Determining the customer's budget

[arftist]

Guess I got spoiled during the good ole days, I used to price at what I wanted or more and didn't much care since I had a huge running backlog that lasted for many years.

Long story short; I think I overpriced a job yesterday and am having a hard time forgiving myself. The customer is a repeat and a commercial developer. The job was a forged stainless steel driveway gate, designed to match a balcony rail on the same side of the house. I priced the stock, 5K (thick sections of 316), and told him and he didn't bat an eye, but wanted to know the labor part. I hemmed and hawwed for a couple of weeks, worked it out a few ways, had the experiece of building the balcony, so I had a good idea how long it would take. Labor came in at 28K, at my optimum labor rate. Reduced my labor rate for all the usual reasons and told the customer 20K (should have been 22.5).

I am thinking either he wanted it dirt cheap because of the recesion, or, could it be that the labor didn't match the big construction ratio of 1/3 materials, 1/3 labor, 1/3 profit?

In retrospect, I could and wish I still could do the labor for 10K. I definitely overbid the hours, though not on purpose. (I actualy tend to underbid)

The big difference between labor and materials didn't seem that bad to me, since I remember how hard it was to forge and shape, etc. the 316.

Any one care to comment, perhaps in reference to the ratio aspect?

Thankyou for any and all comments.

[monstermetal]

You know there is one worse thing than losing a job because you bid it too high... and thats getting a job you bid too cheap... I am starting to get better but I have always tried to get the job even if it meant doing it dirt cheap.... The truth is though sometimes you are better off without the job..

[edge9001]

look at it like this, even if a bit high, was your quoted price still fair, considering the labor materials, expendables design time, ect? if so then your better off without the job if they though it was priced too high. OTOH if the gate gets made by someone else, I would love to know what the price ended up being atleast compared to you quote.

[Mainely,Bob]

A customer can always find someone to make something cheaper.
The only time you have to worry is when they find someone who can do it faster,better and cheaper on a consistent basis and will back their work.
If they find all that and there`s no way for you to compete then you have to look for a new line of work. :(

[Sask Mark]

Are you tied to your bid value, or is it an estimate? Is it a lump sum bid, or can you do a cost-plus contract for the gate (actual costs + agreed-upon markup)?


In construction, there are many contractors who get awarded projects based on being the low bidder, but the projects always seem to escalate over the bid value due to extras and change orders etc. Some of these are justified (design consultant neglect or error, unforseen site conditions etc.), and some are the contractors way of making money on a money-losing bid by being dishonest. They get their foot in the door by being low, then take advantage of the situation, knowing the owner will pay for changes in order to keep the project proceeding. Time is worth a lot of money to the owners in commercial and industrial construction.

[HWHII]

Over the years I have found 1/3 ratio has work well for me except when it come to forged work. Always much more labor involved. A mentor of mine told me his secrets when dealing with a potential client. He said to ask there budget and explain that it will have a impact on the design on there project and then give examples of why. This will give you a better idea of how to proceed. When you do present the final quote try to brake it down in small segments to prevent the shock factor and then just speak the final price with confidence and no regrets. It has been hard for me to learn this when you need the work, but Larry is right nothing worse than underbidding a job.

[Fe-Wood]

A friend of mine told me his forge work usually runs about 6 time material cost. So using that ratio your first instinct was about right at 28K. If you have a good relationship with the builder go back and see if you can do it "cost plus". I have done that in the past and it works out well. Sometimes honesty about pricing works well if you have a solid working relationship to go on. If he's just trying to work you... walk away!

Its always hard to loose a client/job.

I'd rather loose my house and shop myself rather than have a project/client do it for me!

Another good barometer is- If you get all the jobs you bid, your working to cheep. If you don't get any jobs, your to high. Its always good to loose a few. Makes you keep your pencil sharp!

[tzonoqua]

What I have started doing recently is asking the customer up front "How much do you want to spend?" or "What is the Budget?" This goes a little way in alleviating any awkward situations.

I can't comment on any ratio. If there is a secret formula out there that works for everything I'd love to have it!!

