I know some of you hear from potential clients about the contractor who is quoting considerably lower than you are for the same job. And we know there are contractors who tell their clients, “We’ll beat any other company’s quote, just give us a try.” Some call it being competitive. I call it a race to the bottom.
It’s a mindset that too many contractors have, and they tell each other that it’s the way it needs to be. If you want the job, you have to have the lowest price.
Think about it, cutting your price to get a job. Now, if you added a bunch of extra money on the top of your quote just so you can take it off later to seal the deal, then you can cut your price. But I don’t think it’s an honest practice. You and your potential client know you’re playing a game and it doesn’t make you look good. From then on, they’ll wonder if you’re telling them the truth or playing a game.
Cutting your price to get a job is a money losing approach. Over time, you won’t be making a profit and you’re only working yourself into debt.
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Construction is a cost based business. We do one-of-a-kind jobs. You can’t under price your work and stay in business. And you can’t cut your price thinking that you’ll make it up on the next job. Is it really ethical to expect your next client to pay for the loss you’re taking on this job?
To avoid all this, make sure your sales presentation includes two things.
1. Help potential clients understand that when a contractor is willing to cut their price, or if they come in with a low price, they are going to or already have financial problems. When they are building jobs at a price below what it costs, or if they are covering the job costs but not able to pay their overhead expenses or make a reasonable salary, they’ll be out of business soon. We wrote a blog post recently on this topic – feel free to share this with your potential clients (as appropriate).
2. Establish yourself as the Contractor of Choice. Find out what their criteria is for hiring a contractor and make sure that you expand that criteria to include everything that you do as well or better than anyone else in your area. That puts “price” back in the seventh or eighth spot on their priority list where it started and should be when they go looking for a contractor to do their job. (This is discussed in detail in Chapter 5 of Profitable Sales, under “We are getting 3 bids”.)
Don’t be part of the race to the bottom. Stay focused on what you do and what sales price you need to cover your job costs, all your overhead and make at least an 8% net profit. Do those things and you won’t have to fuss about how you’ll pay your bills after building jobs at less than the reasonable price for that job.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations.