By John Corban
Fixed quote vs cost plus quote
Do you prepare your quotes on a fixed quote or on a cost-plus basis? If you run a maintenance business, the basis is generally cost plus, however, many clients want the service capped at a certain number of hours per visit or month.
In a landscape construction business, most offer a fixed quote rather than a cost-plus, however, over the last few years, in the residential sector, I have witnessed a small shift toward cost plus quoting.
Let’s look at the pros and cons of the two offers.
Fixed price quoting
Fixed price quoting means you price a project using a detailed scope of work for a specific amount of money.
- Many of your competitors offer fixed quotes, therefore, to be competitive, a fixed quote is usually better.
- Invoicing is easier.
- Clients know how much the project will cost from the start. It’s a firm price.
- Profit can be much higher on projects because if the job is straightforward or works to your crews’ strengths, and the project is completed using less materials or man hours, the additional profit is yours.
- If a project is difficult, intricate or unfamiliar, it can be hard to quote without risk of underquoting.
- If your crew takes much longer to build a job than is quoted, the cost or loss is yours.
Cost-plus quoting means you price a job as an estimate for the works.
The client will receive a weekly invoice for the labour and materials used onsite with markups added until the job is completed.
- The job is estimated so if the job takes longer than expected the client pays, not you.
- Unfamiliar projects or difficult jobs could suit this quote basis, as the element of risk or money lost is removed.
- The cost-plus quote can be an appealing basis to sell to a client by explaining it’s a fair system, where the client only gets charged for labour used week by week, and any material savings may well be passed on to them.
- It’s not as competitive.
- It’s not a firm price.
- It can be problematic if the crew takes longer than the estimated amount of man-hours, as the client faces increased costs compared to the estimate. When they realise the accumulated cost, it can shock or anger them.
I have clients that manage cost-plus quoting well. They ensure transparency, good communication and regular emailing of invoices with explanations of changes to costs. They continue to run a steady, profitable business.
In summary, I always say if your quoting system is working well in terms of winning good projects, presenting quotes that clients can easily understand, progress payments and invoices are easy to follow and your business makes a healthy gross profit, then there is no need to change it. But, if you are using the fixed priced basis and jobs come along that need a cost-plus element, do so with clear communication and invoicing.
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