[HWooldridge]

Ratio's and/or percentages can be dangerous because they do not take into account all the variables of the job - with the possible exception of production work. For example, an entire fireplace set might have $20 of steel in it but you would not want to make it for $120. I recall another instance that happened several years ago, where a professional smith in this area quoted about 100 feet of custom railing at $90 per linear foot but later claimed the commission almost bankrupted him because his travel and installation costs were grossly underestimated. His initial reasoning was since most railings went for $50-60/ft at that time, $90 should have been a good number - but that was a bad assumption.

My first real job after graduating college was working as a professional estimator so I received a good foundation for quoting my own stuff later. I subsequently tend to look at every job as if it was completely unique then put any efficiencies that can be gained in my pocket. I tend to disregard material cost unless it is something special like bronze or stainless, with the assumption that my overall labor rate will also cover materials. Other people have different methods that work just fine but my quoting strategy is validated by the fact that I make about 20% pre-tax income every year after all expenses and I'm just slightly too busy to be comfortable - so I think I'm probably getting the right amount of work for my personal tastes.

With regard to pricing, I usually provide a high ballpark and then drop the price if the design allows it. After all, I can always drop the price but increases are seldom popular. In your case, you might consider going back to the contractor if the price is uncomfortable and offer the option of painted mild steel. I have volunteered cost cutting options several times in the past but had the customer come back to the original price, perhaps because they felt some corners might be cut in the project.

[thecelticforge]

What I have started doing recently is asking the customer up front "How much do you want to spend?" or "What is the Budget?" This goes a little way in alleviating any awkward situations.

I can't comment on any ratio. If there is a secret formula out there that works for everything I'd love to have it!!

I usually go by this method, but my pricing formula usually stays the same:
Shop hours + 2X metal cost. This works for most things but...

[Nakedanvil - Grant Sarver]

Many blacksmiths seem to use 1/3 material 12/3 labor and the rest is profit.

I would never give any sort of ratio. Sounds to me like it should have been $33,000.00 = 100% of the job. That's my price.

[arftist]

Every single one of you made incredibly valid points and I apreciate them all.

I am glad the budget concept came up. I have been trying to master the concept for a while and I am not quite there yet. For example, last week I met with another customer, about another gate. I tryed to broach the budget concept, and got a blank stare, then something like " I don't have a budget, I have no idea what gates cost". When I tried to explain the difference between cut and weld tube-steel vs forged solid bar, the response was to the effect of ""I am not A putting crap gate here!" I guess I am not expressing it very well, but I didn't get too far trying to find his budget.

After reading your responses I do feel better. Thanks.

[kcrucible]

Every single one of you made incredibly valid points and I apreciate them all.

I am glad the budget concept came up. I have been trying to master the concept for a while and I am not quite there yet. For example, last week I met with another customer, about another gate. I tryed to broach the budget concept, and got a blank stare, then something like " I don't have a budget, I have no idea what gates cost". When I tried to explain the difference between cut and weld tube-steel vs forged solid bar, the response was to the effect of ""I am not A putting crap gate here!" I guess I am not expressing it very well, but I didn't get too far trying to find his budget.

After reading your responses I do feel better. Thanks.

Not really based on blacksmithing pricing, but in my line of work we have a fair amount of flexibility in pricing and items that can do the job.



What we TRY to do is approach it like this:

"You know, there are a lot of ways to approach this problem. If you could give us an idea of what you're prepared to spend we can find the best solution that can fit within your budget."

This has the advantages of:

1) Letting them know that you're flexible and what they want is important to you. You can do "not top-of-the-line" work if it meets their needs and aren't just going to try to bully them into spending more.

2) Implies that top-of-the-line work is pricey, and worth it, but they may not be able to afford it. It reinforces the "you get what you pay for" idea that everyone already knows, but lets THEM dictate what they want to pay for instead of presenting it as a "take it or leave it" scenario.



For example, with the gate, you may mention that by reducing the number of bars, you can cut material and labor costs dramatically, while still retaining the "feel" that they're looking for.



It doesn't always work... some people feel that you're trying to squeeze out as much money from them as possible when you ask for budgets, which is true, but what they don't realize is that if they told you their budget it'd probably work in their favor... you may throw in some freebies and still keep the costs the same, etc.

