Free Estimate Questions
- Thread starter Ohmy
- Start date
- Status
Rewire
Senior Member
- Location
- Lake of the Ozarks
I don't tell customers that anything is free what I tell them is their is no "extra " charge.I have yet to be asked if I charge for an office visit but I am sure my answer would be that their is no extra charge. And I would not feel like a thief or crook or whatever else they said in the book you read.
Where did I use the words thief or crook?
What book did I read?
I don't recall mentioning anything about reading a book.
Do you not put free estimates in your advertising?
mivey
Senior Member
That was good for a chuckle this morning.
A little information about my dispatch fee.
I have a small dispatch fee to go out and give an estimate for a job.
Usually $29 to $49 depending on distance and circumstances.
This is not a charge for the estimate itself, but a charge for the trip out.
This dispatch fee is primarily for small jobs.
For large jobs or projects I may not charge this dispatch fee at all.
I don't charge this fee for repeat customers.
I don't charge this fee for referrals.
This fee is primarily to weed out the tire kickers.
Since I only charge a dispatch fee to potential new customers I can adjust the dispatch fee if I want based on how busy I am without worrying that they will comment that the dispatch fee was lower the last time I went out.
If I'm not busy and desperate for work I don't need to even mention a dispatch fee if I don't want to.
If someone want's an estimate for repairs on a home for a real estate transaction then they're quoted a home inspection fee over the phone, which includes a full report of our findings along with a price list for the repairs. Often times it's a person thinking about buying the home and they have a list from a home inspector that they want a free estimate on so they can negotiate with the seller.
If I can start or complete a small job while I'm already there instead of making another trip out I'll waive the dispatch fee if they have me start or complete the job while there.
This saves me from having to come out another day after they've gotten 5 estimates for this small job. If I have to make two trips out to do a small job that I could have completed in that same trip I have to cover that expense.
Lately I've been pricing these jobs out with the expectation of having to make another trip out to start or complete the job. I then offer to waive the dispatch fee and offer an additional discount if they have me start or do the job while there.
I explain to them that having me start or complete the job while I'm already there saves me the expense of having to make an additional trip out. Therefore I can pass the savings onto them and offer them a discount.
They now have two prices.
One price for me to start right then and another price if they want to think it over, get more estimates and have me make another trip out later to start or complete the job.
The fact is if I can start or complete the job while already there it saves me money.
Therefore I can pass the savings onto the customer with a discount.
I have a small dispatch fee to go out and give an estimate for a job.
Usually $29 to $49 depending on distance and circumstances.
This is not a charge for the estimate itself, but a charge for the trip out.
This dispatch fee is primarily for small jobs.
For large jobs or projects I may not charge this dispatch fee at all.
I don't charge this fee for repeat customers.
I don't charge this fee for referrals.
This fee is primarily to weed out the tire kickers.
Since I only charge a dispatch fee to potential new customers I can adjust the dispatch fee if I want based on how busy I am without worrying that they will comment that the dispatch fee was lower the last time I went out.
If I'm not busy and desperate for work I don't need to even mention a dispatch fee if I don't want to.
If someone want's an estimate for repairs on a home for a real estate transaction then they're quoted a home inspection fee over the phone, which includes a full report of our findings along with a price list for the repairs. Often times it's a person thinking about buying the home and they have a list from a home inspector that they want a free estimate on so they can negotiate with the seller.
If I can start or complete a small job while I'm already there instead of making another trip out I'll waive the dispatch fee if they have me start or complete the job while there.
This saves me from having to come out another day after they've gotten 5 estimates for this small job. If I have to make two trips out to do a small job that I could have completed in that same trip I have to cover that expense.
Lately I've been pricing these jobs out with the expectation of having to make another trip out to start or complete the job. I then offer to waive the dispatch fee and offer an additional discount if they have me start or do the job while there.
I explain to them that having me start or complete the job while I'm already there saves me the expense of having to make an additional trip out. Therefore I can pass the savings onto them and offer them a discount.
They now have two prices.
One price for me to start right then and another price if they want to think it over, get more estimates and have me make another trip out later to start or complete the job.
The fact is if I can start or complete the job while already there it saves me money.
Therefore I can pass the savings onto the customer with a discount.
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ok...i'm bored...so
Assumptions -
1)average direct cost to perform an estimate is $75.00 (includes advertising fees, office overhead to take call and dispatch, direct labor cost, and vehicle fuel/maintenance)
2)all these costs are passed along to the customer/shopper, and not paid for out of profit.
