I can’t tell you how many times in the past few weeks I’ve had contractors tell me they are cutting their prices to get work. I even took a call from a contractor in the Midwest who told me we should bring our two-day Making The Numbers Work In Construction class to his town “because all the NARI members are busy cutting their prices.”
Why? If the price you calculated is what you need to cover your job costs, pay your overhead expenses and make a reasonable profit, why would you choose to pay those expenses yourself just so you can build this project?
When contractors cut their price, it’s almost always because they are hurting for work. They need to get a down payment so they can pay bills. More often than not, they aren’t getting enough leads, which makes every lead more valuable. When you’re desperate for leads, you’ll do whatever you need to make the sale, and sometimes that includes taking money out of your own pocket to build the project just to keep your employees working.
Don’t forget that if you start negotiating price with a client, they discover that what you say is negotiable. You can end up negotiating many more details by the time you’re done with the project. Make this your mantra: “You tell me what you want, where you want it, and how you want it, and I’ll tell you the price.”
If you have a steady stream of leads coming in the door, you won’t be in this situation. You get those leads by advertising. Start with a website that is optimized to generate leads, but don’t stop there. You should also be using at least three or four other advertising methods, such as vehicle wraps, job signs, billboards, newsletters, business cards, social media, thank you cards, TV or radio, home shows, or newspapers (some people still read them). If it looks like you’ll be heading into a slow time, ramp up the advertising with TV, radio or newspaper ads, keeping in mind that it will take a while for leads generated to actually turn into jobs. (You can read about the job cycle in our book, Markup and Profit Revisited. We also talk about it in this blog post.)
The construction market is improving. But there are fewer contractors to do the work, that includes both general and specialty contractors. Buildings are seven years older than they were in 2008 and that means they are at least in need of repairs, and many are overdue for remodeling. By all reports, there is more demand today for new housing than there was in 2008. So, more demand for remodeling and new homes, and fewer contractors to get the job done. Why would anyone cut their prices in that kind of market?
Consider this. Do you use an air compressor to get your work done? Have you noticed there are fewer companies repairing compressors today than there were seven years ago? Have you also noticed that the compressor repair shops haven’t cut their prices?
Do you have welding equipment that needs repair? Repair shops for welding equipment keep raising their prices, not cutting them.
How about your vehicle mechanic? Have they cut their prices? Your doctor? Your dentist? The grocery stores? How about going to watch your favorite football, basketball or baseball team? It even costs more money to watch a high school football game.
When you start cutting your prices to get jobs, you’re ignoring the reality of business. I have a favorite saying when I find someone who is set in their ways and can’t or won’t consider change: “Be as stubborn as you can afford to be.”
Don’t cut your prices. Know your value and learn how to sell it. Unless you need practice losing money, let someone else get the job and lose money.