Bringing Up Budget
by Paul Eldrenkamp
Remodeling contractors and custom home builders frequently take far too long to get a “yes” or a “no” from a prospective client, when it can instead be a very efficient, service-oriented process that, in my experience, often requires no more than a 90-minute or 2-hour initial meeting.
I have talked with multiple contractors who have invested many hours and multiple meetings on a potential project and still don’t know for sure whether they stand a chance of getting it. This is time they could have spent working with more committed clients, or on developing other aspects of their business, or on relaxing with their families.
I recommend setting this simple rule for yourself: “I will not have a third meeting with a prospective client until I have their signature on something”—on a design agreement, a pre-construction agreement, a deposit check—on anything that signals a reciprocal commitment from the client. That’s a rule I set for myself many years ago, and although I have to admit I sometimes slipped up and did not stick to it, the practice changed the way I approached the whole sales process, and vastly improved the quality of the service I was able to provide very early in the courtship process.
Adhering to this rule requires the ability and willingness to have potentially difficult or awkward conversations with confidence and good humor. The willingness and ability to have those difficult conversations very early in the process may be one of the most important services you can offer.
Because of this rule, I developed the ability over the course of a 1- to 2-hour initial meeting with a prospective remodeling client to get these essential things accomplished:
Gather enough information about the homeowners and their project to confidently provide a plus-or-minus-25% ballpark budget for the work they were considering;
Have a candid, productive conversation with them about that estimated budget range;
Determine whether we were a good fit for each other; and
Get a “yes” or a “no” about proceeding to the next step in our process.
Although my experience is in residential renovations, I think much of what I have to share here can be applied to other markets and other types of construction projects.
Before I get into the details of how I prepared for and structured that initial meeting, here’s some of the lasting principles I learned from many hundreds of initial visits with prospective clients that formed the foundation for a good first visit:
The better you understand what kind of work you’re good at and are passionate about, the more efficient your first sales meetings can be.
Guessing too low a budget range does a lot more damage than guessing too high.
By getting a really good handle on the costs of your past projects, you can develop an uncanny ability to predict the costs of future projects.
Finally, If I’m going to lose a job on price I want it to be as early as possible in the process -- ideally, at the initial meeting. In other words, if you’re going to get fired from a project, get fired as early as possible. That way they’ll still probably like you.
Keeping these principles in mind, below are the three steps I took to set the stage for an effective and efficient first sales meeting—preparing for the meeting, running the meeting, and following up after the meeting. You may come up with a different set of steps based on your particular business, the types of jobs you do, and your own personal preferences. The important thing is not necessarily to do what I do, but to have a process and stick to it.
PREPARING FOR THE INITIAL MEETING
In my company, our office manager would take the initial calls (or website inquiries) and do the first round of qualification.
For those prospective clients who got through that initial round of screening (mostly based on schedule, location, and size of project), I would set up a follow-up phone call to get a clearer idea of the scope and components of the anticipated project.
I would then look up our cost ranges for similar past projects from our job cost accounting database (yet another good reason to do job cost accounting) and memorize those costs prior to the meeting. I would also look at our production schedule to get a good sense of our next open schedule slot.
We almost never discuss budget with prospective clients on the phone. We far prefer to discuss budget in person, in large part because, as I describe below, the most valuable part of the conversation often only starts after you’ve put the budget on the table. Learning to discuss budget in person—always fearing that the client would like me less as a result—was one of the hardest but most useful lessons of my career as a remodeling contractor.
RUNNING THE INITIAL MEETING
Here’s my tips for a good first meeting:
I recommend against bringing any props to the initial meeting—no portfolio, no tape measure, no notebook, no pens. If you do, it can impede the real purposes of the meeting, which is to have engaged conversation and to closely observe. At most, have these props available in your truck or car to go and fetch depending on how the meeting goes—if it goes really well, you’ll be in position to take measurements and notes and photos. But that becomes, in essence, a second meeting. If you’re worried about forgetting something important during the conversation, maybe just have a small notebook handy. My main point is that this initial in-person interaction needs to be a conversation, not a presentation; you’re there to learn, not to impress with your expertise. Time spent presenting or impressing is time spent not listening.
Don’t ask them what their budget is. Wait until the right time, and then tell them what their budget is. This is hard and takes practice and a solid knowledge of what your costs are—and so you may decide you want to try a different strategy. That’s OK. The goal is to run an efficient, service-oriented sales process—to not have a third meeting without a signature—and you need to come up with the best way for you. That being said, my experience was that one of the biggest time-wasters in any project development process was failing to talk about price at the earliest opportunity.
Do bring a good sense of your values and differentiating skills. These will help you run a more focused meeting and avoid saying yes to things that you may later regret. Just as an example, here’s our ground rules that I brought to the meeting; your ground rules will be different:
Because of our goal of reducing both operating and embodied carbon, we work hard to avoid additions;
We always want to make the house more energy-efficient regardless of what the other goals of the project are;
We prefer to strip away past remodeling errors rather than work with them risk further entrenching them;
We like to make sure that we’re dealing with the worst problems in the house head-on rather than prioritizing lesser issues and kicking the big issues down the road for a future project or a subsequent owner.
Do a tour of the whole house, basement to attic and (weather permitting) a quick walk around the outside. Keep it high level and keep it moving—don’t get dragged into details. If you can do it seamlessly and without breaking pace, take some photos.
