Handling Allowances

Five tips for overcoming common pitfalls when working with allowances

June 18, 2018

StudioDin / stock.adobe.com

In a perfect remodeling project, everything would be pre-specified precisely and no preexisting conditions would rear their ugly heads. Good luck with that! 

Because the world is not perfect, allowances are necessary and often helpful to all parties. Yet they create problems as well. Here are five tips to mitigate the most common pitfalls. 

1. Deal with drama up-front. Customer service issues often arise when the homeowner is surprised by something. (I teach my clients: “There are no good surprises in good customer service.”) If a remodeler avoids discussing the challenges that may arise later, they increase the chance that issues will occur. Instead, contractors should discuss what can happen with allowances, the financial ramifications, and the responsibilities of all involved.

2. Clarify the costs. Whatever method you use to disclose costs to the customer, I suggest making sure the homeowner agrees to a format in advance. Show past examples of allowances and the effect a specific selection has on the budget. This helps ensure there is no confusion about how calculations will be made with each allowance choice. Failure to do this up front can result in angry customers who think they can withhold payments near the end of the project. 

3. Control the options. Technology has created a lot more product selection—too much, in fact. Now some faucets need an electrical feed, and the refrigerator requires a clear internet connection. If you let your customer shop with no careful guidelines, you are setting yourself up for challenges. This applies to designers as well. I often discover the designer or project manager was discussing options without regard for cost. They think that telling the customer, “This is over your budget,” is adequate to manage expectations—but it’s not. Much better to avoid discussing out-of-budget options in the first place. If the customer drags you kicking and screaming to consider a more expensive choice, ask how the total project budget will be affected. Get clear on the impact to his or her payments.

Show past examples of allowances and the effect a specific selection has on the budget. this helps ensure there is no confusion about calculations.

4. Think of each allowance as a specific sale. Each allowance has to be sold. That means understanding the selection priorities and needs, keeping any possible solution within budget, and involving the right people. Don’t let your top salesperson close a $200,000 job and then let an untrained employee “un-sell” it by improperly handling the allowances. Keep the salesperson involved, or give your employees the tools to be successful.

5. Share information with the designer. When a salesperson signs on a new customer to begin design, there is always a discussion of the total project budget. The salesperson has obviously already done some calculations for how much he or she is setting aside for countertops, cabinets, and fixtures. Unfortunately, these breakdowns are not always shared with the designer. The designer tries to make the customer happy, only to find out weeks later that the project is going over budget. When designers are guided by these up-front budget constraints, they have more success hitting the big budget at the end.

About the Author


About the Author


Chip Doyle teaches salespeople “how to sell without sounding like a salesperson.” He speaks at dozens of events per year and is the author of Selling to Homeowners – The Sandler Waychipd@sandler.com 

Comments

Comments

As a General Contractor that uses cost plus format, we are often questioned on how we justify a standard mark up on a much more costly selection. A typical question we encounter, " ….If I select a $15K range over a $5K range, why would I have to pay more cost-plus mark up, for the same installation and management?" We position that the more expensive selections ( this example the range) likely requires a greater amount of management, skilled installation, and increased protection.

How would you advise or address with potential clients?

Great question Tony615. The best way to handle that issue is to bring it up in the sales process before selections or construction begin. If the client sees the benefit of Cost Plus and prefers to work with you, then you have to ask if they will accept that same cost plus model if they pick expensive things. Agree up-front that cost plus is great but it works both ways. In addition, I like your explanation of complexity (I would say risk to the contractor). When you start fiddling with fancy faucets with bells and whistles, your company takes on risk to install it. (If the customer is willing to take the risk, then let them GC their own job and see how that works out.) But the key is to have these discussions BEFORE they make selections.

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