Price is what you as the customer pay in dollars. Cost is what a producer (in this case the contractor) pays to achieve a product. Of course, the PRICE is ultimately derived from the COST, but there is more to it than what meets the eye. There are two main categories of costs:

Real indirect costs are things like time and opportunity costs. These are costs that you may not be thinking about, but your contractor probably is. This is their time involvement on a project that isn’t production time. For a contractor to run a successful company they must keep the “surgeons at the table.” This means the need to keep a project moving - they need time to be directly related to production which is in some form or another able to be income producing. The more time they can be renovating and the less time they spend with all the other stuff keeps their indirect costs down.

For lack of a better way to put it, these are basically the costs to the contractor's soul. Are they doing the type of work that they love to do for people who they have mutual respect for? Are they proud of what they’re doing?

Stick around and I will show you how to apply it.

Not much to say here. I think we all get this lever. Some are all about the cheddar. It may be 99% price and 1% all of the other levers. To demand that, they may have an excellent business. Maybe that’s even what you want. Maybe you’re willing to pay more so you don’t have to deal with anything. That’s easier than having to learn all this stuff that I’m slinging! A caveat though, some contractors really understand how to operate a business and can keep their real costs down and make a healthy profit while still keeping the price for you down. These are unicorns.

Now you are all really here to understand all of the other levers so you can find a contractor who cares more about something other than price.

Some just want to be left alone. “Let me go into a house for the next 3 months and build stuff!” They want you to stay off their job site. They don’t want to be on the phone with you every day. Set a clear Scope of Work with checkpoints and let them do their thing, you’ll be rewarded. If you feel the need to micromanage this perceived cost will go up for the contractor and so will your price.

There are contractors out there who are always showing photos of their work and the creative way they address different portions of a project. Awesome! “Show me more” is what I would say to them. I’m pumped that you are getting to express yourself here. However, I will feel a lot differently about that if that high craftsmanship starts to increase the real costs like time and labor, therefore my price. It doesn’t always mean that though. Some are out there “for the love of the game” and just want to deliver something they can be proud of, even if it took them a bit more time to perfect.

Every contractor loves to have a project that doesn’t have an intense timeline. This is like a safety blanket. A big part of the life of a contractor is to make sure they have the next job lined up. A gap between finishing project A and starting project B represents a gap in income which is not acceptable in the razor-thin profit industry of construction. If you can provide them with a “Project C” that can be going all the time they will love it. They may not even need to make a profit on it, they just can use it to send guys to when they would otherwise have to send them somewhere non-income producing. Or send them home which will eventually lead to a job search for those guys.

The contractor-to-customer relationship has long been a muddy one. Each side thinks the other is out to get them, therefore it often manifests itself. The reality is that it is often unintentional and caused by miscommunication. Trust me, contractors can sense your feelings toward them. Break the cycle and give some trust. You’ll be rewarded for it. Now I’m not saying blind trust. You need to set your expectations via a Smart SOW and follow up at your checkpoints, but when an issue arises (which it will) don’t assume the worst. Try assuming that the contractor is actually trying to help you. See what happens.

New build? A-Class Renovation? Crappy rental where you just want the safety basics done? Do you need permits? Is it a complex project that will require a lot of problem-solving? You really have to find out what a contractor likes to do. If they love doing the high-end renovation, they are probably not going to give you good pricing to do a B-Class flip project.

Are you going to have multiple contractors working at the same time? Most contractors would rather be the only ones in there working, however, some are REALLY bothered by this. It may heavily weigh on their perceived costs. It may actually have real cost implications as well. Like when the other contractor accidentally picks up your tool and puts it on their truck or messes up the work that you were doing.

Do you have a reputation for paying quickly and in full? You better! Now I’m not saying that you should pay when expectations weren’t met and there are certainly those contractors out there who will say you never pay when the reality is that they do sloppy, incomplete work that doesn’t meet expectations that were clearly set. It does mean that when a contractor says he is done with the work you agreed upon you make it a point to get there quickly to check the work and you go with the checkbook in hand.

Everybody uses this one. “I have plenty of work where that came from” is the basis. Every contractor has heard it and doesn’t believe you because most of the time they don’t deliver. Prove it. Find ways to inject stories into a conversation. Have them meet you at a different job site to give them a check. When I was first starting out, I would actually have people meet me at sites that weren’t even mine.

Don’t have contractors go look at projects that they aren't going to get. Having 3 contractors bid on the project at the same time is a big middle finger to their time. Help them be able to “keep their surgeons at the table.” Respect for people and their time will be returned. You will constantly level up the people you work with by extending this respect.

Are you always trying to get a little bit more for the same price? Contractors have a pro/con list for their customers too. Just understand that they are tracking these things.

You might think you're really optimizing by changing that plan when you run into certain roadblocks or because you simply thought of a new design. Just like they do on HGTV. You’re not optimizing. You’re being confusing and costing contractors time and money. Or they’ll make you pay for those changes. I know it seems weird that if you are willing to pay extra for those changes, why would the contractor be upset? Because some just want to put their head down and have the pleasure of a job completed.

I’m not advocating hiring guys who aren’t on the up and up, but this article is about things that affect price. If you hire the guy working out of his basement you will certainly get a price break. Obviously, you will be exposing yourself to other risks.

Be likable. How do you do that? By being genuine. Know what/who you are and act accordingly. I’m an experienced investor and contractor. I play that part well because it’s who I am. However, when our Ops Manager goes to job sites in his loafers he will say things like “I don’t know construction. I’m here to gather and give information. That’s what I do well.” He plays the part of who he really is. He doesn’t try to act like he knows how to do that structural repair. People respect that. They find it likable.

It’s not necessarily problematic to be a perfectionist. The question is, do you know it? And are you willing to pay for it? If you are, it needs to be established at the beginning, in the expectation-setting portion of the project, not at the end. Most projects aren’t even close to perfect, just look around your house. If you are going to be shining a flashlight down the drywall, be prepared to pay for what that takes financially to perfect. Also let the contractor know before they decide to work with you that the project will take them 3 times as long to complete.

Some guys just don’t speak English all that well. Yeah, I think you get what I mean here; however, I’m also talking about some various flavors of the English language (have you ever seen Swamp People?). Some customers don’t take the extra effort to bridge the gap here. Well I’m telling you, you’re missing out on some of the best people to do business with.

For both you, the customer, and the contractor, trade-offs are always being made. Neither one of you can fill all 15 of the buckets that make up your cost priority profile. You need to consider which are more important to you and understand that by filling one bucket you may be emptying another. Now while you go out in search of the contractors that you want to work with you need to be conscientious of their profiles as well. Over time you will find the ones that most closely match your priorities.

Now this isn’t Match.com. You’re not going to find perfect alignment here, but I believe that being mindful of these factors will help you build a better team of contractors and therefore a more profitable, less stressful real estate investment organization.