by Richard Armstrong, ProCalc

02 What’s In Client budget dilemma? How to reset expectations – ethically

By Richard Armstrong, Founder, ProCalc

Pricing construction for clients has always been a vexed issue for designers and now, the abundance of TV renovation shows sees more and more clients with entrenched expectations about construction costs.

Here’s how, as an industry professional, you can ethically and professionally reset your clients’ budget expectations using a dynamic called ‘price anchoring’.

Price anchoring is a psychological mechanism identified by psychologists Gretchen Chapman and Brian Bornstein in a 1990s consumer study.

Fundamentally, it showed that when consumers first hear a price for a product or service, they then compare all other prices to that reference point. A theory of price relativity, if you like.

Curiously, the study showed that even when test subjects knew the original reference price point was random (or uninformed), it still ‘anchored’ their future price expectations for that product or service.

So, how can this help you manage clients’ pricing expectations?

For building designers, this raises two important implications:

First, understanding that most clients will have an existing anchor price for their project that could have come from anywhere – TV, a friend or something they read.

Chapman & Bornstein’s study showed the original anchoring source doesn’t have to be expert or informed. No matter where it came from, it will still influence your client’s price expectations.

So, as an industry professional, one of your first tasks is to check your client’s anchor price by asking their budget.

If your client’s anchor price falls short of adequately funding their brief you can provide your expert opinion to help them ‘re-anchor’ or adjust their price expectations.

This is the prime time in your engagement when they’re most receptive to re-anchoring.

Clients who don’t adjust their price expectations will struggle to justify a cost that exceeds their anchor price. That is, the project is far less likely go ahead.

Second, if you are anchoring (or re-anchoring) your client’s price expectations, you really only have the chance to do it once or twice.

Understandably, a client who is continually asked to adjust their price expectations, for the same scope of work, will be become jaded and sceptical of the advice they’re receiving and the person providing it.

So, it follows that the first time you discuss likely construction costs, you need to be quite measured and precise in your comments.

If you’re looking to better manage your clients’ budget expectations:

• Design Matters National offers CPD points in the recorded webinar ‘Stop Losing Sleep Over Clients’ Construction Budgets’ with Richard Armstrong: https://bit.ly/3iWWaHS • You can read more articles that help building designers manage construction costs at www.procalc.com.au/blog • Design Matters National members can take a free trial to estimate a concept construction cost at https://procalc.com.au/dmn/ (Professional Construction Estimator).

Richard Armstrong recently undertook a construction pricing research project, interviewing more than 200 design practitioners about how they manage client budget expectations. A former registered builder with more than 15 years’ design and construct experience, he possesses post-grad property qualifications and is the founder of ProCalc – Professional Construction Estimator. www.procalc.com.au.