Don’t talk too much. Try to just ask questions. Don’t be the building expert; try instead to be the investigative journalist, or the Lt. Colombo, or the therapist. Really listen, and look, and memorize for later reference your key observations about the house and things the homeowner mentions. Also keep a mental list of what the main project components are shaping up to be—for instance, a kitchen renovation, a new bathroom, a heat pump conversion, etc.
After the tour, sit down to have a conversation. Ask them how much they know about your company and your process. Assure them that before the end of the meeting, you’ll be giving them some ballpark budgets, but first you need to make sure you really understand what the project is and whether you’re a good fit.
Mention things you saw that you liked about the house.
Repeat what you think you heard them say about what they want to accomplish with the project. Give them time to affirm the list or correct you, and to elaborate on what they may have already told you. Make sure you understand the priorities, the “wants” versus the “needs.”
Be enthusiastic about the project.
Share your first impressions about the wisdom or feasibility of their wish list. Usually, there’s something on the wish list you will want to push back on—either because you think it’s a bad idea or because it’s not something that fits your values well. Invariably, you’ll learn a lot by their response to your pushing back. You frequently learn more by disagreeing (gently and politely and with good humor, of course) than by agreeing.
Talk about how long you think the project will take to plan, and how long it will take to build, and when you think you’d be able to start. You can learn a lot about homeowner priorities and anxieties this way. A note on discussing schedule: Mentally calculate how long you think it will take. That’s the low end of the range you’ll give them. Double that low end. That’s the high end of the range. In other words, if you think it’s a 3-month job, tell them 3-6 months.
Remember that a salesperson never has more credibility than when communicating to a prospective client something that that client does not want to hear.
Once you feel sure you understand the overall parameters of the project, it’s time to talk about the budget. At this point, I review with them one last time the list of major components of the project. The list is usually pretty similar to what I had discussed on the phone even prior to the visit but there are sometimes some important variations that came up over the course of the walk-through, and there is always important new information. I make any adjustments to the broad budget that I had prepared in my head before the meeting, I check myself that I’m not about to say something that I will later regret, and then I offer a price range.
Here are some ways I frame the budget. Use humor (like the “bad news - good news” framework in the first one) carefully or not at all. Having to explain a joke is never a good thing; in a first sales visit, it can be disastrous.
“The bad news is that this is a six-figure project. The good news is that the first digit is a 1.” Pause. “So I think this is a $100K to $199K project, and most likely it’s much closer to the middle than to the lower end of that range.”
“I estimate this project will cost somewhere between $200K and $300K, and that it will be a lot easier to get to $300K than to $200K.”
“The last three or four projects we did that were close to this overall scope ended up costing between $300K and $400K.”
“I’m going to guess $100K to $200K. I’m also going to guess that coming out of this meeting you’ll remember $100K and I’ll remember $200K.”
But you need to come up with your own language that’s comfortable to you and that you can use confidently. Any hesitancy or discomfort can work against you at this critical time in the meeting.
My experience is that it’s pretty important not to say anything after you offer this initial ballpark estimate. You really need to wait for the homeowner to respond, even if it feels like an eternity. For many people in our business, the silence will be intolerable and you will be desperate to fill it. Don’t. There is a high risk of filling it by saying something that you hope is helpful but isn’t.
At this point the real meeting starts:
Sometimes it’s short: the budget is just too high. You can usually tell, if not by the verbal response then by the nonverbal response. So then there’s some face-saving questions and a bit more conversation. Review the priority list and see what can be cut out.
Sometimes, to force the issue (and if we’re confident about our backlog), I ask if they’d like a referral to a contractor who may be a better fit; if they leap at that offer, it tells me all I need to know—that the gap is so big we probably can’t close it. I reiterate that we do our best to help anyone who gets in touch with us to get headed down the right pathway, even if we’re not the best choice ourselves.
Sometimes it’s short: the budget is pretty much what they expected, or within a range they can tolerate. I talk about the rest of the process, and get approval for moving to the next step.
Sometimes I find what I thought was the end of the visit turns out to have been just the middle: the budget is higher than they really want to work with, but they like what we offer and they want to know how we can work together. It’s not unusual that having to give clients a ballpark budget that’s outside their comfort range leads to a deeper conversation about what they really want from the project. You’re forcing them to prioritize, and you both can learn a lot from the priorities that emerge from the conversation. These more tentative situations can be hazardous, however: it’s easy to be flattered by their eagerness to work with you, and to try to find budget solutions where there aren’t any. It’s important to be as candid with yourself as with the client regarding what you can really offer. Even in these extended conversations, it’s important not to settle for a “maybe”: to get to a confident yes or a confident no.
A “confident yes” means that they tell you they’re willing to accept the budget range and the scope of work that you’re telling them you can offer, and they want to take the next step with you (that next step will depend on what you’ve defined as your project development process; in my case, it’s usually a design agreement). A “confident no” means it’s clear there’s just not a match, and that you’re offering to do a clearly defined amount of work (a referral or two, typically) to try to help them find a match.
FOLLOWING UP FROM THE INITIAL MEETING
At the end of each meeting, I tell them what I’m going to do next, and when I’m going to do it. It might be setting up a second meeting with an architect or designer, sending a design agreement or a couple of references or past projects to visit, or sending a list of other contractors they should consider. When I get back to the office, I write up notes from the meeting to reiterate those next steps and add any information that I think will be helpful.
Overall, this makes for a really efficient sales process. You waste very little of the client’s time, your time, or your team’s time. But it’s not only very efficient, it’s also very effective. Being willing and able to bring up budget, in person, at the earliest stages of the relationship sends a message of honesty, transparency, and service that will serve you well down the line, no matter what path the project takes.