Signing everything customers pass your way can backfire—leading to delayed payments, major cash flow issues, and even bankruptcy.
You can never be too safe.. even with the customers you trust.
So for the latest episode of Cabinet Maker Profit System Podcast, I caught up with contracts expert - Cian Brennan.
Not only has Cian been a part of 4000+ negotiations and helped 250+ contractors tip the scale in their favor…
He’s also spent years on the “dark side” of contract negotiations - the customer side…
So, he’s seen plenty of contractors lose money, and even go out of business because of predatory contracts…
Most millwork contractors are worried about redlining client agreements.
They think that if they don’t sign the contract the customer will just go with the next guy.
But the truth is 82% of negotiations Cian has been a part of have gone well for the contractor.
And what’s even more surprising:
NOT negotiating is considered a RED FLAG (especially when it comes to the larger projects).
It sends a message that the contractor has no idea what they are doing…
In fact, customers often give you their worst contract expecting you to negotiate…
So sending the contract back not only positions you as a professional - it is expected.
But what to do if you’ve been working with a client for a LONG time - 10 or 15 years?
Another common belief millwork shop owners have is:
“Things have been fine for a long time… So, I probably shouldn’t rock the boat.”
Especially if the relationship is strong, contractors are reluctant to renegotiate contracts.
After all - they get special treatment based on the relationship, so the contract seems like an afterthought. And in the past, they could have been right. Maybe.
Today the contracts have become way more hostile.
So even if you have great relationships with the company - people move on…
And then customers bring in close-out teams.
These teams are specifically designed to divert all the relational agreements back to the contract.
So whatever might be fine right now because your client (or their team) lets it slide - might become a problem as soon as the playing field changes.
Another common belief millwork shop owners have is:
“Things have been fine for a long time… So, I probably shouldn’t rock the boat.”
Especially if the relationship is strong, contractors are reluctant to renegotiate contracts.
After all - they get special treatment based on the relationship, so the contract seems like an afterthought. And in the past, they could have been right. Maybe.
Today the contracts have become way more hostile.
So even if you have great relationships with the company - people move on…
And then customers bring in close-out teams.
These teams are specifically designed to divert all the relational agreements back to the contract.
So whatever might be fine right now because your client (or their team) lets it slide - might become a problem as soon as the playing field changes.
So how do you approach renegotiation without upsetting your customer?
Cian shared a tactful script you can use to renegotiate contracts without affecting the relationship.
Here’s how you can bring up the contract changes and avoid rocking the boat:
“We're growing as a company. We're getting a bit more sophisticated. We're getting a bit more professional. There are a couple of elements of contracts that are that our lawyers/business coach/insurance team can't let us negotiate on. We need to just re-negotiate these four or five little things. It's not a big deal. Would you be open to that?”
It’s as simple as that.
To gain “negotiation power” when signing contracts you have to know what customers look for.
Before we dive into specifics let’s discuss the three common traits they pay attention to:
#1 Your longevity in business…
#2 Being family-run businesses…
#3 A focus on doing one thing exceptionally well…
These characteristics signal long-term potential (and therefore increase the chances that you can get the job done right).
And I can already hear you asking…
But what about your price? Doesn’t the lowest price always win?
Quite the opposite. A low price can actually be a red flag.
Commercial customers are aware that the lowest-priced provider is usually the most expensive in the long run.
If you come in at 20% below the rest of the bids it indicates that there might be issues with your estimate.
This alone shows cracks in how you run your business.
Instead, they evaluate contractors on the following criteria:
Have you got the capacity to do the work?
Have you done the work before?
And only then will they look at the price.
Another thing you should keep in mind is commercial customers will low-ball you.
But luckily they have only one script:
They will tell you the price seems high…
…even if you’ve given them a reasonable quote.So when they do - keep in mind they might just be testing you - if your technical capabilities are sound there’s a high chance they’ll budge on price.
One of the best things you can do to protect your company is to get paid as fast as possible.
This helps offset materials, labor, and client acquisition costs.
The worst possible scenario is getting paid after the work is done, because that puts you at severe financial risk.
That’s why Cian recommends negotiating how you get paid.
You want to get paid upfront for as much as you can AND then down-sell them to a maintenance contract.
Ideally, you should get 50 percent upfront to secure all the materials and the design. And then you get paid in milestones.
Now it might be tricky to set up recurring revenue for a millwork shop. But it is not impossible.
You can offer to come in once every six months to service or clean what you’ve built.
This could ensure recurring revenue for 20 years.
Understanding the potential for change orders allows you to not only mitigate risks but also boost the contract's value.
The best way to do it is to track change orders on your existing projects.
You’ll notice that certain project types all have similar change order stats.
Let’s say a million-dollar contract on average yields $20,000 in change orders.
Regardless of the specific figures, what matters is the percentage of the total price.
It then becomes a guiding metric for gauging the potential upsides.
Effective change order management revolves around clear communication and streamlined systems.
This includes outlining approved change orders in the contract, so everyone’s on the same page.
Use these insights the next time you're dealing with contracts, so your millwork company thrives for years to come.
For a deep dive on how to contractually safeguard your business listen to the full podcast episode on the Cabinet Maker Profit System Podcast.
Tune in for a wealth of knowledge that can reshape the trajectory of your business.
Show Notes
Links and Resource
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