There are a couple of absolutes for custom home builders and remodelers…

1. If you give away your time for free, that’s as much as your time is worth
2. If you charge for your time while your competitors give their time away, your competitors know what their time is worth!

In this episode of our series “Why Builders Lose Sales to Competitors”, we cover all aspects of successfully managing the design agreement phase and how doing so could mean closing larger sales, at better margins, more frequently. The key to this phase is getting incremental commitments from your lead, in exchange for providing incremental work. 

Go beyond! Read/Watch/Listen to this episode – understand how the design agreements can create win-win relationships and help ensure projects run smoothly (and profitably!).

Builder Lead Converter ATTRACTS, CAPTURES & CONVERTS high-quality leads for builders so they can pick & choose their clients & jobs. Find out how at https://www.builderleadconverter.com

 

Transcript:

 Today on Conversations That Convert, we will continue our discussion on why builders lose sales and what you can do about it. We’re getting into the sales process and today we’ll be talking about getting that all-important design agreement or that initial commitment. Let’s get started.

Welcome to conversations that convert every week, we’ll spend about 10 to 15 minutes tackling relevant lead generation, marketing, and sales topics for remodelers home improvement companies and home builders, Conversions that convert are brought to you by builder lead converter, perfect sales assistant.

And now here’s Rick and Daiana. 

Rick: Welcome everyone to Conversations That Convert. Welcome, Daiana. Lovely to see you again. 

Daiana: Thank you. Likewise, welcome everybody. 

Rick: So what are we talking about today? 

Daiana: Today it’s part five of our sales process, and we’ll talk about how we design agreements, and this is part of why builders lose their sales to competitors and what can we do about it. 

Rick: Yeah. What can we do about it? Again, this is part of our series that’s been going on for a little while here and why builders lose sales. We are in the fifth and final phase. We started all the way back on attracting high-quality leads to your website.

And the stage that we are in right now is that you have just had the first face-to-face meeting with your lead and you have confirmed the following. First of all, you’ve confirmed the budget and it’s realistic and it’s something that It’s works with your lead, and also works with you. We’ve confirmed that the lead would be interested in partnering with you.

So essentially what we’re talking about here is now what is the next step and so, remember as far as part of the design-build sales process, you are going to get some sort of a commitment here. So I put on the screen here three different potential commitments. This would be a scope and range, which we’ll discuss more about here in a minute.

A project preparation agreement. And or a design agreement. You might have different terminology for it, but I just wanted to lay out that we’ll be talking about all three of these. You don’t have to use all three of these obviously, but having a multi-step process is really important. And we’ll talk about why. Next, so to set the stage, every lead has two questions.

They want to know what their project will look like. They want to know how much it will cost. So you are at this critical juncture where you’ve given them an initial budget range. They’ve agreed to it. You’ve met with them. They’d say they already confirmed that yes, they would consider partnering with you, your firm, to complete their project and essentially on their mind, the next, the thing that they’re asking is, well, what’s the next step?

What’s the next step? Daiana? Now Daiana, I know you’ve been in this situation with your own remodeling project, but if you could put yourself back into that place here, what were you thinking when you got to this juncture with your remodeler?

Daiana: Well, same thing. I, I’m a visual person, so I wanted to, see how the project will look like, and I chose not to do 2D, I chose 3D because I wanted to see in the space everything that’s, that’s going to happen. And I don’t know how, how this works, but the picture is great, but the reality is different. So…

Rick: Yes, exactly. Yeah. The picture won’t only go so far. And this is why some of the new tools open today are actually virtual reality, where you can look at your space through an iPad or an iPhone or see your house on the land before it’s built and be able to see views through windows.

There’s a lot of cool technology out there, but you’re no different than anyone else. You, you, you can’t visualize what it’s gonna look like. And so you go in and you and you want the builder to answer that question. And so that builder obviously said, hey, here’s an option for you. We can give you a 3D drawing. And you said, wow, that’d be great, that would help. So I’m assuming, as you mentioned, it was, it was more helpful than a 2D?

Daiana: Yes. And I actually asked for 3D than 2D because I can’t imagine myself the 2D somehow, but in 3D, it’s more difficult when to see. 

Rick: Absolutely. Yeah. Right. Absolutely. So, the idea here is we take these questions and the strategy is that we want to provide incremental work for incremental commitments. So obviously you, as the builder, will provide the incremental work. The lead will give you incremental commitments.

Those commitments will come in two forms. First, it will be paying you for your work. So it’ll be a financial commitment. The second will be time. And what I find is that It’s really easy for a lead to write you a check or sign a credit card statement to pay you. But where the real commitment comes from is they’re willing to invest time to provide the information that you need to know in order to answer their questions.

This is what will look like and this is how much it will cost. So hopefully that makes sense. We wanna start with the scope and range agreement, so I’m gonna go ahead and share my questions, we’ll take a closer look at what this looks like. The scope and range agreement would potentially be the first commitment you would receive from the lead, and this is how it works.

