Mar 2022 Fixed Quote VS Cost-Plus Quote
Do you prepare your quotes on a fixed quote or a cost-plus basis? If you run a maintenance business, the basis is cost-plus generally, however, many clients want the service capped at a certain number of hours. 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 2 offers.
FIXED PRICE QUOTING
Fixed price quoting means you price a project using a detailed scope of works for a specific amount of money.
PROS:
- 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 fewer materials or man-hours, the additional profit is yours.
CONS:
- If a project is difficult, intricate, or unfamiliar, it can be hard to quote without the risk of being underquoteded.
- If your crew takes much longer to build a job than is quoted, the cost or loss is yours.
COST-PLUS QUOTING
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 on-site with mark-ups added until the job is completed.
PROS:
- The job is estimated so if the job takes longer than expected, the client pays not you.
- Unfamiliar projects or difficult jobs could definitely 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. Explaining it’s a fair system. You only get charged for labour used week by week and any material savings will be passed on to them.
CONS:
- It’s not as competitive.
- It’s not a firm price.
- A problem can be when the crew is taking longer than the estimated amount of man-hours, the client faces increased costs compared to the estimate. When they realise the accumulated cost, it can shock them or anger them.
With that said, I have clients that manage cost-plus quoting really well. They ensure transparency, good communication and regular emailing of invoices with explanations. They continue to run a steady, profitable business.
So in summary, I always say if your quoting system is working well in terms of winning good work, presenting quotes so clients easily understand them, 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.