3) you close 50% of your estimates (5/10)
4) The purpose of the trip charge is to qualify customers. Industry research has shown that the closing ratio actually increases for companies that use a trip charge. For this example, we'll utilize and equal closing ratio.
5) the average invoice for work performed is $500. This does not included the additional costs for estimates.
scenerio 1 - "mr. prospective customer, we charge a $49 dispatch/trip charge to come out and look at the project. If you decide to have us perform the work we will deduct this charge."
truth - every person who calls your office will pay $49 to have you come out....whether as a direct payment (if they don't have the work done) or as part of the overall price of work that they have done...the customers that have the work done will also split the additional $260 in direct costs for the estimates that are not covered by the trip charge. So each paying customer will be charged, on average, $601.
$500 +$49 + ($260/5) = $601
Scenerio 2 - "Mr. Prospective Customer, we offer free estimates."
truth- the 5 customers who purchase your service now pay $650 for that same project, for you to make the same profit...they are footing the entire $750 cost for the 10 estimates.
$500 + ($750/5) = $650
So the reality is that 'free' estimates do your 'customers' a big disservice...
or, it does your family and your employees a disservice...
seems the only ones that benefit from 'free' estimates are the people who just waste your time and resources...
Assumptions -
1)average direct cost to perform an estimate is $75.00 (includes advertising fees, office overhead to take call and dispatch, direct labor cost, and vehicle fuel/maintenance)
2)all these costs are passed along to the customer/shopper, and not paid for out of profit.
3) you close 50% of your estimates (5/10)
4) The purpose of the trip charge is to qualify customers. Industry research has shown that the closing ratio actually increases for companies that use a trip charge. For this example, we'll utilize and equal closing ratio.
5) the average invoice for work performed is $500. This does not included the additional costs for estimates.
scenerio 1 - "mr. prospective customer, we charge a $49 dispatch/trip charge to come out and look at the project. If you decide to have us perform the work we will deduct this charge."
truth - every person who calls your office will pay $49 to have you come out....whether as a direct payment (if they don't have the work done) or as part of the overall price of work that they have done...the customers that have the work done will also split the additional $260 in direct costs for the estimates that are not covered by the trip charge. So each paying customer will be charged, on average, $601.
$500 +$49 + ($260/5) = $601
Scenerio 2 - "Mr. Prospective Customer, we offer free estimates."
truth- the 5 customers who purchase your service now pay $650 for that same project, for you to make the same profit...they are footing the entire $750 cost for the 10 estimates.
$500 + ($750/5) = $650
So the reality is that 'free' estimates do your 'customers' a big disservice...
or, it does your family and your employees a disservice...
seems the only ones that benefit from 'free' estimates are the people who just waste your time and resources...
Ohmy
Senior Member
- Location
- Atlanta, GA
I absolutely agree with the numbers above. Of course its hard to when its written out like that. If anyone is interested, this is really easy to plug into an excel spreadsheet with very basic formulas. Once you have it set up you can play around with different situations and see the results.
Something New: I did not realize until runnings senerios (SP) in a program built on excel that the cost of lead/phone call plays a major role in your overall profitability measure against your trip charge (or lack of charge).
As your lead cost (cost for phone call) goes up, the difference in profitability per job (lead converted into call then converted into job) gets smaller when compared to giving free estimates. This is because there are less total jobs per lead when you have a trip charge vs going out for free. So there are less jobs to spread out your lead cost.
So, if you have no or little advertising other than word of mouth, every call is very important to you. Another way of putting it is that the call is very expensive (in terms of opportunity cost). In fact, if you are a single operator struggling to cover your family's mortgage, the lead may be priceless. This means the deference in profitability in charging for estimates vs not charging flips because now you can no longer AFFORD TO CHARGE for estimates because if you miss out on a couple jobs you could lose your house.
After thinking this over, I have a much better appreciation for people why people don't charge for estimates AND understand why the subject is soo emotionally charged.
Of course, in the example of the single operator not being able to afford the loss any potential customers, there is a downward spiral because overtime the cost of giving free estimates will keep him from ever being able to afford to charge for an estimate.
BTW, if anyone thinks I am taking a shot or being disrespectful of single operators, I want you to know I am not. It takes one to know one....and I have been one. Plus, I am sure some single operators are loaded.
