How To Manage Variations – Don’t Lose Money To Scope Creep
How to manage variations – don’t lose money to scope creep.
This is a big problem. You present your quote to your customer for an agreed scope and during the job, things change a bit.
Either you open something up and things aren’t what everybody expected, or somebody changes their mind or opportunities arise to do things differently.
You say, “It’ll be this much extra or this much less, do you want me to do it?” And they said, “Yeah.”
Then, at the end of the job, you present your invoices and it’s more than your original quote, and they’re all upset.
“It’s outside my budget. It’s more than I expected, I’m not happy.”
You can end up not getting paid for the extra work, or negotiating and getting paid for some of it or falling out with your customer and damaging a relationship and losing future work.
A story – future projects were in jeopardy for my client
This just happened to my new client.
We’ve been working on growth and doing marketing and sales and it’s been working. He’s getting busier and he recently won a decent-size job — an office fit-out worth $70,000 or so but with another 15 or 16 similar size jobs to come down the track.
The job started fine. There were variations of course, which they agreed verbally – with verbal quotes given and accepted. And then, there’s some tidying up at the end, some out of scope jobs that they fitted in and they just kind of agreed that they were going to do it on a time and materials basis.
You can see what’s coming, can’t you?
He presented his invoices, the final progress payment, the agreed variations, and the little roll-up of the odd jobs at the end and the customer went off (it was a fair bit more, of course).
“I thought it’d be a lot more give and take here. You’ve had 5 people here for seven days and you’ve charged me $70k, surely you’re making enough money, blah, blah, blah”.
He was all pissed off, “You charged me millions of dollars for a bit of painting”.
Recommended Reading: How To Avoid Conflicts By Using A Proper Communication System
A whole world of unhappiness and potential relationship damage was opened up, wasn’t it?
One guy thought he’d done what was fair, the other thought like it wasn’t fair.
There was a gap in their views and the client ended that conversation by saying, “Just send the invoices then, that’s it, we’ll leave it there”.
All those 15 or 16 future jobs are now in jeopardy.
How to deal with variations properly
I got the call, obviously. We talked about it, compromises were made, the relationship was mended (we think, it’s early days).
My client knocked $5,000 off his invoices to placate the client, but it cost him $5k of his margin.
All this takes me to what he should have done, and what we should be doing, what you should be doing.
We all know what you should be doing, don’t we?
And the problem is it’s a faff, and you’re busy and you think your customer is a decent person. You’ve discussed it and you think he’ll remember and stand by his words so you don’t bother. And you do it in trust and then it bites you in the a**.
What you should do is make it clear in your terms and conditions or your contract that these are the rules:
The scope is defined in the scope of works or in the quote.
If we vary the scope, we do it only by a written variation which adjusts the price, accordingly, up or down.
We don’t do any new work until a written variation is approved in writing.
And a return email saying, “Yes, approved!”, is fine.
And then you have to stick to that.
It’s no use writing that in your terms and conditions, and then not doing it. You have to stick to it.
You have to stop work, prepare a variation and a quote for the new work and get it approved before you need to do the new work.
Then when it comes time to present invoices there’s no room for any argument at all. There’s no room for, “I thought you’d absorb that into your enormous fat margins”, or “but you didn’t paint the fence so you shouldn’t charge for this”, or any of that bollocks.
It’s written down, there’s no arguing. It was agreed to so they’ll just pay the invoices.
I know it’s boring. I know it takes time when you’re busy. If you don’t do this and you end up arguing or negotiating with your customer, it’s your fault.
This is one of the systems and structures you’ll put in place if you work with me.
If you want to put systems and structure into your business, you have a couple of choices.
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See you later.