[arftist]

Knowing the budget obviously helps the craftsman, but I think the customer benefits equaly, by getting what they want for what they want to spend. It is hard to get past the lowest bid mentality though. Thanks for the good input.

[kcrucible]

Knowing the budget obviously helps the craftsman, but I think the customer benefits equaly, by getting what they want for what they want to spend. It is hard to get past the lowest bid mentality though. Thanks for the good input.

Even if they came into it with the lowest-bid mentality, as soon as you start asking what they expect and what they want to pay for, they're likely to use the same criteria to compare your work vs your competitor's work.

If you just charge more for a given class of work there's nothing we can do about that. But if the other guy has a lower bid because he cuts corners, doesn't do the detail work, etc, then introducing the customer to the REASONS that a bid can be lower can only work in your favor because it will cause them to question WHY the other guy's bid is lower. It will force apples-to-apples comparisons.


If nothing else, the whole thing opens up the lines of communication and turns the process into a dialog of wants vs needs vs price where the customer is an integral part at all levels.

[Mainely,Bob]

Very valid points there K.

Opening a line of communication and knowing the budget does 2 things;it lets you know what the customer wants and needs(not always the same thing)and it assures you that you don`t waste your time or leave money on the table.

The problem is that there are so many "rape and run" contractors out there it`s hard to convince a customer you are honest and above board without extensive discussion.
Just as customers must protect themselves from the disreputable characters at work out there we must also protect ourselves from unreasonable or clueless customers.

If someone wants to cut costs and shoulder some of the work I can be flexible.I have let customers supply the material and deliver it to my door,did only the fabrication end of a job and let someone else handle installation,and acted as a foreman pushing their crew,all if the price to me is right.

If someone wants me to show up and do an estimate(usually on my own time) then I don`t have time for games.I could just as easily be in the shop making money.
If the conversation goes along the lines of;you ask "what`s the budget" and they reply"What can I get away with?",I tell them to do their homework,think about it and get back to me when they`re serious.
Too many times starting out my time and research became the lever to make someone else drop their price and get the job.
If they can`t be up front with me,on my time,then I leave a card, walk away and save myself the aggravation up front.

[Thomas Dean]

Your feelings 'might' be valid had the client wanted the project in mild steel but working 316S/S is a whole different animal. IMO Enjoyed reading the comments and reasoning behind them, very educational.

[Mainely,Bob]

Your feelings 'might' be valid had the client wanted the project in mild steel but working 316S/S is a whole different animal. IMO Enjoyed reading the comments and reasoning behind them, very educational.

Your post brought to mind one customer who wanted deck hardware made for his yacht out of 316 and he would supply the material.I quoted him a price using ground and polished plate to start.He shows up with hot rolled,annealed and pickled and expects the same price,minus material cost,for mirror polished finished product.
I told him he was dreaming and to call me when he woke up.

Another joker wanted ornamental work done using his "historic material" as a base.He shows up with heavily pitted,odd shaped pieces of scrap from a ship wreck and then was surprised that I wouldn`t beat the price he was quoted for the same work using new hot rolled.After all,he was supplying the material. :rolleyes:

[Fe-Wood]

The ratio I gave is a "average" over a period of time. Anyone who bids custom, one of a kind work on a regular basis should never use a basic linear foot price until they have either made a sample or at least run the numbers for t&m. I don't. But I do consistently come in ABOUT 1/3 - 2/3 on my GC work. I don't check the ratios until after the project has been paid in full either.

[tzonoqua]

Grrrr, well, I just had some potential clients round this morning who are interested in having stair bannisters made. I asked them, "how much do you want to spend?? " They said "How the hell do we know? We've never had one of these made before!!!" So then I felt I had to give a quick on the spot rough guestimate... and went against my better judgement by giving them a figure there and then, when normally I wait till I've finalized the design and done a test piece! Sometimes you can never win!!! :rolleyes:

[Mainely,Bob]

Grrrr, well, I just had some potential clients round this morning who are interested in having stair bannisters made. I asked them, "how much do you want to spend?? " They said "How the hell do we know? We've never had one of these made before!!!" So then I felt I had to give a quick on the spot rough guestimate... and went against my better judgement by giving them a figure there and then, when normally I wait till I've finalized the design and done a test piece! Sometimes you can never win!!!

