Cost-Plus vs Fixed-Price

How do you bid your pool jobs? Do you have an up-to-date price book? In cost-plus the contractor draws up a budget and charges for labor and materials, with an added fee for profit. The price of the entire project is not known up front, but the client can see all costs and make decisions specifically based on line item pricing. In fixed-price, there’s an agreement to do the entire project for a set sum. The client has no idea the specific cost of what he’s being charged for, but he knows the final price. From the customer's perspective, there seem to be pros and cons to each approach. When we were building pools we combined the two in that we knew our costs (using 25 job costs phases that were customized for each job) and were able to bid the job for more than it cost to build (in-house cost-plus) to provide the customer with a fixed price. Having a handle on your construction costs and overhead expenses reduces the temptation to match a low bid that will ultimately lose you money.

Replies

Chris Henning July 28, 2009 at 8:31pm

I currently do per square foot pricing for a fixed price. Our company does both swimming pools(gunite) and residential home construction which we do cost plus 20%-25% depending on the complexity of the home. For the pools, fixed pricing works well for us. We have done a few pools at cost plus but we do not make as much money as if it was fixed pricing.
Jim Allen July 1, 2009 at 9:18am

We use a cost plus method to generate a quote. I do my best to discuss with the homeowner which options they would like included. The contract addendum document is very detailed describing features and equipment however pricing for each detail is not shown, only the bottom line is presented. If the customer wants to remove or add equipment or features I have a consistent cost sheet from which to refer. When we show detail for each item in this market the customer starts to pick and chose on each detail removing the focus from the quality of the completed job. When one buys a stereo at k mart and the speakers at walmart it is difficult to determine just why the results are inferior and exactly whose parts and installation are suspect. I do my best not to get into this discussion.
Mark Richter May 13, 2009 at 5:43am

Hello Karen, great subject I know Ed had worked hard on providing your users with the ability to build their cost plus pricing in Pool Draw. Most pool builders pricing spreadsheets I see are on a fixed pricing per line item were they just picked a retail price for that item which included costs plus markup.
I prefer the cost plus method even though it takes more time and effort in building your pricing it will be more accurate and you can adjust your costing and pricing with accurate data.
As you know we have been working on a easy to build pool pricing tool in Pool Pro Office for our users. The development is complete and we are in testing and tweeking mode. Our pricing tool will allow the user to choose when setting up their costs either fixed pricing or cost plus per line item offered. It will also allow builders the flexibility to make it as simple or complicated as they choose. We are also putting in a default price list that will enable the builder to just plug in his fixed price per item and they are ready to create estimates, store estimate in lead folder in Pool Pro Office or print and email proposal. We hope this will assist builders to create accurate estimates and proposals and maintain an accurate pricing program with ease. Have a Great Day . Mark Richter Pool Pro Office
Scott Heusser May 9, 2009 at 8:15am

We do a fixed price bid in the vast majority of cases. We add options for customers so they can upgrade to a pool sweep, in floor cleaner, saline chlorine system, etc. We also include allowances for Electrical, HVAC and permit fees. These are allowances because selection of options and changes.
Bob King May 6, 2009 at 9:57pm

We do our bids about the same way but we do add some cost plus to the unknown. For example if you run in to rock or other hidden underground objects (septic, undocumented utilities, caves, water springs etc.) that you can not price out before the job starts. Another area for cost plus in a fixed price job is change orders. When working with architects they like to change things on the fly, make sure you get payed for these changes with change orders.

We also list everything that is included in the bid and everything that is not. For example the deck drains are included but the down spout drains coming off of the house are not. We will make the - Whats included and What is not included - very very very detailed. We will do the down spout drainage off the house but it'll be cost plus at the end of the job if we did not list it as included in the What is included page.

I hope more people will chime in on this because its interesting to see how other people handle cost-plus vs fixed price.

Thanks for starting the discussion