The Difference Between PRICE & COST

ProblemSolver

A vacuum cleaner sales man once told me the difference between Price and Cost.
• Price is what you pay out to purchase the product or service.
• Cost is what you gain or lose over the life span of that product or service.
Initially, the Price and Cost start out with the same net value. If the product or service performs to a quality with in its class throughout its life time, then the Price and Cost remain relatively the same. If the product or service fails to perform as expected, then the Cost increases by way of an unexpected out of pocket expense/s, and/or an inconvenience created by the product or service for the life time of that product or service. And when it comes to Heating and Cooling, that’s around 240 increased monthly utility bills that average about 50 dollars a month for both gas & electric over 20 years (plus) which equals = $12,000. So a professional install of a furnace, A/C, and duct system at $11,000, compared to a passive install at $9,000; and the customer chooses the cheapest PRICE at $9,000, their total COST after 20 years becomes $21,000 which is $10,000 more than the professional install PRICE. SO PLEASE! SOMEONE OUT THERE, TELL ME HOW MUCH DID THEY REALLY SAVE? AND WHAT PART OF THEIR BRAIN DID THEY USE TO REASON WITH THIS DECISION?

icesailor

Why, that's a no brainer. Of course.

There seem to be a lot of short brained folks out there

ProblemSolver

Let's add to this scenario. Let say that after 4 years of being uncomfortable in their new home, the HO calls the professional to get their Htg & Clg system to work right. He has to charge them $2,600 to get it corrected.
This is about 30% of my work throughout the year, and the toughest part of this is getting the HO to see it was their decision to go with the lowest Price, and look what it got them. Therefore, if I drop my price, then I have to cut out some important details in order to give then a lower price; and it is that kind of thinking that caused their discomfort in the first place. Most of them come to terms with it, others refuse to take the responsibility and think it should fall on my income.

KC_Jones

You can have it cheap or you can have it right. You can't have both no matter what anybody thinks....it just doesn't happen. The problem is most people don't know or don't care what is right.

icesailor

There's a TV show on TV, DIY or something. It used to be on HGTV. A guy from North of the St. Lawrence River, Mike Holmes. The show is now called "Make It Right". Sort of the Canadian version of the US/PBS Series "This Old House". Except Mike and his crew go in and fix the mistakes of others. He has his ideas about some things that I don't always agree with, but much of what we discuss here is graphically displayed. Now, at the end of the shows, he has a breakdown of what it cost to fix what he had to fix.

Many of these disasters were done by DIY homeowners doing illegal and uninspected work and then selling the property to unsuspecting homeowners. Who hired professional home inspectors who missed the problems. Or professional builders who make mistakes and won't come back and fix the leaking windows, rotting wood, or cold houses.

Cost and Value.

ProblemSolver

@Hatterasguy you are right! it's not surprising to me; it's part of my daily life. But when you see someone wanting to jump into a pool of piranha fish, just so they can show-off their "triple lindy" dive; I can't help myself but to want to scream out "your making a bad decision!"

furnaceNewby

I agree! Reminds me of the adage:

"There's never money to do it right, but there's always money to do it over."

In my case, I am dealing with the shortcomings of a poorly done installation from the late 1980s. The more I learn from reading the Wall, and the more I realize what I am dealing with, the closer I get to wanting to tear the whole system out and start over!

Gordy

In all defense of the consumer how educated must they be? To the point they can just about do the work themselves unless they don't want to really. To fully understand the scope of the work you seak to be done takes quite a bit in order not to get burned. After all there are people being charged for premium work, and sub premium results.

So price is not an indicator to a certain degree. It depends on where the money goes on the contractor side. Into the work for quality materials, and a reasonable amount of competent labor charge to do it right for a reasonable profit margin. Or same price for cheap materials incompetent labor, and an obscene profit margin.

I think home inspection can be a joke. While there are some very thorough inspectors, there are plenty that take the 400 or 500 bucks, and give you a false sense of security that your purchase is with in a certain standard for the age of the structure because it was inspected.

EBEBRATT-Ed

Most customers think like they are buying a car or a mixer to make mashed potatoes. They can buy it at this store or that store or buy it on line to get the cheapest price. With the car they might think about which dealer has the best service but they can still buy it at the cheapest dealer and take it else ware to be serviced.

They think all heating guys have the same knowledge so the cheapest price prevails, unfortunately. We are assembling a system from a box of parts to make a working system. It takes knowledge and skill and enough money to do it properly.

most of them do not find out until it's too late

icesailor

"" I have an expression for all of it. I cannot post it here. ""

Don't keep us in suspense. Post it.

ProblemSolver

Hatterasguy ; The home inspectors can only say whether or not the hvac equipment operates. My neighbors kid bought a house and the inspector okay-ed the furnace. The furnace is a Lennox and the fan inducer assembly was replaced with a Goodman that mounts differently and it was for a smaller BTU furnace. The home inspector missed that one...

Gordy

The only thing I can think of to protect consumers is a detailed, either federal, or state mandated warranty on what ever the work is. The warranty would directly correspond to the reasonable life span, performance of the materials, and design. failure to honor warranty is subject to prison penalties, and fines.

Obviously this still has its limitations in that contractors come, and go, but said individual owner(s) whether said company is still operational, or not are still held accountable.

Material failures would go back to manufacturer, and contractor. Either by poor product design, ands or selection in use for the application.

Warranty period would be a typical life cycle for components, systems, and design.

Broken down examples picking reasonable numbers.

Heating systems 50 years with break down of individual life cycle components. In other words the (system) as a whole shall perform its expected function. While individual components shall perform under their own warranties, and reasonable life cycles.

Framing for a structure 100 years so long as components were used for their intended design, and structure design is properly done to protect components of the structure so they can achieve their reasonable life cycle.

Plumbing systems 100 years obviously fixtures, and valves fall under the same as a hydronics system.

Foundations 100 years.

The intent would be to make a potential contractors aware that once they perform work it follows that contractor until the owner dies. That would hopefully weed out the hacks, and promote use of quality materials, and design. So a contractor can walk away in good faith in his, or her minds that the work they performed will perform its function for many years to come.

Is there really any other way to garantee a homeowner piece of mind without having to research the work being performed to the point of being able to do it themselves unless they don't have the ambition to do it themselves?


Look at the auto industry with its warranties, saftey does not go away anymore once the warranty runs out. If there is a saftey issue whether the vehicle is under its standard warranty or not there is a recall.

Gordy

Really in my post its not so much about the warranty in my example as it is about the possible legal out come for said contractor. Maybe its a way to deter someone who thinks they can maybe be a contractor in any facet in the construction industry to thinking twice if he cant do it right there is a price to possibly pay for their wrong doing. Whether it being the intent to scew someone over for their money, or thinking they know how to do something when they dont.

Maybe the watch dogs need to be group formed by the industry of choice that have some legal clout. They go to a claim, and determine whether the claim is valid, and how to proceed with the contractor, and the repair.

Gordy

FWIW in the end what ever you decide to do for a list of things to determine whether a potential contractor is worth a grain of salt in capability, and buisiness practice. It does no good to someone googling heating help. the deed is already done. At best the victim can go through the list, and say did I do this.

Maybe its time for a branch of this website as a seperate google hit. That being choosing the right heating contractor.com

Gordy

In this day and age I would not trust a photo. Possibly not even a contractor designated reference.

Harvey Ramer

Hatterasguy said:

Please............how many heating contractors are smart enough to photoshop a bad install?

And, truthfully, do you really believe they THINK their own installation is NFG? Believe me, any contractor that I have ever had dealings with in any capacity believes he is second to none. It's the nature of them.

Hat, that kind of stings a bit. A man's occupation is no measure of his intelligence. There lived an esteemed Physicist who used to be a plumber in New York.

ProblemSolver

Sounds like imposing a lot of control; something I am getting tired of our government doing.

SWEI

Gordy said:

I think home inspection can be a joke. While there are some very thorough inspectors, there are plenty that take the 400 or 500 bucks, and give you a false sense of security that your purchase is with in a certain standard for the age of the structure because it was inspected.

What's worse is when the unsuspecting buyer finds out that something is very wrong with the house they bought a couple years back and that the inspector has zero liability for missing something quite obvious.

Gordy

Hat, I remember not long ago someone peddling their plates on here with a thermography from another manufacturers website.
I wonder how many plates that mom, and pop operation sold, and the thermography played into the sale. The plates were garbage.

It does not take much to razzle, dazzle a prospective customer with some visual stimulation yours or by others. Do they really know what they are looking at? It can look pretty, and still not perform properly.

As for to many controls. If there is a speed limit law, but no one to enforce it. How many will actually follow that speed limit? Especially if they know there is no one to enforce it. Now throw some enforcement into the picture people are more inclined to follow the law.

icesailor

ProblemSolver said:

Sounds like imposing a lot of control; something I am getting tired of our government doing.

A lot of people say that. It often depends on who's ox is doing the goring or who is being gored.

If Joseph Homeowner want a new heating system and get prices from 5 contractors, and 4 contactors quote between $9,500 and $10,500, and the fifth contractor quotes a price of $2,000, many Joseph Homeowners will immediately conclude that 80% are crooks and trying to rip him off, while 20% were honest. And hire the honest one.

And come here to complain about how bad things turned out and what do they need to do to fix it for the least amount of money.

The cheapest "Hot" deal you can get for a new legitimate priced boiler is $4,000. So unless it is stolen or used, it can't be done. But is all the time.

