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Construction Programs & Results Inc

We Like to See The Good Guys Win!

Pricing Fears

by Michael Stone
Houzz Survey

When you're in front of a potential client, is your focus on price or on the value you'll bring to the job?

Price isn't the top concern of most of your potential clients. A recent Houzz study shows that overall, only 30% of homeowners listed lowest cost as a top criteria for hiring a contractor. If price is so far down on the priority list for homeowners, why do so many contractors focus on it?

I believe it's because they either lack confidence and believe that low price is all they can offer or they don't know how to make a sales presentation. They aren't dressed appropriately, don't return their phone calls, and are late for appointments. When the customer is trying to narrow down the field of what contractor to use, these things are deal-breakers.

Open up the image and look at the data. Overall, 30% of homeowners listed lowest cost as a hiring criteria. Almost twice as many, 52%, listed communication and organization skills as a top criteria. Your first chance to display your communication and organizational skills is when you return your phone calls and show up on time. The chart also shows that experience and good reviews/recommendations are more than twice as important as price. If you don't have experience, get some. If you don't have good reviews and recommendations, ask for them.

If you don't already have the things that are important to your potential clients, you can acquire them. When you focus on what's important, instead of on price, you're able to charge the price you need to pay all the job costs, your overhead expenses, and make a reasonable profit. That's the price you need to charge to be profitable and stay in business.

I recently found this note sent to me by a client:

I don't know why, but I see so many contractors uncomfortable about charging. They feel bad if they charge the right amount. I think they're scared of the dialogue to justify the charge. I think they need to be more confident, professional, and secure. The other big thing is not being desperate. When I go out, I act as if we don't need the work, but rather want to do it because we like our job, the creativity and want to help out the client. I think that comes with managing financing and NOT LIVING beyond ones' business and personal needs. You have to be firm and say to yourself, "this is how much it will cost to do this job and make some money too. I'm not going to do it for less."

That note was sent in 2009. If you were in business in 2009 and are still in business today, you're the exception. 2009 was a low year in construction; we saw a lot of construction-related businesses fail. The contractor who sent this note had strengthened his business enough before the downturn to not have to cut his prices, and to be able to look at potential clients with confidence.

That should be your goal today, to strengthen your business enough to survive whatever happens. Build up your sales skills so you can present your experience and abilities, not your low price. Learn how to become the Contractor of Choice (in Profitable Sales, A Contractor's Guide), the contractor every other contractor should be measured against. Establish and contribute to your Operating Capital Reserve Account (covered in Markup & Profit Revisited) so you have reserves when tough times hit. Practice living within your means.

One more thing on the survey. I already pointed out that 30% of homeowners overall listed lowest cost as a top hiring criteria, but did you notice how it broke down? Price was most important to first-time homeowners, with 54% listing lowest cost as a top criteria. It dropped drastically with repeat buyers (those who've owned more than one home) and long-time owners (those who've owned their home for more than six years).

That's an important insight when you're defining your ideal customer, and when you're on a sales call. With first-time homeowners, you'll need to do far more educating, and you'll also have to keep in mind that they probably have a tighter budget. However, even first-time buyers consider reviews and recommendations more important than cost.

MICHAEL'S COMMENTS

We'll be taking a six-day, seven-night cruise this coming January. It's less than six months away. We've had many couples and families sign up to join us; we're looking forward to a fun trip.

The group rate has expired, but rates are still good. So join us! We'll have some great classes, and we've asked our good friend Karen Mitchell to join us. Karen is a CPA, the owner of OnlineAccounting.com, and the author of The Contractor's Guide to Quickbooks Pro. She's also been a popular JLC Live instructor. Karen knows the construction industry as well as or better than any CPA I've ever worked with.

Find a way to join us. If you've ever been on a cruise, you know the food is fantastic. Plus you'll spend three days with fellow business owners, and spend another three days visiting St. Thomas, Tortola and Nassau. What could be better?

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