Two choices,charge your hourly rate for labor to do their homework for them and stress that this fee is far less than hiring either an interior designer or an architect and the fee will be applied toward the final cost of the job once you get it.If they balk at this then the second option is to leave a card and tell them you will return when they are really ready to move forward and have a budget in place.
If you`re hungry for the job then maybe augment the card with a binder of past customer`s pics and contact numbers(be sure to clear this with the past customers first) which you will retrieve later.
I always show up to an appointment in clean clothes,on time and with an appropriate tape measure and the proper paperwork to conduct business(printed blank forms,graph paper,invoices and a binder with pics of my work).I also turn off my cell phone when I arrive and let them see me do so.

Customers can and will waste huge amounts of time fishing as long as you are willing to give that time away.Having the customer understand that this is not a free,long,open ended process and your time is valuable by making them pay for your time(stress that the fee will be applied toward the job when you get it) causes them to do 2 things,make a choice and move thru the process efficiently.
I leave the education/planning session having presented an invoice for my time,due in 30 days unless I am awarded the job.Any drawings, detailed estimates,cut lists,and other paperwork will be delivered to them upon payment of that invoice.The back of my card has at least one non-binding figure for the job written on it before I leave.
I find it sorts the dreamers from the doers and also keeps change orders to a minimum later on.
If this is a return customer that I have a successful relationship with then my time is free,to a point.If it is a friend of a former customer they get an invoice first time around.It sets the stage and lets them know you are a professional craftsman and your time comes with a price tag attached.
All this tells them you will not waste their time and that in return you do not expect them to waste yours.

[edge9001]

bob, that sounds like probably the best way to go. I actually have my first customer negotiating with my now for a pair of gun racks. this guy wants 2 horse shoe wall mount gun racks. nothing special. I offered to make him one of these


his answer was he didn't need the felt or the barrel locks. this guy essentially wants me to weld together 8 horse shoes. amazing! I can buy premade shoes from tractor supply and weld them together for under $25 materials and less than as hour of labor. lol AND he is worried it will cost him too much. I think I'll just ofer to trade for extra materials

[tzonoqua]

Bob, I didn't mean to infer that my customers were either wasting my time or were they not serious, they drove almost two hours and brought templates with them (the hardboard they pulled out of the gaps they want filling with rails) I live in a pretty remote area, and all the work I get is by word of mouth, and sometimes via my website, so anyone coming to me will already see my portfolio online, or in this case they've seen my work around the locale so know what they're getting. They just really didn't have a clue how much this stuff costs! I showed them pictures of previous work, and told them how much it cost, to try to give them an idea, but me being me felt I needed to give them a rough ballpark figure, so I did.

I was trying to make a jest at my previous remark about "ask upfront what the budget is" It's funny cause I've never had anyone say to me what they did, and was just timely as Arftist said of a similar experience in the thread also.

When working out my price tag I keep track of the hours I've spent on design and add that on to the final figure. I always get 50% up front also.

All very useful information. Point taken about design fees, a few years ago I spent hours on a gate design, but never heard from the clients again, luckily they didn't take the design with them, I never handed it over, I was just miffed I'd spent a couple days on design work when I could have been earning elsewhere.

Live and learn...

[Nakedanvil - Grant Sarver]

Grrrr, well, I just had some potential clients round this morning who are interested in having stair bannisters made. I asked them, "how much do you want to spend?? " They said "How the hell do we know? We've never had one of these made before!!!" So then I felt I had to give a quick on the spot rough guestimate... and went against my better judgement by giving them a figure there and then, when normally I wait till I've finalized the design and done a test piece! Sometimes you can never win!!!

Seems like you need to be able to say something like: "Well, you can buy cheap ready-made kitchen cabinets or custom ones at various price levels. When you shop for anything that comes in varying quality and price, your budget is very important. I just need some idea of your expectations and budget".

Never been in that situation.

[tzonoqua]

Yeah, Grant, aren't you the lucky one.

These people really did want educating as to what their money could buy. They've never commissioned a blacksmith to make anything before. Breaching the "budget" question got things out into the open. We discussed how they can have this design element, (lots of little branches and leaves) and it's gonna be that much more expensive, or they could have something a bit simpler, etc.