun 13, 2009)

I couldn't agree more with DBBII. If you break down your costs beyond just materials to include andy subtrades you need and the utilization of equipment you own and even your operating costs of your office (wich I just call OPEX), then there is no reason your business won't grow and even thrive with 20-30% margin (not markup... there's a difference). Your accountant should be able to help you with this. 

Consequently, I have no problems showing the job breakdown to clients. When they try to dicker with the profit I simply tell them that's why I stay in business and get the job done on time with great quality. They generally understand that I need to make money to stay in business and usually give me the job.


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## bwalley (Jan 7, 2009)

DBBII said:


> The key to making money on a cost-plus job is to know what your costs are and to bill for everything. While that seem obvious, you can do things like "rent" your tools to the job. If you have a generator on site, you can "rent" it from yourself, plus, the cost for the gas for it. Maybe it's only $5 a day, but over how many days? Look at an AIA contract (I think it's A121) -- it defines what is "cost of the work". Yes, it's a lot of paperwork.
> 
> For labor rates, you can include a lot of things in your labor burden. Here in Florida, if you have a GC license, you need 14 hours of continuing education every two years. Therefore, if I am being billed to the job, I build 8 hours a year for "education and training" into my rate.


On a cost plus job, you should bill for actual costs of the job, C.E. is not part of the actual job cost, so it should not get charged to a particuliar job, that is part of your overhead.

If you can get away with it that is one thing but in a cost plus job, you need to make sure you run it properly or your client may think you are taking advantage of them.

I am on a cost plus job and I don't charge them for my C.E. and would never even consider it, because that is something I have to do to maintain my licenses, without my licenses, I can't work.


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## Plumber_Bill (Jul 23, 2009)

*Open Book Policy*

It can be done, I don't give out the information up front.
But in some cases you must be able to give the information. 
IE: When a pricing ***** occurs. Sometimes when you must educate a customer about a competitor.

Here is the way I do it.


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## J F (Dec 3, 2005)

Nice form Bill, it definitely lays everything out when the situation calls for it.


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## SeamlessGutters (Mar 11, 2009)

I would never do that. Mabe you can get a market nitch by being upfront. But honstly few customers really realize how much it costs to run a construction business. If you do a $4000 job they think it is almost all profit. By showing your numbers, you will only get the job if you are the cheapest. I would take the same effort and put it towards explaining your products, employees, cleanup, reputation, etc... I am new to sales but can tell you that a lot of people don't want to hire the cheapest. 

$3500.00 job - $1500 profit 

Do it for $2900 you make $900.00 

Now, its a $600 swing but the value is different. 

You are taking a 40% discount in pay, while they are getting a discount for 18%. 

My point is, price is far more important to the contractor than the customer to some extent.

If they want to know how much money you make tell them your shooting to make 80k or 150k this year, thats your goal! 

Make them look at the big picture.


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## outlaw (Jan 7, 2009)

When people ask me for gutter prices, they always want to know "how much per foot". i have a hard time with this as every job is different.


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## bwalley (Jan 7, 2009)

outlaw said:


> When people ask me for gutter prices, they always want to know "how much per foot". i have a hard time with this as every job is different.


I have had people ask me for square foot pricing a remodel, room addition etc., I told them after we were done just add up all the bills and divide that by the square footage, and then they will have their answer.

I did one residential remodel, we ended up adding about 54 ft2 when we moved the front door to make it work better with the elevation change, the entire remodel job was about $450,000, so if they went by the square foot, it would be about $8,333 per ft2.


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