Selling Above Margin: Upgrades & Custom Work
Years ago, while preparing a project management seminar for the Restoration Industry Association (RIA), I was asked to include a section on upselling strategies. At first I was reluctant, feeling the topic was inappropriate for the subject matter of the course. However, upon presenting the material and seeing the reaction of the audience, I recognized the need.
This need has been reinforced on several occasions recently as contractors continue to experience profit deterioration in the market due to Third Party Administrator (TPA) influence, increased competition, and price sensitivity from the consumer. As operating costs increase and the market price for services decreases, restorers must turn an opportunistic eye toward strategies that afford them the ability to sell in ways that may not be traditional to the industry. I believe this can be accomplished effectively through selling upgrades and pricing custom work.
When it comes to selling upgrades or add-ons, restoration contractors are leaving money on the table every day. They have been conditioned, over their years of writing estimates for insurance companies, to view a loss with a “like, kind and quality” attitude. They assume the customer will be unwilling to pay more than their insurance reimbursement to have work completed on their property. Some contractors even go out of their way to discourage the customer from making changes to the scope of the work. Considering the current state of the market, this approach is not only shortsighted but costly.
Given the availability of funds, most homeowners would change something about their home. Whether it’s a fixture, paint color, or floor covering, customers are always looking for something a little nicer or a little more functional. We know this because of the increased popularity of home improvement shows. The lack of discretionary money or the inconvenience of another home improvement project usually prohibits them from taking action. But restoration work resulting from an insurance loss provides a portion of the funding and forces the inconvenience of the repair, thus creating the perfect scenario for the contractor to sell upgrades to the customer.
Selling upgrades to a homeowner who has just experienced a loss without coming across as a vulture requires tact and skill. The restorer must pay close attention to see if the customer indicates a desire to make a change. Some will come right out say they would like to replace damaged materials with something better, while others may make subtle hints like, “we were planning to remodel this room anyway.” However, the vast majority will not say anything at all. These are the cases when a savvy restorer will ask the customer about their satisfaction with the current materials and fixtures in the home.
When it comes to selling upgrades or add-ons, restoration contractors are leaving money on the table every day.
If a desire to upgrade has been established, the next step is to qualify the customer’s ability and willingness to pay for the changes. This step can be a bit trickier, as the only clue a contractor has is the current size and aesthetics of the home, which can be misleading in today’s unstable economic environment. The best way to truly qualify the customer would be to come right out and ask. “If we could provide you with a better grade of product or additional services at a modest price, would you be interested in seeing those options?” Most customers that have the means will say yes.
Once the customer’s willingness to upgrade and ability to pay have been identified, the contractor can begin developing options for the customer. At this point, it is helpful to gather feedback about quality and budget, as it’s very easy to underestimate how much a customer is willing to spend. Gaining a better understanding of their desires can help put the options into the right perspective.
During this assessment, the contractor can seal the deal simply by using a little common sense. Speak to the customer at their level and let them tell you what they want. This will prevent you from being tempted to only present them with what you want to sell or what you think they want. Ask intelligent questions about functionality and resale value of the home. Include all parties involved and compliment (never criticize) their style. Having this discussion makes the presentation of options much easier.
When offering options to the customer, I recommend having three. This is called “the triplicate of choice.” Numerous studies have shown that when a consumer is given three options they will most likely migrate to the one in the middle. For the restorer, the lowest available option will revert back to the “like, kind and quality” of the damage repair scope. The highest option will always yield the contractor higher price and higher margin, while the compromise may fill the role of lower price but higher margin. Regardless of how the options are structured, the contractor should never accept a lower margin for any change or upgrade.
Occasionally customers will object to the cost of the upgrade. Fortunately, this is the easiest objection to overcome. Since most of the indirect and overhead expenses associated with completing work in the customer’s home are already covered in the insurance settlement, the additional cost of the change is just labor and materials. When presented properly, this usually supports the contractor’s position in the negotiation.
Selling upgrades to customers in the midst of an insurance loss can be a win-win situation for both parties. If the contractor can communicate a “let’s make the most of the situation” message to a receptive customer, the potential to close the deal increases dramatically. These situations are real and present themselves every day. The additional revenue they can generate adds profits to the bottom line and can help offset slow periods associated with the unpredictable nature of our industry. Try turning your project management team into a sales force and see what it can do for your business.
Custom work should be an estimator’s dream. The opportunities to deviate from the standard unit cost line items of “good, better, best” are more common than one might think. Whether it’s a special-order door or a built-in book case, these items can yield deep profit margins if priced, presented, and sold correctly.
Pricing custom work is appreciated most by those who have performed this type of work before. If you have ever scratch hung a door, coped the inside miter on 6” colonial base, repaired a plaster rosette, or faux painted a wall, you know what I mean. The craftsmanship it takes to perform custom work is truly artistic. It requires skill, experience, and patience. Having an appreciation for this allows an effective estimator to price these services appropriately. And when I say appropriately, I mean at rates that are double your normal profit margins for the trade.
Why double? The answer is logical. It takes at least twice as long, and even the best tradesman will admit that you are only going to get it right half as often. This leaves you with double the exposure on the cost side. Consequently, you must charge twice as much to cover your risk.
Most restorers I talk to will object to this philosophy with the defense of an adjuster, while regurgitating the very objections they face each day. If you change the price in the estimate it will red flag you. Why don’t you show me the subcontractor’s invoice and just add overhead and profit? Or separate the materials and labor and bill it on actual time and material? To those I say, wait a second, when was the last time a client asked their attorney to adjust their billable rate for a court appearance? Or a surgeon his fees for a triple bypass? Professionals command higher price tags for their knowledge and experience. The best way to support this position is to be knowledgeable and experienced yourself.
Gaining the needed education starts with research. Specifically, product and application research. The more information you have in these areas, the better prepared you will be to present the information to the customer and the carrier. Being able to cite reference sources regarding products and installation methods is a big advantage when composing an estimate with custom work. Chances are neither the customer or the adjuster are going to be familiar with this information, nor are they going to take the time to research it themselves. This puts the estimator in a position of authority and sets them up to sell.
Custom work should be an estimator’s dream. The opportunities to deviate from the standard unit cost line items of “good, better, best” are more common than one might think.
Confidently selling custom work is not much different than selling upgrades. The only variance is that the two most critical components, customer need and methods, are already established. All the estimator needs to do at this point is create the willingness … and this is where quality comes in. Specifications like grade of materials, appearance, and functionality are great ways to create value during the sales presentation. Avoid commonly used statements like “to do this the RIGHT way…” and replace them with something similar to this example for a custom door:
“To provide you with a new solid core mahogany exterior door that is 3’ wide x 8’ high, with double 14” craftsman style leaded glass sidelights, double bored for a handset and deadbolt, with oil rubbed bronze self-closing hinges, we will need to special order the door and have it installed and adjusted to fit the existing opening by one of our master finish carpenters, and the price will be $X.”
This method of selling custom work will land you better deals and build you more credibility with the stakeholders in your projects.
In the restoration business, there will always be opposition to the non-traditional methods of this approach. My advice to critics who claim they won’t work is simple: give them a try. They may only work two out of every ten times, but that is two times more than they worked before.
The landscape of the property services industry is changing more rapidly than ever, and the restoration segment of this population is not immune. Fortunately, these changes are also presenting opportunities for contractors to maintain and even increase margins despite the influences of opposition. The opportunities are the here and now. Take advantage of them and watch your deteriorating margins return to where they should be.