Changing the Industry! Why We Pay and Charge By The Hour
June 6, 2019
The remodeling industry brings in 99 billion dollars a year, and at Bamboo, we are trying to improve our processes to make sure our clients pay less and our Pros get paid more! As we see it, there are typically three ways a job or project can be bid. We will break them down for you here, along with helping you understand why we use the model we do, and how it can benefit you.
1. Fixed Price: You set a fixed price and the contractor delivers at that price no matter how much money was spent on labor or materials purchased.
2. Cost Plus Fixed Fee: You get to see where all the money goes in materials and hourly labor, and the contractor makes a profit on top to cover their overhead and insurance costs.
At Bamboo, we operate on a cost plus fixed fee model when bidding our projects. As our customer, we want you to be able to see where every dollar is getting spent on your projects. Breaking down your project hourly is more transparent and easier to understand. It is also typically lower cost and ends up with fewer arguments and lawsuits. There are potential downsides (like productivity) in hourly contracts, but Bamboo works to mitigate them, and these types of problems are easier to mitigate than the massive challenges with fixed price contracts in remodels (especially when the scope isn't really known or contractually finalized at the start).
This has some advantages:
After the architect has designed the structure, he hands his plans over to an interior designer.
The contractor doesn't have to worry so much about recording anything.
In practice, it has a lot of disadvantages:
You don't actually know how much you're going to spend, because it's only fixed price on the downside for the customer. As soon as anything goes wrong, it's not fixed price anymore and you will be faced with change orders and extra costs.
It's nearly impossible to make sure you have every detail taken care of in a fixed-price contract. Things like "remodel the kitchen" are much too broad, but often contractors don't like to go into meticulous detail either.
Even if your contractor is trying to do right for you, the upfront burden of fixed-price contracting is high - to have any accuracy in the number, the contractor has to spend a lot of time working on the quote. This ends up being built into the cost of sale (makes all the quotes more expensive).
Fixed price contracts tend to have big upfront commitments (potentially with deposits). If you don't get on with the contractor, breaking up can be much more painful than a pay as you go contract.
You directly misalign the contractor to you - the contractor is paying the trades hourly, so the sooner he/she can get the trades out of the house, the more profits he/she makes.
Comparing scope for different bids is very hard and time-consuming - you get a bunch of numbers, and the level of diligence needed to dig into them is high.
Some contractors purposefully underbid projects, knowing that they can win that way then find various ways to end up charging money - assumptions, dependencies, change orders, etc. They are expert at this - it's what they do all year long.
Change orders are another major source of stress - once your kitchen is destroyed, and the contractor says, "Oh it's going to cost another $5000 to move that toilet 3 feet", what do you do? You end up just paying it.
Contractors just walk off job sites - towards the end of the project they realize that finishing is going to cost more than their margin, or they can make more money on other jobs. This happens a lot.
The infrequency of remodeling transactions with most customers (how often you are going to remodel in your lifetime) can lead to short-term thinking in contractors.
Cost Plus Fixed Fee
This has a lot of advantages:
You know what the actual amounts of money are that are getting paid to every Pro and all the materials costs.
The upfront costs (particularly the wasted "cost of sale" costs) are lower - because developing the detailed design, schedule, and financial analysis is something you do with Bamboo as part of the paid (low cost) engagement. We still provide an upfront cost estimate before contracting if you ask for one - but it's an estimate, not a "shooting high" contractual number.
Hourly with a "pay as you go" contract avoids big upfront commitments, and if it doesn't work out, it is easier to cancel or terminate.
Giving full cost transparency means the materials are separated and it's easier to swop things in and out based on budget - so there will be fewer arguments about "what you thought was included".
Our margins are the same and they are transparent, no matter how long your project takes (we hope not long!), there will be no cutting corners to maximize short-term profits.
If you want to change something, no problem. No more arguing over change orders, you just approve the additional tasks to do the changes at the rates you have previously agreed for labor (and the extra materials as necessary).
Ultimately, pretty much all the trades (actually doing the work) are paid hourly or daily, so every fixed price contract is a middleman over the hourly rates.
Hourly is almost always lower cost - it's not possible to hide margin in hourly rates as opposed to using other metrics.
Potential disadvantages and how we mitigate them:
It can take more work to record all the cost data and progress. We are working to mitigate this with technology - automating as many workflows as possible with our mobile apps. We think the improved tracking and insights are worth the reporting overhead.
Pros can drag their feet and take their time. To avoid this:
Bamboo estimates how long each task should take and then tracks how long it actually takes - if a Pro is taking too long, we act on it.
You get to review your Pros including a component specifically for productivity.
We use the data we collect from other projects and industry data from services such as Blue Beam to provide benchmarks, and flag things taking too long.
One other comment here - if you get a general contractor that is cost plus but the subcontractors underneath are fixed price without cost transparency, you are still essentially paying a fixed price. To be truly hourly you need Bamboo-style radical cost transparency - where you see what every dollar is spent on.
We are on your side. We want to delight and wow you because every business that becomes a major brand has to focus religiously on customer satisfaction. If you'd like to schedule a free consultation today with us, we would be glad to chat with you about your project. We offer free estimates and 3D scans for our first-time clients. Take advantage!
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“Working with Bamboo App on our remodel project has been a breathe of fresh air. The use of technology to facilitate the project moving forward while also giving the homeowner oversight into the scope of work, timeline and budget is a true revelation for the industry.
August 18, 2018
Are you looking to remodel?
We will be launching our Bamboo app pretty soon! In the meantime, let’s get you started: