Last week, I discussed the importance of knowing the minimum price you need to charge your clients and charging at least the minimum price on every job. It raised a few issues that need to be addressed.
The world is changing and our market is changing. But a few things haven't changed and never will; one of them is math. Another is that if your potential customers are fussing and looking for the cheapest price, you're marketing to the wrong people.
When you're running a business, the math can't be argued:
- If you charge less for a job than it costs you to build, you'll take money out of your own pocket to build that job.
- Over the course of a year, if you charge less for your jobs than what you need to pay your overhead expenses, you'll take money out of your own pocket to pay overhead.
- Either way, you'll go without a salary and work for free until you get tired and quit, or go broke.
Math is math; trying to deny its reality is like trying to deny the law of gravity. You can jump out of a plane believing the law of gravity doesn't apply any longer, but you'll soon learn otherwise. You can charge less than what you need to pay your bills, believing that math has changed, but you'll just find yourself in debt and frustrated.
On the marketing side, are you marketing your services to those who have the ability and willingness to pay a fair price for the job they want done? Or are you offering free estimates and wondering why your clients are looking for a low price?
Take a look at your sales presentation. Do you get good responses and thoughtful answers to your questions, or do they only want to talk about price? If price is their only focus, it's time to educate them, or excuse yourself and head for home. You are under no obligation to play the bidding game. It's easy to blame others for our problems, but the truth is, if you won't educate yourself on the basics of a good sales presentation, you'll never get out of the price game.
It's your job to educate your client about how you work and what you will or will not do or provide. Your sales presentation starts when the lead is taken over the phone. I'd cover the details here, but there are too many; that's why we wrote a book on how to sell, focused on working with homeowners.
If you believe that the only thing your potential client cares about is price, you're competing with the bottom feeders. No one is forcing you to participate in the race to the bottom; it's your choice. If you don't like how potential clients are responding to your presentation, change your presentation. A good rule of thumb to follow is that if you hear the same thing from three potential customers, it's not the customer who is at fault. They're simply feeding back what you've presented.
While we're talking about bottom feeders, don't point the finger at immigrants. There are more contractors born and raised in the United States who are giving their work away than there are immigrants going down that path. They're all giving their work away because they've been told that a twenty percent markup is all they can charge. We've had many contractors attend our courses and call our office who speak English as a second language. They're reading our newsletters, buying our books, attending our classes, and signing up for coaching. They want to run a successful, profitable business just like everyone else.
That's not to say there aren't problems. For instance, California contractors are competing with day labor centers. These centers provide workers as a referral service, not as an employment agency. The rate is negotiated with the day labor center but the worker is paid directly.
That's fine and dandy if you're a contractor looking for help who operates legally, paying taxes and providing worker's compensation as required. Sadly, you'd be the exception not the rule, because workers prefer to be paid in cash. Day laborers are more likely to be hired by homeowners looking for someone cheap to work on their house. This webpage for a day labor center explains what kind of work day laborers are available for; construction, electrical work and plumbing are included, with a note that the workers are not licensed contractors. Be sure to scroll down to catch the fine print on liability and taxes.
I have no issue with these centers providing unskilled labor, but it's wrong for them to allow and encourage construction work, especially in a state that so tightly controls construction-related businesses. If you're in California and would like to connect with others in addressing this issue, send Devon a note and she'll give you more information.
When you're dealing with competition like this, it's your job to provide the education. For most homeowners, their home is their largest single investment and they are putting that investment at risk to save a few dollars. They need to know the risk they're taking. Explain what happens when electrical work is performed by an unlicensed person; if there is a fire and the state fire marshal finds electrical work done by someone who isn't a licensed electrician, the insurance company might void their policy. Do they realize what can happen to their financial situation if a day laborer is injured (or pretends to be injured) performing even minor labor at their home?
There's a reason you're licensed and bonded, and you don't just carry worker's compensation because you enjoy paying premiums. It's for your protection and the homeowner's protection. You need to compile a list of the possible problems an owner can get into when they base their buying decision on price.
It's difficult learning how to find the right clients and how to sell your services. It's even more difficult trying to pay your bills after selling your services for cheap. Business isn't easy, but it's worth the effort if you're willing to fight for it.