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Thursday, March 12, 2009

Construction marketing: Another perspective about Free Estimates

Leonard Megliola at Bestline Plumbing in Los Angeles shares his operating manual for anyone who wishes to receive it. He advocates that you take all Free Estimate calls seriously -- you never know until you visit whether the tiny, "cheap" job can turn into a $30,000 project. His arguments are convincing.

Readers here know that I am not in love with the "Free Estimates" mantra, especially for large or complex projects. After all some (perhaps too many) prospective clients abuse the Free Estimates gambit to play one contractor off against another, and the phrase, in practice, has lost much of its marketing effectiveness. If everyone is doing it, where is your competitive advantage?

However, Leonard Megliola at Bestline Plumbing Inc. in Glendale (Los Angeles), California, has an entirely different attitude. In his (yes, free) 101-page working manual, he says the issue is how you respond to the caller seeking the Free Estimate. If you start out with the right attitude, without prejudging anyone, you will be surprised how seemingly wasteful calls indeed become goldmines.

He writes:
Give free estimates for more sales and profit. While we would like to get paid for every estimate, we earn more profit by giving free estimates. The amount we earn, by charging for an estimate, is insignificant, compared to money we lose, by not giving free estimates. You cannot be competitive when almost every service business gives free estimates, including kitchen cabinet installers, window installers, roofers, general contractors, painters, etc.
Megliola offers a calculation about the amount of business you lose when you decline free estimates; suggesting you might lose 40 per cent of your leads. He advocates your conversion rate for an average $6,000 sale remains 70 per cent, meaning a difference (for 100 leads, of gross revenue annually of $168,000.

"I made $168,000 more than you by giving free estimates," he writes. "If that is not a lot of money, then multiply that times 30 years = $5 million."

Tied with this assertion, Megliola observes that you cannot judge a lead over the phone:
People with money put on an act to make you think they are frugal, tight (cheap) and people with money put on an act like they are big spenders. A customer calls you and says he is getting 10 estimates. This could be just an act so you lower your price.

A customer tells you he does not to pay for an estimate and he does not know as much as you about why he should pay you for the estimate. Perhaps, the customer is willing to give you an estimate if you convince him during the initial phone call, but you failed, so you it may be your own fault you lost a good customer, or a $50,000 sale. Maybe you can't do a good job selling him that he should pay for the estimate or diagnosis. Maybe, this guy who does not understand about paying for a diagnosis owns a thousand homes and is a huge spender and you just lost a few hundred thousand dollars because your judgment system was out-of-whack.

Maybe some customers have a low priority for paying for a diagnosis because he does not know the value of what is wrong. Your customer thinks he needs a five-cent washer and he questions why he should pay you $95 to tell him this. Some other plumber, who gives free estimates sells your customer a job for $50,000. Was this customer a tire kicker? You don't know and you will never know until after you give the estimate. Are you really willing to gamble the loss of $50,000 because someone would not pay you$95?

If my boss gives me a call tomorrow and the customer refuses to pay for a diagnosis, I am going to the job to try to sell $5,000, $10,000, or $50,000 anyway. I would think of myself as a fool if I sat in a coffee shop while some other plumber gets the job and smiles as he waves at me through the coffee shop window. For you, the business owner, $10,000 can buy a very nice used truck, pay a few months rent in advance, buy a new jet ski, a motorcycle, or something nice for the wife.

I have relatives who do a lot of gambling. I am always amazed at how they will lose $20,000 in one trip to a casino. Then, my parents would and scream at each other because my mother wanted to buy a $5,000 couch set. Put this in reverse for business. A business owner will utilize most of his time scratching his butt to figure out how to pay his debts when he should be utilizing this time to make so much money he could pay his debts and have so much money left over he would not know what to do with it. My point; Some contractors think the lost of $95 is more important than the loss of $50,000.

You give me a thousand reasons why you should charge for an estimate and I will give you a thousand reasons why you should not charge for an estimate. Who made more money in the previous calculations?
Megliola makes a pretty convincing argument here, I admit. His free manual is a worthy document, especially if you are a mechanical contractor. Forward the link to your administrative assistant, download it and print a copy for your own use. (He has copyrighted it, but has given me permission to share the link.)

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