Paul48

Just remember, the victims here could easily go by a different name, perhaps Mom or Dad.

Gordy

The smarter contractor is the one who offers both options with an explanation as to the pros and cons of both offerings. I always say there should be a good, better, and best quote with explanations as to the pros, and cons of the three choices. Really if your elite better, and best sets you apart. Let the owner decide after being informed as to what they are willing to sacrifice the money for best, and never look backp, or possibly a disappointment in performance, or longevity with good. Either way it's their choice once properly advised.

Paul48

Absolutely correct.........Not every customer that chooses the lowest bidder is a cheap ****. Beyond needing heat for their family, they might be carrying a story that would break your heart. They still deserve the best you can do for them. It may be a simple cast iron boiler, and not a mod/con.

Gordy

That's exactly what I'm getting at Paul. There are different levels of systems, and with that cost. They can all perform the imtended goal maybe some a little less efficiently for the long term, or a little less longevity. It's pretty hard to go with out heat, AC is doable for most, but heat is a necessity not only to keep an individual comfortable, but to protect the internal systems of the structure.

ProblemSolver

The people in need are not the people in discussion here. It's the people who have a 2,400 square foot house and they are adding on another 2,000 square feet; basement, 1st floor rec. room/dinning room, and 2nd floor a master suite. Their $26,000 kitchen cabinets were bought with considerable time invested; but the one thing that will keep them comfortable (and do it efficiently) is a well designed HVAC system that they no nothing about, and they never budget nearly enough, but the darn thing better work right.
I call the Heating and Cooling System a "little red headed stepchild". It's something that people don't pay attention to, but it better behave correctly!

Gordy

People only want to understand tangible things because it's easier. Maple, walnut, granite, chrome, brass, faucets, hardwood, tile etc. even then you can spend 26k on cabinets, and get garbage the mark up is obscene. A friend of mine bought a log home from the mid 70's I would not have touched it with a 10 ' pole. It had electric base board no AC. He got bids for forced air. 7500, 11500, and 14k which one did he pick guess. Didn't have a clue the 14k was going to be the best job even after asking my opinion. He got what he paid for.....

The one bidder who threw a price out there with out a clue as to how he was going to run the duct work in a challenging structure as a log home.

ProblemSolver

For me; all my systems are the same when I build a bid. The only options I give the customer is equipment efficiency. I will not remove important system "details" for the sake of a cheaper bid. What sets me apart from my competition and gets me the work I do get is; I explain why my system needs to be built with the details (most of my customers tell me the other contractors did not share these details with them, and they appreciate the additional info), and if the customer is not interested, then I'm not their guy.

clammy

Great post its good to see other opions on the subject.It is quite a tough subject for myself i always fiqure cost and price are in direct realationship to the value but alot of variables in that formula least of which is how much goes in the profit and how much time .I really don t think we do this as a charity and we all deserve to be able to afford a dessent lifestlye .To myself i.ve seen people spend over 60 to 70 grand on cabinets but beat ya down to the penny on a pos standing pilot boiler refusing to update anything that is not seen and then chase them to get paid .Unless asked i just give them what they want when they want cheap thats what they get when they want good thats what they pay for and thats what they get .At this point in my life i sweat nothing there s no sense getting worked up throw a price move on nothing to see LOL peace and good luck clammy

vaporvac

Well, almost noone.

Don_197

I had a small community public library customer years ago who had a copper fin boiler on a water source heat pump system......the piping was all wrong.....very little mass in the system at all. this poor little boiler would fire on both cylinders a couple hundred times a day in the winter......and never run for more than 5 minutes (and THAT was coming out of setback........the water loop had a low limit of 65 degrees) I told them they'd better budget for replacement in the next few years and sure enough....3 years later it gave up the ghost. They were so afraid they were going to get ripped off they created a process for getting the estimates that was 10 X WORSE than any Federal Government process I had ever been through. I looked at the bid packet for about three days trying to figure out how to even bid the stupid thing (I had given them a proposal for replacing the boiler, fixing the piping, adding a buffer tank, and integrating with the DDC system back when I first warned them about it). After looking at it for a few minutes every day right up until the deadline........I faxed them a "decline to bid" letter. They ended up going with the low bidder of course and the building ended up twice as screwed up as it had been prior. They were so p'o'd at me for what ended up happening (they wanted us to do wthe work......and created this awful process to make sure they got "apple to apples" proposals) we parted ways.........and I was glad.

Fred

Your job, if you want to be far more successful, is to figure out how to steer the customer toward that $14K kitchen, which is far more profitable than the $4K kitchen.
@Hatterasguy , this quote sounds more like value for the contractor rather than the customer. I'm inclined to believe when a Contractor bids, quotes or proposes a project, he/she built into their proposal a fair/reasonable profit over and above costs (their piece of the value equation) and that the proposal they give the customer includes a fair value proposition as well, be it the $4000. job or the $14,000.00 version.
That fairness is what will grow a business and repeat business I might add, be it another install or on-going service/support.