You’ve given them a budget range. So in this case, this is a kitchen, as an example, you gave them a range of 100, to 250. You, you will take the median number, so you go to 125 and you will charge 0.25% of 125,000. That is $312,000, or excuse me, $312 to give them the following information.

You’ll develop a project scope, you’ll develop some preliminary specifications. You’re gonna detail, the job essentially. And the idea here is that if the range right now is one to 1 to 125, you want to narrow that by 50%. So we’ll reduce that range by 50%. So in other words, Mr. And Mrs. Lead, if you pay me 312.50, I will do some homework and I will come back with a range that will be somewhere between instead of the $50,000 range, it will be a $25,000 range.

I’m gonna reduce that range by 50%. So the parameters you use are essentially just typical cost and your best-educated guess. And this is where you have to be really careful because if you hit the budget here, it’s almost a hundred percent conversion rate to go to the next step. But if you miss it here, you’re in trouble.

So the sales script is what’s called a sharp angle close. If we can get the budget here, are you prepared to move into the next step? So that would be the proposal preparation agreement, or it could be the design agreement. So Daiana, any thoughts here on this one? 

Daiana: So it seems like we, we don’t move forward before we have some agreement for the first step. 

Rick: Yeah. So somebody asks, I want a free estimate. I want a, would you draw a free plan for me? The answer is no and no, obviously, I’m not gonna say it directly like that, but I would say, I understand you want to know what your job’s gonna look like, and you wanna know how much it’s gonna cost. Is that right?

And you would say, yes, that’s correct. Okay. So the next step in the process is our scope and range study, our feasibility study. This is what you will get. Okay. So that’s the incremental work that I will do. And this is what you would need to provide. This is a financial commitment of roughly 0.25% of the median budget.

So again, they’re getting something in return, so it’s obviously a very minimal investment on their part, especially if it’s a, you know, a hundred thousand dollars plus project. But this is again, where you’re, you’re moving into that phase of, do you like me? Do you see the value in what I’m doing? And do you wanna know these answers?

So in other words, you’re, you’re, you’re valuing your time. You know, obviously, you’re not making money here, but you are going to account for your time, and to do a proposal preparation agreement, one to two hours, depending on the job size, is really what you’ll invest into it. Does that make sense? 

Daiana: Yes. Makes sense. So…

Rick: So, let’s look at the next step here. This will be the proposal preparation agreement. So the proposal preparation agreement would be a 1% commission. So the idea is, I have gone out and I’ve, I’ve spent an hour or two, I’ve created a preliminary scope of work. I’ve created a preliminary budget.

I’ve told them initially, Hey, I think your kitchen’s gonna be somewhere between a hundred, $150,000. You knew the home should be somewhere between a million to 1.5. You know, depending on blah, blah, blah, blah, blah. So now I’m coming back. I’ve narrowed the budget by 50%.

Now I come back and say, you know Daiana, based on what you’re telling me, I think your kitchen will run somewhere between say 110 and 135. You know, based on my estimates. That’s where I, I’m thinking we’re going to hit. The next step would be to go to our proposal preparation agreement, and I think the important words you want to use here are, This is where we make all of the unknowns known.

And going back to what’s the greatest fear of your lead, it’s having those surprise costs pop up after they’ve already committed to the project. So, let’s take a closer look at what would go into the proposal preparation agreement. All right, so 1% of the budget, just to note here, design is paid for separately, so this is only for your estimating services.

So what you will do, again, what’s the incremental work you will do? You will create a vendor list. You will get a production schedule put together. You know, based on when you can start the project and when you would anticipate it would be completed. If it’s a remodel, obviously you’re going to bring trades out to the job site.

Any formal estimates you will get from your trades, you will have the leaders do all the selections for, their project. And this, this mentions there’ll be a workbook attached to that. Now this is the key, if the final proposal comes within the scope and range budget, it’s almost a hundred percent conversion, and what you are essentially doing here is that you are dating before you get married.

So you’re, you’re not a builder at this point, you are a consultant, you’re an advisor, and you are providing the information to the lead so they can make a well-informed choice. This also gives you the opportunity to build a trusted relationship and solidify the value of your services and your expertise. So if you do this right, you’ve done two things.

Number one is, You have a good working relationship with you. They really value, what you’re doing. And number two, you’ve made the unknowns known. You’ve essentially answered their questions before they’ve ever had to start the job. So the idea here is I’m creating a lot of confidence with my client prior to them marrying me because we know once they sign that contract, it can be months, if not years, between production and warranty. Daiana, what do you think about this one? 

Daiana: So, I think it’s good to not skip this step. It’s very important to, pay attention to and just, just follow the process. It. 

Rick: Very, so true. Follow the process. Simple words out there, but yet, oh, about 50% of builders do not have a formal sales process, or they’ll do it differently based on the situation they find themselves in with the lead and from a personal antidote. When I was a salesperson in selling new homes and remodeling projects, one of the things I always would reflect back on is that if I had a sale, a sale that took a left turn and fell off the rails, I would always go back and I would, would critique.

