Why square metre rates do not apply to custom projects?
Find out how custom home builders can avoid the pitfalls of square metre rates and offer precise project estimates.
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Duayne
It is impossible to put a metre rate to a job until you get more involved in the project.
Responding to Initial Cost Enquiries
Amelia
Duayne, what do you suggest builders do if an architect, homeowner, or designer calls them and says, “I’ve got this project. Can you give me a rough idea of what it will cost?”
They might even push you to give them ideas about square metre rates or budgets that they can start applying to that project.
Duayne
It’s definitely a tricky situation, and it doesn’t come up anymore because we’re very set in our ways and the process we have. But for builders getting into this situation, it’s all about education. And that education is talking to people about how no two jobs are the same.
So, trying to put a square metre rate for something over the phone, at a meeting, or via email is meaningless.
In our industry, a lot of the information and things people are led by are the volume and project builders. And they’ve got very set standards.
So, a volume builder won’t build a house unless it’s a flat block of land or if it has more than 500 mm of fall across it. They’re not interested because they have their set rates and know what jobs they need to do to make those rates work.
It’s very different when you walk into a display home, and you’ve got 20-floor plans on the wall and a couple of selection boards from which you can pick things. It’s easy for those volume builders to go, “Look, that one, there’s this much money. That one, there’s this much money.”
When you get to a custom builder, it’s impossible. Without getting into the details, understanding the site, the level of finish, the fixtures, and the details, it is impossible to put a metre rate on a job until you get more involved in the project.
Amelia
It can also be misleading for them and cause a lot of disappointment in the long term because if you tell them this price, they’re going to make choices and decisions based on that information.
Often, architects or clients will definitely do that by having that conversation with several builders and then finding the builder they think they like and can deliver for the price they want.
They’ll have that figure fixed in their mind.
They’ll then go ahead and make the design,
and they’ll keep using that square metre rate as the application for what that design will cost them in the long term.
And then, of course, they’ll come back to you, and it will look very different from what you might have anticipated or thought about when you said that square metre rate or estimate at the beginning.
So you can find that, for example, they haven’t taken into account the site constraints, or they’ve misunderstood that the level of finish that you normally do is at a certain price point, and they’ve gone and used a different level of finish.
Levels of finish are subjective because you can say, oh, we do luxury level, or we do mid-level, and what they’ll hear is very different. So, unless they’re coming to you with real information you can give quality feedback on, you can just disappoint them in the long run.
Managing Client Expectations
Duayne
It’s definitely one of those recipes for disaster, and builders continually dig themselves holes by giving out this information.
And it’s all about education.
I understand why builders do it.
I did it in the past.
You get in that.
You’re just in that mindset.
This job’s gonna be finished in a couple of months. I need more work. This is a possible job. I’ll tell him what this job’s costing.
The thing is, no two jobs are ever the same.
There can be dramatic price differences between two houses that might be very similar. We’ve had a situation recently where it was a pretty standard-sized, two-storey, three-bedroom home, but we had almost $400,000 to get it to a slab because
it was in a flood overlay area,
it was terrible ground,
it was near a beach,
it needed peering.
So, without getting more involved in a project and having those more in-depth conversations, square-metre rates are misleading and can cause lots of problems.
A client will lose trust in you. So you can set yourself out to fail before you’ve even started. And I know you’ll get architects and designers call you up and say, oh, I won’t hold you to it.
As I started getting better with my process and working through this, I would start to educate, and I would start to ask more questions and one of the big things that I would always say to architects was,
How can I give you a rate?
Have you had a soil test?
Have you got engineering?
So, as an example, how do I know it doesn’t need peering?
That might change your job by a hundred thousand dollars. It was really funny because some architects would take that information on board and go, “Oh yeah, all right, I’ve never thought of it like that”, and other architects would say, “Oh look, we’re only asking you for a price for the house. We haven’t done engineering yet. We’re not worried about the foundations.”
And I can guarantee you that information doesn’t get back to the homeowner. So again, they’ve held you to a rate. They’ve gone ahead and finished the designs. And at the end of the day, you’re the one that will look bad. Your reputation will be tarnished because you’ve given them misleading information.
The best thing you can do is avoid getting yourself in that situation and educate them on why it’s important not to focus on the metre rate.
The Value of a Structured Process
Amelia
It’s understandable that clients want to know this because they need this information to commence their project.
Lots of clients don’t know what something’s going to cost, and they don’t know until they know what it’s going to cost and whether they can do it. They are trying to work out comparing options.
So it might be a case of, I think I want this, but if I know it’s going to cost this, I’ll make a different decision. What they’re doing is batting at shadows, trying to figure out what container they should start in, and then making some decisions moving forward.
What I teach homeowners is that it’s very difficult for you to do that very early in the process. You need to understand that your job as a homeowner at the beginning of your project is information gathering and that you might need to put some skin in the game in order to be able to start sorting out what the cost is going to be.
That can mean that you might need to pay to work with a designer for a little bit to create a design concept, and it’s also advisable to get a builder involved to help provide input on costability.
One thing you can do as part of this process is introduce them to the PAC Process and say, “Look, we don’t give square metre rates or preliminary prices; what we do instead is work with you in the PAC Process, which is our Paid-as-Consultant Process.”
- We come on board during the pre-construction phase.
- We work with you and your designer.
- We provide input on cost and buildability so that you are able to have a budget and create a design that fits that budget.
- You can then work out the best budget spending for the design you want to invest in.
And that’s definitely what works for you, doesn’t it, Duayne?
Duayne
Yeah, and we’ve had huge success with our PAC Process.
It’s funny because our PAC Process is becoming a standard in the industry now. It’s getting asked for by name. We’ve got our PAC Process-trained builders who are using it, and it’s really interesting because when we are contacted or get an email or phone call from a new architect or designer, it just rattles off my tongue.
I explained to them, “Look, mate, we don’t do square-metre rates. We have a process called the PAC Process,” and we talked them through it. 90% of the time, they are all on board. They’ve never heard of it. Well, it’s something they’ve thought about in the past, but they’ve never had a builder who has given them the opportunity to get on board and get involved in all those things.
Role of the PAC Process in Client Relationships
Having a process can be a really powerful tool.
It can make architects and designers see you straight off the bat as a more professional builder.
It’s been good for us because it has grown into better relationships. It’s funny when you talk to people on the phone; they’re not expecting it.
Don’t be afraid to discuss these processes with the designers and architects you’re talking about. It can open up a conversation.
To be honest, you’re either going to get the designers and architects who are all for it and are willing to have a conversation,
catch up for a coffee,
talk through the process,
and see if they’re interested in it.
Or you’ll find out quite quickly if they’re old-fashioned and not interested in finding new ways to get their clients better results.
And we’ve found it is, it can go both ways.
Amelia
And I think, too, for a client, something like introducing the PAC Process to them gives them an opportunity to say,
“Oh, okay, so I might not be able to find out exactly now what my project is going to cost, but you’re gonna provide me with a roadmap that will enable me to work with the builder and the designer or architect and assist me in creating the best design possible for the money that I have to spend on it.”
That sounds great because that’s what I’ve been worried about.
I’ve been worried about not being able to maximise the design potential for my budget.
Every client might say that they don’t have a budget. They will have a budget. They will know what they want to spend. It’s just that what they want to spend may not be informed by whether that is the best amount of money to spend on their home, whether it’s going to get them the kind of house they want, or how far that spend can be stretched across what they want to achieve.
In my experience, it’s very, very rare that a homeowner will walk into a process and not know how much they want to spend on their future new home or renovation. And it’s really about you as the builder, rather than being backed into a corner and giving them a square metre rate that might be misleading, instead actually introducing them to a process like the PAC Process that will help shepherd them through a great experience of working with you so that they can know that they can develop their design on a budget.
Duayne
Straight away.
Avoid the square metre rate at all costs. Educate the clients, designers, and architects who contact you. To learn more about our PAC Process, check out our PAC Challenge.
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