GW

Hummm, I think I see heating pros moaning about how shortsighted ho's are and how they are too slow not to see how wonderful we, the heating contractors, are.

I learned a long time ago you can not "make" someone think or feel anything... Yes some of us are better than others when it comes to infusing knowledge and maybe creating some excitement, but people buy from who they want and when they want, most of the time.

Some people want cheap and will gladly roll the dice. Other people expect higher performance and will gladly pay whatever you ask.

Knuckleheads are just hard working folks that may not have appreciated the level of professionalism many of us have, but nevertheless are probably honest people.

Gary

clammy

It s all percepition of what value is ,if piping being properly sized and supported,holes being drilled the proper size to allow for expansion and contraction all the small stuff if there not seen value then what does it matter no.I recently through a reffrell ( which i didi a whole system for aside from repairs to there old steam boiler )looked at a steam replacement job ,way over sized boiler with a counter flow systems ,i did a erd on the rads gave the piping a good look over and gave them what i percieved as a fair price never heard boo except we have no money this was over 2 1 /2 months ago well flash forward to yesterday .The job is in town and i see a plumber i know who i have bailed out on a few steam jobs ,well long behold he,s changing the boiler good for him .Then he states that the system is all wrong and the mains are under sized for the boiler size I just smiled and wished him luck so i guess the HO will soon find that aside from the boiler replacement he ll be going through alot of extras but that is that guys game low price and maken pay for bs .When all said and done the other guy will much more then i could have ever been with no new rad vents no drop header and probalby no drips on the counter flow and lots of spitting vents and banging but he will have that same over sized boiler and over sized bills that go with it .Peace and good luck clammy.

Fred

@Clammy , I agree with you. Value assumes the Pro is actually a Pro in his/her field. If he/she is not, then it is unlikely the customer will see his/her end of the value proposition, even though the contractor likely will (unless he/she is as poor at managing their business as they are at delivering unskilled services)

vaporvac

@Fred , I've noticed the two often go hand in hand.

j a_2

And then they say, well the other guy never said anything about make up air, or chimney,or whatever…With a bit of an attitude..Thats when you say WELL NOW THATS THE GUY TO GO WITH….Have a nice day….

Paul48

Whether or not he/she is a pro in their field is determined (wrongly)by the license they carry. It should require special licensing. If the states won't do it, then the trade should. It should be the most important aspect of choosing a contractor. Other trades have a certification process, to ensure proper training, and the dollars at risk for the consumer are much lower.

SWEI

Paul48 said:

Whether or not he/she is a pro in their field is determined (wrongly)by the license they carry. It should require special licensing. If the states won't do it, then the trade should. It should be the most important aspect of choosing a contractor. Other trades have a certification process, to ensure proper training, and the dollars at risk for the consumer are much lower.

The RPA is working on this right now. Adoption by the states will probably take years, though.

Paul48

Who gives a hoot about the states? Their only concern is how much money they can stuff in their pockets. If it becomes known that without the certification, customers should not even look at a contractor. The thieves are out of business. As a matter of fact, you don't want the states involved. They'll only screw things up.

Fred

Their is a difference between real and percieved value. For both the contractor and the customer. What is tricky is seperating the tangable from the intangable. I agree the intangable sometimes cloud decisions and may be percieved to have as much or even more value than the tangable value to some customers, and even to some businesses (on a more controlled basis). That's why there are "Lost Leaders" in many retail venues. The theory being "If we can get the customer in here, we believe he/she will buy other items that have better (or even make-up) margins".
When all is said and done, it truely is next to impossible to address the percieved value for any individual BUT, if one can reasonably validate the tangble value, of one product over another, including, at least product costs, installation costs, overhead, reasonable margins, Total Cost of Ownership/over a reasonable product life, then a customer, or contractor, can decide how much more they are willing to pay for the intangables (value add).

Fred

Hatterasguy said:

Fred said:

Their is a difference between real and percieved value.


When all is said and done, it truely is next to impossible to address the percieved value for any individual...............

Only in your own eyes.

Perceived value is real value.

You just don't see the value that others see.

That's all well and good but don't believe for one minute that your definition of "real value" is universal for all people.


And, no, it is most definitely possible to address the perceived value for any individual if you know how to do it. In fact, those that can do it are, by far, more successful than those that cannot.

Everyone's opinion and perception is just that, an opinion and/or a perception. if one can convince someone their "Perception" of real value is, in fact real value, I guess that makes all the mis-piped and over-sized systems we see real value, for those homeowners.

I can't and don't want to try to convince anyone else what value is, for them. As you say, i know what it is for me, when I see it. Peace.