You're pitching a $10,000 window job or a $35,000 sunroom job. How much should you ask the homeowner to put down?
As simple as that question may sound, it has a big impact. In fact, it can become the reason a contractor succeeds or fails in business. The size of the deposit will reflect on your closing percentage. Too much and your closing ratios fall; too little and your rescission rate rises.
MATERIALS + COMMISSION = DEPOSIT Consider taking a deposit large enough to pay both the initial commission and the cost of the product and materials to install the job. Put it in a separate bank account specifically for deposits.
After the rescission period, the salesperson can be paid his pro rata share of the commission and the product should be ordered and paid for, no matter when the job is scheduled to be installed. This will prevent cash flow problems with your supplier.
Essentially, all of your profit is derived when the job is actually installed. Setting that deposit aside means you won't enter “the front-end loaded zone” — the place contractors find themselves when they take the biggest deposit possible, then spend it believing it's profit.
In that case, what happens is that they can't pay for the product needed for the job because there's no money left from the deposit. Thus, the next job is sold to buy the product to install a previous job — “borrowing from Peter to pay Paul.” This can work out OK until you hit your slow season and those uninstalled jobs that should be assets become liabilities you can't handle.
BACK-END LOADED “Back-end loading” has multiple benefits. It provides a great incentive for your production department and your salesforce to make certain the job is started and completed in a timely fashion. It eliminates spending the customers' deposit and relying on future sales to pay for past sales material. It's truly an earned-money system and it will promote more sales, more referrals, faster job completion, and greater customer satisfaction. —Chuck Anton is a sales and marketing consultant specializing in the home improvement industry; www.chuckanton.com.