In this blog post, I want to give a tip about something that is working REALLY well right now in my remodeling business. It’s a simple strategy that helped me not only increase my close rate and reduce my sales and bid costs, but also helped ease the problems caused by my suppliers only holding material pricing for 2 weeks. (This has been a huge pain for those of us that need to set our schedules months ahead of time – how do we agree with the homeowner on pricing and close a contract before we know what the final price will be?)

Well here’s what I’ve been doing lately:

Near the end of my initial meeting with a homeowner I go into my usual spiel… but then add the following new script:

“So the way our schedule works is that we do our projects on a first-come first-served basis. In order to hold a spot in our schedule, we require a fully refundable $500 holding deposit to be put down. This lets us know you’re serious and helps us keep our schedule in order. Here’s how this works. The check will remain uncashed, and it is fully refundable up to 2 weeks before the start date. So if you want to cancel your project at any point before then, I will simply void the check and mail it back to you. And if you choose to continue with the project, the $500 will be taken off the down payment that is due when we sign the contract.

Now we currently have X of these holding deposits that are reserving the spots from now until month. So if the ballpark estimate I give you is in line with what you’re looking to invest into your home, would you be willing to put down this $500 to hold your place in our schedule?”

If they say no, I walk away without wasting more of my time. If they agree, then I’ll know it’s at least worth putting together a ballpark estimate for them.

And here’s the results I’ve gotten since implementing this strategy:

I added this script to our initial meetings in mid-February. Since then we’ve gotten 7 holding deposits (with one more apparently in the mail), and only had to refund 1 of them. Our close rate (which I define as closed contracts ÷ folks I’ve been able to pitch a price to) went from 39% to 64%. I’ve also saved around $1300 on payroll since my project managers are doing only rough ballpark estimates without a deposit.

Now here’s why I think this strategy is working so well:

1. First, it gets a powerful cognitive bias known as “consistency bias” working in your favor. Consistency bias refers to the fact that when someone says they’ll do something (in this case, “yes, I’ll give you the deposit check”), they’re more likely to actually follow through. People want to be true to their word.
   
2. Second, there’s a saying that “When money changes hands, a commitment is made.” This is similar to how the best way to get someone to like you more is to get them to do you a small favor. Then they think to themselves, “Hey, I must like the guy if I did something for him”. And since they’ve already made the decision to give you money, it’s easier for them to justify giving you more money later. (i.e. giving you the contract)
   
3. It’s also an easy way to build trust. They give you a small monetary commitment and you handle it professionally. Then they feel more confident giving you a larger commitment after you prove your integrity.
   
4. It reduces the likelihood you’ll lose the contract to a competitor later, because I guarantee they’re not giving out $500 holding deposits to 3-5 different contractors. If you get the deposit check, you’re #1 on their list. Period.

So that’s it! Super fast, super easy, super effective.

P.S. – This also seems like an easy way to raise your markup. For example, say your close rate right now is 30%. Well if you try this strategy out and it jumps to 40%, you can then bump up your markup by a few percentage points. Sure you’ll lose a percentage of customers and your close rate will drop back down… but selling 33% of bids at a 45% markup certainly results in more profit than your old figures of selling 30% of bids at a 40% markup.