Does Your Client Understand Your Lingo? Who Is Watching Your Bottom Line?
No matter what business you are in, you will learn acronyms, lingo, and terminology that comes with years of being in a certain industry. This knowledge is wonderful when you talk to others in your industry and shortens the amount of time it takes to communicate. Although this may be an advantage in the construction industry with your peers and crew, it can affect your gross profit when this foreign language is used with a client. Some contractors assume the client has done their homework and knows the differences. Do you have an experienced bookkeeper and clear estimation process in place to cover your back?
Comparing Different Grades of Build
In the construction business, one of the most common miscommunications or misunderstandings with a client is in the “standard” or “builder grade” terminology. I know from both sides of the coin, being a kitchen and bath designer to having my home built, how easy the gap of communication exists. I have heard the same terminology for the last 25 years and it is important that the contractor conveys exactly what “builder grade” is. Considering kitchens and baths are commonly viewed as an indicator of the home’s value, there is often a difference of thousands of dollars in the consumer’s mind versus the builder’s mind.
For example, a “builder grade” plumbing fixture, with most general contractors, is finished in chrome. Brushed nickel or any other finish is typically an upcharge. Cabinets are one of the most expensive finish products you will put in a home, and the range between “builder grade” and semi-custom gets into the tens of thousand in difference. If the client goes for fully custom cabinets that can jump up to a $20-30K difference. Countertops are another example of large differences in costs between tile, laminate, solid surface, and natural stone.
By the time the customer has dreamed of the finishes in the master bath or kitchen, the differences in a budget can add over $50K. This scenario can be especially challenging for your full charge bookkeeper who is watching your bottom line. Having an experienced bookkeeper with specialized knowledge of the construction field is a huge asset to any construction company, not just because they can handle the tremendous amount of purchase orders, change orders, and incorrect orders and returns, but because they are invaluable in helping the contractor improve their profit margin and stay within budget.
A Simple Finish
Investing in an educated bookkeeper is invaluable for your checkbook. Even investing a little bit of time with your bookkeeper and customers will provide a viable command of your money
The following are just a couple of examples where your budget can go awry.. The first of these examples are plumbing fixtures. These can vary in price dramatically, between manufacturers for the same “look” but different finishes. The difference between a chrome finished, 3-hole faucet and the exact unit in a brushed nickel finish starts roughly at $20.00 to 60.00 per unit. When you consider that you will have several bathrooms to purchase for, you will need at least 3 or 4 faucets, a shower/tub combination, and a stand-alone shower fixture unit, you are already adding hundreds of dollars to your budget just in a different finish, let alone upgrading to interior brass valves.
What is in the box?
Having a firm budget with your client is very important when it comes to cabinets. Aligning your client and bookkeeper to this budget is imperative for your profit margin as cabinets are typically your most expensive interior finish.
For example, 18 linear feet of stock cabinets from a big box store will come in around $5,000-$7,000 dollars. Stock cabinets are only 30 inches high on the upper wall cabinets, and you are fairly limited with finishes (5) and sizes. Most of the construction is made of particle board and stapled drawers with lightweight drawer glides. A semi-custom cabinet comes with the options of taller upper wall cabinets, 13 to 30 finishes, solid ½ plywood, dovetail drawers and heavy-duty drawer glides. These semi-custom cabinets will usually start at $12,000 to $15,000 dollars for the standard build without specialty interior pull out drawers in base cabinets and other nice features.
Moving up to high-end custom-built cabinetry with solid wood boxes, custom sizes, and woods, plus specialty finishes can easily be over $25,000.00 to $35,000.00 dollars. Obviously, it is important to understand that I am comparing apples to apples in as many factors as I can to come up with this comparison of pricing. I also designed and compared these factors on my own 2022 kitchen build.
Tile Countertop vs Solid Surface
Countertops are another point of the need for clear and concise communication. Differences in costs between tile (ceramic, porcelain), laminate (Formica), solid surface (man-made) and natural stone (granite, marble) are also vast. Some ceramic tiles you can get for 99 cents but are soft and very porous. Porcelain tiles usually are in the two dollars and up price point and are impervious (non-porous) and very durable.
The downside of these kinds of installation is that you will have grout lines on your countertop and more costs in labor. Laminate countertops are less expensive and have become more durable over the years but are typically recognized as a “builder grade” material. Solid surfaces and natural stone choices jump up thousands of dollars from laminate and tile installations. Countertops upgrades can add $7000.00 to 10,000.0 in a heartbeat.
Why This Is Important
The customer must be educated in all aspects of the interior finishes to make sure both budgets stay within the original plan. The general contractor needs to take time and use layman’s terms to explain and come to a clear understanding of what the client’s expectations are. If the contractor does not make sure that the client understands what is included in the budget, there may be a loss on the contractor’s side or a very unhappy client that discovers that a “builder grade” product has been specified for their project. These examples can wreak havoc on a contractor’s bottom line.
Having proper software and educated bookkeepers that are familiar with the construction industry is vital to the health of a construction company’s finances. Having that daily eye on your bank account can also alert the contractor to unusual spending from an employee or vendor saving both the client and the contractor money.
Most contractors I know simply do not have the time to do bookkeeping. Leaving at 5 am and getting home at 7pm does not lend a lot of time available to sit down and review the daily transactions that have occurred. With the ease of ordering over the internet and the quickness of deliveries, today contractors are in a constant time crunch let alone communicating properly with the client. That’s why having a great bookkeeper and using clear terminology with customers is so important to making a profit!