Michael Stone is the author of Markup and Profit: A Contractor’s Guide Revisited, Profitable Sales: A Contractor’s Guide, and the DVD class “Profitable Estimating.” He has more than five decades of experience in the building and remodeling industry. Michael offers training and coaching and can be found at markupandprofit.com.

Why Transparency Is Bad for Business

Are you tempted to reveal your costs to homeowners? Think again. 

August 08, 2018

Surgeons, attorneys, and other professionals aren't expected to open their books for you, so why should contractors be any different?

I’ve read many articles telling me that the best way to sell construction services today is by being transparent with your pricing. The argument is that owners are more sophisticated today, and they know what things cost. “Price is the most important aspect of the sale,” they say. “When you’re fully transparent about how you price a project, you’re showing that you can be trusted.”

“Transparency” is the usual buzzword, but it’s also called itemization. Itemization is providing a line-by-line breakdown of what you’ll do and how much you’re charging for each item. 

There are multiple problems with this approach, and I’m going to outline them here. 

A Focus on Price

When you offer to be transparent in your pricing, you’re focusing on the price of the project. This, in turn, tells your prospective clients to focus on price as well. You’re also offering to share details that are considered proprietary information in any other industry.  

It’s absurd to believe that a doctor who would tell me everything about their pricing is the best surgeon. If my attorney suggested that he was the best attorney in town because he’d open his books for me, I’d find another attorney. How does disclosing all of your pricing information make you the best contractor to build their project?  

The truth is that most homeowners don’t consider price the most important issue when choosing a contractor. They want to know you’ll do the job right, in a reasonable time frame, and at a fair price.

How do you show a potential client that you’re the one for the job? By listening and asking questions. The more questions you ask, the more they’ll see that you care about the project, and that’s when trust begins. Asking questions isn’t telling them how much you know. It’s finding out what’s important to them.

Most owners don’t consider price the most important issue when choosing a contractor. They want to know you’ll do the job right, in a reasonable time frame, and at a fair price. 

The more detailed you are, both in your presentation and in your contract, the more likely you are to close the deal. Price transparency has nothing to do with it. Project transparency makes the sale. 

I believe many things should be disclosed to clients. Your contract should include a detailed scope of work, and that’s why one- or two- page documents don’t cut it. But your cost structure is proprietary, and when anyone asks for an itemization of your costs, overhead expenses, and profit margin, sorry—that’s going too far. That’s no one’s business except yours.

If clients want to know what items cost, they can visit one of the big box stores, prowl the aisles, and look at price tags. If they want to know your overhead expenses, they can start their own company and find out.

A Numbers Game

It especially disturbs me to read about the need for transparency in industry magazines. (Professional Remodeler, “The Big Reveal,” May 2018, and “From Opaque to Clear,” Oct. 2017) You’d think that publications for the construction industry would be looking out for contractors. Instead, they often seem to promote transparency as the best thing for consumers. Their thinking appears to be, “If we give homeowners everything they want, contractors will win.” If only that were true. 

In reality, contractors who claim to be transparent are usually playing a numbers game, moving what is often considered overhead into job costs. Clients can see the details on specific job items, but the remaining costs of the project are far from transparent.

Price is not the top priority for most clients. Too many contractors make price their number one priority. They’re hurting themselves, and they’re hurting the industry. Giving potential clients a pile of numbers doesn’t inspire confidence. Being apologetic about your price or your method of pricing doesn’t inspire confidence. 

The best type of transparency is presenting a clear and detailed definition of what you’ll do, including a clear sales presentation and a detailed contract.

Clients want to know that you will do the job they want done, in a timely manner and at a fair price. They are hiring you to work on their largest financial asset, and need to know you’ll do it right.

Transparency Done Right

The best type of transparency is presenting a clear and detailed definition of what you’ll do. That means walking through a sales presentation that explains what can be done within your client’s budget. It involves writing a detailed contract that includes a clear scope of work. That’s the type of transparency that I can fully support

Comments

Comments

When a customer asks me to detail my costs & profit, I ask them if they do the same thing with the purchase of a refrig. Do they demand to know what it cost GE to make a refrig? I doubt it , I do not share a break down of my cost sheet. I also figure that if they persist they will be a pain!

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