What was my process, I could Almost a hundred percent of the time, I could say, you know what? I skipped this step. I didn’t do this right. I made this assumption and that assumption was wrong, and I would lo literally lose the sale. So it’s so, so important. Doesn’t matter how the league comes to you, whether it’s a friend, a personal referral, or simply a sign call.

If you want, you need to follow the same process. And I think this is so, such a valuable point that, that you make there. Now let’s talk a little bit more about the design agreement. The design agreement would be done concurrently with the proposal preparation agreement, so you will charge a separate fee, and have a separate agreement in order to create a design.

And obviously, in order to do selections, you have to have at least a concept plan or at least a a very thorough scope of work. So now how you charge for the design agreement will vary. It depends, are you outsourcing this? So then you have to go by whatever they’re charging and you would then turn around and charge that to your client.

If you’re doing it internally, you might charge by the square foot. It might be an hourly rate, it might be maybe a flat fee. You know, based on if it’s a project type. I really think either hourly or price per square foot is probably the best way to do this. Most of my clients that work externally, like say with an architect, there would be a retainer that would be put down with that architect.

The architect would charge X amount of dollars per hour or per square foot to design that plan. And then if that retainer runs out, another bill goes back to the lead to pay more money and you keep, you keep going. You can get, you can get behind a design really, really fast as somebody, especially if they make a lot of changes and go back and forth.

So that’s why I do not like flat fees. I understand for smaller projects, that might be the simplest way to do it, but for larger projects, definitely hourly or price per square foot, I, I think works a little bit better. Daiana, any thoughts on that? 

Daiana: Just, just thinking about what’s my, my preference. I think square feet will work more than hourly for me as a client. 

Rick: Yeah, and by square footage you can charge two different square foot fees. You can charge a square foot price for a concept plan, which is just the basics. This is how it will look. And then you can charge a separate price per square foot in order to do the final plan so that that does, does work.

I think it’s important though, to recognize a concept plan should be billed separately and differently from a final plan. Now, hourly would be the exception to that rule, but for sure on a price-per-square-foot basis, yeah. The concept plan should be charged differently. Now, there’s one key to this. What I want to mention is that trust and value must be established with the lead in order to make this work. If they don’t trust you, they’re not gonna pay you any money.

They’re because you know why your competitors will give them a free estimate. Your competitors will do a lot of this work for free, and you know what? They know what their time is worth. Your time is worth more than your competitor’s.

So it’s important, you have to have this mindset to go into it. So you, they have to trust you and they have to see the value of what you’re doing. That takes time and that takes it takes information. In other words, in sales, there’s something called the controlled release of information, and this is how trust and value are established.

You want to slowly roll out information that establishes you as the local expert at whatever the project is to your lead over time. They have to look at you as an advisor, as an expert, because if they look at their accountant, their doctor, their financial planter, their attorney plan-, did I say planter, planner, or attorney?

They look at them as advisors, and if they go to them with a question and they want to get an answer, they understand they have to pay money in order to get that answer, so that’s how they want, you want to essentially set yourself up. Any final thoughts, Daiana, on this? 

Daiana: Yeah, I think trust, trust the process, trust the client, and then trust yourself. That’s the, I think that’s the key. 

Rick: Yeah. I, you know, you, you are right. It, it’s, and, and, and, and trust is so important that you will never get started if they do not trust you. That’s why it’s really hard to take somebody who’s ready, willing to enable. They have their plan set. They have maybe ’em have a scope of work and they want to come to you to get a quote, unquote, give me a bid, give, you know, tell me how much it’s gonna cost.

They don’t trust you. They look at, you have essentially, essentially they’ve commodified you. And all they want is a price. All you are worth is a low price to them. So why go through all that work and, and time and hassle to provide a price for somebody that already has an established relationship with someone else and is just using you to logically justify going with your competitor?

Don’t do it. Don’t fall into that trap. Say no. Follow your instincts and, and make sure that you have that relationship and that value, and that trust established first before you go to the next step. Your margins will go up, your conversion rates will go up. Life is so much better. Final thoughts, Daiana?

Daiana: Yeah, I, I like the, the last, the last part that everyone is it’s happy and it’s a win, win, win. 

Rick: Absolutely. Absolutely. So for those of you that wanna know more about this, how we can help you attract, capture, and convert high-quality leads so you can pick and choose your clients and jobs, go ahead and click the link below to schedule a strategy call. We’d be happy to learn more about your business and see if we might be able to partner with you to help you, do exactly that. And Daiana, I know you were gonna tell the viewers what they needed to do as well. 

Daiana: Yes, it’s as simple as that. Just like share, comment, and subscribe to the YouTube channel and tell us your thoughts about what you see. And if you have questions, just ask them there. 

Rick: Absolutely wanna hear from you. Do you agree with what we said here today? Do you have, a different idea? Go ahead and put that down below on whatever platform you’re watching on. And for our brothers and sisters in Christ, may the grace of the Lord Jesus Christ, the love of God, and the fellowship of the Holy Spirit, be with you all, always. We will see you next time on Conversation that Converts.