Why Price Should Not Drive Your Hiring Decision

What most homeowners don’t realize directly affects their overall satisfaction

Unfortunately, we have all heard of (or experienced) the horror stories concerning contractors. It is almost safe to say that the home service industry is one of the most notorious for poor customer service and disgruntled customers.

The interesting thing is that many times homeowners unknowingly bring the risk of unpleasant contractor experiences on themselves. This is because many times customer hiring decisions are based solely on price. A homeowner is setting themselves up for problems when doing this.

How does making price the only hiring factor lead to contractor horror stories?

Well, first let’s look at what goes into a contractor’s estimate when pricing out your job. The contractor’s price is made up of 4 factors:

a) Labor Cost
b) Material Cost
c) Overhead
d) Profit

By examining each of these factors we can see where too low of a price can lead to customer dissatisfaction.

a) Labor Cost
A contractor’s labor cost is the money he will pay out to his workers to complete the job. As in most industries, more skilled labor goes at a higher price. In other words, employing skilled painters is going to cost the contractor more money than having unskilled or inexperienced workers. Therefore, a paint company that offers a considerably lower price may be using less skilled crews in order to offer that price. Unskilled work leads to poor quality and errors….which causes homeowner dissatisfaction with the end result.

b) Material Cost
A contractor’s material cost is how much the materials, parts, or equipment they use for your job will cost. In general, most contractors will pay about the same amount for the exact same materials. Therefore, contractors that are offering much lower prices are often times using less expensive and lower quality materials in order to offer their lower price. Many times homeowners are not aware that the quoted job materials are lower quality…which causes homeowner dissatisfaction with the end result. Specifiying materials on work orders can avoid any surprises.

c) Overhead
Overhead are the costs that the contractor incurs to run their business. A contractor may need to pay for office and sales staff, insurance, equipment, etc. in order to offer their services. Larger companies may have more overhead than small businesses, and there may be a difference in price quotes because of this. However, a homeowner cannot expect to have the same service from the company with no overhead as it can from the larger professional company. The less expensive company may not have an employee available to answer the homeowner’s phone call or a manager available to visit the job site and make sure the work is satisfactory. Problems arise when homeowners expect these things from the lower priced contractor…but the contractor does not have the overhead cost figured into their work to offer these extra benefits. Again, this can lead to customer dissatisfaction.

Any contractor a homeowner hires should have the proper insurance to do the job. Insurance is a large cost for contractors, so a company offering a real low price may be able to offer this low price because they do not have insurance. Hiring such contractors is very dangerous and can easily leave a homeowner liable or holding a very large bill for a mistake made by unisured contractors.

d) Profit
Profit is the amount that the contractor is expecting to make as income for the job he/she is pricing. This amount can vary depending on the contractor. This is also an area where homeowners feel a contractor can lower their price. However, a real low price may not have enough profit figured into the job for the contractor and can cause major issues and dissatisfaction with the homeowner in the long run. YES, WE DID SAY THAT A PRICE WITH TOO LOW OF A PROFIT FIGURED INTO THE JOB IS A BAD THING FOR HOMEOWNERS. Why? Well, no one wants to work for free. If a contractor starts your job and quickly realizes that he has underestimated his costs he knows that his profit is becoming very small. This situation can lead to 3 outcomes:

1) The contractor will speed through the job, cutting time, quality, and materials to try to increase his dwindling profit.

2) The contractor may not be willing to spend more unpaid time to come back and fix problems that have arisen after he has completed the job.

3) The contractor will stop your job (and leave it unfinished) and move on to another job (at another site) where he can earn more of a profit.

Either way, the homeowner ends up extremely unhappy and unsatisfied, and possibly with unfinished work.

As you can see by the above breakdown of a contractor’s pricing, a real low price will almost always lead to problems. The fact that so many customers base their hiring decisions solely on price can help explain the many horror stories one hears about in the home service industry.

This clouded reputation is unfair for the many quality companies that are out their doing business that pride themselves on customer satisfaction and quality work (and price their jobs to achieve these things!).

This is not to say you should be taken to the cleaners by contractors. You should always obtain a few estimates to determine the fair market price for your job (from a QUALITY professional). Take into account the type of company you are hiring, the quality of labor, what materials are used, guarantees offered, and what your expectations for the customer service will be…. and know that a contractor’s price will often determine the level of quality and professionalism. If you base your decision only on the real low price a company offers you may just be setting yourself up for a bad contractor situation.

More helpful short articles to help with your contractor needs:
General Suggestions for Hiring Raleigh-Durham Contractors
Paying Your Raleigh-Durham Contractor
How to Avoid Hiring Bad Contractors
Finding and Using the Proper Contractor References

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