Nov 21, 2023
Episode: 32

Understanding the Logic Behind Remodeling Payment Structures

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The Unique Nature of Remodeling Projects

One crucial aspect that sets remodeling projects apart from new home construction is the setting—the work is being carried out “in” the home in which you live. Beyond the location of the work, almost every product ordered and installed in the home of a client is specific to the wants of that client and the needs of the space they are renovating. Thus, if a client were to change their mind about a project in the early stages, there is risk to the business that they will have purchased a significant amount of product that only has value to that client and use in that home.

Further, there is the very rare, but very real risk of an unexpected event—a customer passing away during a project, for example. This is a situation we have personally experienced, and this incident underscored the significance of a well-thought-out payment process that reasonably navigates unforeseen circumstances.

The Order of Payments: A Strategic Approach

The heart of the matter lies in the payment schedule, which is most commonly driven by project duration and the size of the project. Materials for remodeling projects are often specially ordered for a specific space. To mitigate risks associated with potential disruptions, remodelers typically structure their contracts to ensure they are not left absorbing the investment in unusable products in the event of unforeseen circumstances.

The standard payment process involves an initial payment of 34% upfront, immediately reinvested into purchasing necessary materials. Subsequently, progress payments of 30% are made at two key project milestones, with a final payment of 6% upon completion. Those two progress payments are commonly tied to the “start” of a phase. For example, the start of rough plumbing and the start of cabinet installation are two common places where progress payments are requested.

For larger projects spanning several months, the middle 60% may be divided differently. Alternative progress payment structures might be 20%, 20% and 20%… or 15%, 15%, 15% and 15% depending on the project’s duration and complexity. We often find that clients don’t necessarily prefer to make more payments even though we offer it as an option.

Tailoring Payment Plans for Specific Cases

We advise against any client paying the full amount upfront unless the project is very short in duration, and you have a trusted partner. We cannot think of a situation where we would ever request 100% up front. We advocate for a strategic breakdown of payments. On smaller projects, a balanced approach, such as 50% upfront and 50% upon completion, is recommended. There are times where expensive custom materials would have us shift that payment structure to 60% down and 40% at completion, or even 70% and 30%. For projects that have a duration of weeks rather than months, the payment percentages are adjusted accordingly to accommodate the unique needs of each situation. Most commonly, these middle size projects would have a payment structure of 45% down, 45% at the start of work and 10% at the completion of the project.

The Balance Between Trust and Business Sense

The priority of every professional remodeling company is to align payment structures with the flow of actual costs in a project. While trust and strong relationships are vital, it is a necessity that these agreements make business sense.

In the vast majority of cases, these payment structures work seamlessly, fostering positive partnerships between remodelers and clients. However, the underlying principle remains: every payment plan should be a carefully considered business decision that protects the interest of both parties in the relationship.

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Have you checked out our Remodeling Unscripted community?

Remodeling Unscripted Podcast

Have you checked out our Remodeling Unscripted community?

Remodeling Unscripted Podcast

A podcast for remodeling industry owners and homeowners. Geoff Horen, a home renovation expert, hosts the podcast, which includes real remodels, challenges, and talk. The podcast is available on Apple Podcasts and YouTube.