Something New: I did not realize until runnings senerios (SP) in a program built on excel that the cost of lead/phone call plays a major role in your overall profitability measure against your trip charge (or lack of charge).
As your lead cost (cost for phone call) goes up, the difference in profitability per job (lead converted into call then converted into job) gets smaller when compared to giving free estimates. This is because there are less total jobs per lead when you have a trip charge vs going out for free. So there are less jobs to spread out your lead cost.
So, if you have no or little advertising other than word of mouth, every call is very important to you. Another way of putting it is that the call is very expensive (in terms of opportunity cost). In fact, if you are a single operator struggling to cover your family's mortgage, the lead may be priceless. This means the deference in profitability in charging for estimates vs not charging flips because now you can no longer AFFORD TO CHARGE for estimates because if you miss out on a couple jobs you could lose your house.
After thinking this over, I have a much better appreciation for people why people don't charge for estimates AND understand why the subject is soo emotionally charged.
Of course, in the example of the single operator not being able to afford the loss any potential customers, there is a downward spiral because overtime the cost of giving free estimates will keep him from ever being able to afford to charge for an estimate.
BTW, if anyone thinks I am taking a shot or being disrespectful of single operators, I want you to know I am not. It takes one to know one....and I have been one. Plus, I am sure some single operators are loaded.
you hit the nail on the head...many, if not most, solo operations were never planned...they just happened...no thought into anything from advertising to marketing to sales to operations...
and they start out behind the 8 ball....they keep pointing to the 1% of guys who started out like them then grew into nice businesses...but man, 1% success rate?
and to add to the issues, most never truly figure out their costs...they choose to worry about the "going rate" and are thrust into an endless cycle of barely getting by...they continuously live the life that their business lets them, rather than make their business give them the life they want...
a big part of this is the low buy in to become and EC, and the lack of required education...
now, that being said, it really depends on the market you are in as to how to operate...we do free bids all the time for commercial construction...but they send me the blueprints, and I send them the price...and the truth is, I can bid a $100,000 job fairly accurately in not much more time than it takes to drive to and from a $1000 estimate with a homeowner....
but one thing to keep in mind is that you are only spreading the OH out among the jobs sold...but you are increasing your costs by running more estimates...
in my example, i was only calculating the direct costs, not the overhead...so the more free estimates you run, the more direct costs you run up...
it's almost counter intuitive, but the solo operator might be better charging $10 for an estimate that doing it for free....it will weed out the real tire kickers and give him a higher closing ratio...at a lower cost, meaning a higher profit...
in my example, i was only calculating the direct costs, not the overhead...so the more free estimates you run, the more direct costs you run up...
it's almost counter intuitive, but the solo operator might be better charging $10 for an estimate that doing it for free....it will weed out the real tire kickers and give him a higher closing ratio...at a lower cost, meaning a higher profit...
LarryFine
Master Electrician Electric Contractor Richmond VA
- Location
- Henrico County, VA
- Occupation
- Electrical Contractor
Only the paying customers pay for everything: gasoline, insurance, licensing, your meals, your mortgage, etc.
Everything you say, see, or do without charge is paid for by those who hire you. That's just a fact of business.
What else is there?
lbwireman
Senior Member
- Location
- Long Beach, CA
I use the same strategy, except for the quoted part. I love it, mind if I use it?:grin:
Rewire
Senior Member
- Location
- Lake of the Ozarks
Your equation is faulty, 10 calls at $49.00 would be $490.00 for "trip" fees.
If you wave this for the 5 you get that leaves a total of $245.00 that you made from the 5 you missed so 5x500 = 2500+245=2745.00 not bad but lets look at what reality says
I will be gentle and set the # of noways to 25% so out of the 10 calls you loose 3 now out of the 7 you land 50% or 4 I am being kind and rounding up
so now you make $147.00 from the three that don't use you and 4x$500=2000.00
$2000.00+ $147.00 = $2147.00
I don't charge take 10 calls get 5 5 x $500.00 =$2500.00 I absobe the cost of the other 5
5x$49.00=#245.00 subtract from the $2500.00,$2500.00-245.00=2255.00
so 2147.00 vs 2255.00
$108.00 dollar difference
Dnkldorf
Senior Member
If a product or service costs you $75, and you sell it for $49, then you are using your dispacth fee as a loss leader.
If the person pays the fee, and doesn't use your service, the loss must be passed on to the people using your service, aka "punishing" those who use your service.
If the person pays the fee, and doesn't use your service, the loss must be passed on to the people using your service, aka "punishing" those who use your service.
Dnkldorf
Senior Member
Another assumption (without concrete #) would be that if 1/2 the people are willing to pay a dispacth fee, it would take 20 calls to achieve the 10 calls, you go out on.
If 100% of the people were willing to accept a free estimate, then only 10 calls are needed to generate the same results, and if you recieve the same 20 calls to begin with, you would make more money off the same amount of calls recieved.
If 100% of the people were willing to accept a free estimate, then only 10 calls are needed to generate the same results, and if you recieve the same 20 calls to begin with, you would make more money off the same amount of calls recieved.
ok, please try to follow along here....
again - $75 actual cost to give an estimate....$49 trip charge to attempt to weed out tire kickers and to help recover some cost...
as you have pointed out previously, the trip charge isn't waived, it's just embedded into the quote for the work...
we are working with a $500 job average (including all costs, overhead and profit -----except the $75 direct cost for the estimate)...so we need to earn $2500 to cover all our job costs (labor, material) overhead and profit (less the direct cost for the estimates)...following?
so...you give 10 estimates, your total direct cost is $750....
10 x $75 = $750....still with me?
This means we actually need to earn a total of $3250 from the 5 jobs we sell...
for each estimate you charge $49....so, total billed is $490...did i lose you yet?
for the 5 customers who don't have you do the work, you collect $49 and move on...so you collect a total of $245 from people who decide not to use your company....
So, we can deduct the $245 from the $3250....$3250-$245 = $3005 to be earned by the 5 jobs sold.
for the 5 customers who decide to use your company, you add the $49 into their quote...now remember, the # we are using for this example is $500, not including estimating costs....
so for these 5 customers, we now quote each job at $549....$500 for the job, plus the $49 trip charge...this puts us at $2745 total income from the 5 jobs...we are still
Are you still with me?
So we need to earn $3005 from the 5 jobs, and we are currently at $2745....leaving a difference of $260
To do this we need to divide the divide the $260 between the 5 paying customers....$260 / 5 = $52.
In order to cover this expense, we add $52 to the price of the 5 jobs we sold....
so, for the 5 projects we have sold, we have the following dollar amounts:
$500 - job material, labor, overhead and profit (less the direct $75 cost for each estimate)
$49 - trip charge that becomes embedded in the cost of the job
$52 - the portion of the $260 in direct estimate fees not covered by trip charges, and covered by the customers who hire your company...
this puts the job total at $601 per customer to generate the total of $3004 that we needed...
Are you still following? i know it's long, but it's not difficult...
to sum it up....our assumptions give us these #'s....
material, labor, OH&P = $2500
Direct cost to provide estimates = $750
Total revenue needed = $2500 + 750 = $3250
trip charge for unsold jobs = $49 x 5 = $245
$3250 - $245 = $3005 / 5 sold jobs = $601/job sold revenue required
if we give free estimates under the same assumption...we now need to generate $3250 with just the 5 jobs sold...so $3250/5 = $650/job sold revenue required...
so, no faulty math...you just want to change the assumptions...
but experience tells me that if you aren't selling on low price, you will be lucky to have a closing ration of 40% on free estimates (this is our companies historical average)...however, if you have a trip charge, your closing ratio will be in the 75% range (again, from our historical date - yep, we've operated both ways.)...
now, this has nothing to do with the # of calls lost or not...it's only about the actual cost to perform the estimate...you want to bring in data that doesn't matter...we are simply comparing the cost per estimate run, not per call coming in...the money for the advertising is in your overhead...
so, i would point out that your math may be correct, as is mine, but your premise is faulty. simply because you are attempting to bring in variables that have no effect on the equation i put forth...
but most importantly, all things being equal, the company that charges a dispatch fee can actually charge a lower price and make the same money as the 'free estimate' guy...
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ok..........
this was not part of the equation...it was simply an example based on an equal # of estimates run and the same closing ratio...you can create 1,000,000 variables....but the assumptions and variables for this example were given..
LarryFine
Master Electrician Electric Contractor Richmond VA
- Location
- Henrico County, VA
- Occupation
- Electrical Contractor
My all beans! :smile:
have another pepsi larry:grin:
LarryFine
Master Electrician Electric Contractor Richmond VA
- Location
- Henrico County, VA
- Occupation
- Electrical Contractor
- Status