Tradies, Should You Drop Your Price Because Of COVID-19?
Tradies, do you need to drop your price now because of COVID-19?
I’ve heard some stories of people’s customers asking them to drop their price for a job because of COVID-19.
The context is usually for an existing quote that was out there, “Here’s the pandemic, you have to drop your rates”.
And of course, it seems that the idea is that there are going to be lots of tradesmen and women desperate to do work at really low rates because they’re desperate. Or that they’re going to be lots of desperate, quiet trades businesses, desperately hoping for work and discounting in order to get what work there is.
The suggestion is that you need to discount in order to get your share and discount in advance of that happening in order to secure work and be okay.
The correct response to this is, ‘NO’. You shouldn’t do that!
It’s NO for a number of reasons.
Three reasons why you should say NO to discounting
Reason 1 – Your costs haven’t changed
With the possible exception of your petrol, which is cheaper for a bit, any discounting then comes out of your margins. And for most of you, your margins aren’t that great.
For most of my customers, margins are between 20% -30%, very few are higher than that but not many and some are lower (or they wouldn’t come to me). They’re not fat and nice margins like retailers.
Retailers consistently have margins of more than 50%. And we’re talking gross margin here which means they’re consistently charging more than twice as much as something costs them.
I don’t know any trades businesses with margins like that. So if your margins on labour and materials are 30% and you give a 10% discount to somebody ‘because of COVID-19’ you’ve given away a third of your entire margin for that job and that’s a lot.
That’s a lot considering that your margins need to cover all the costs of running your business – your business coach, your marketing, your rent, your vehicles, your salary, the admin people’s salary, insurance, everything—all those costs and your labour.
They’ve also got to cover your materials.
Your margins come on top of your labour and your materials, but they also have to cover the expensive cost of your labour, wastage and things around your materials.
I will talk about margins next week and how they work and I’ll talk about how you calculate what your employees really cost you rather than what you think they’re costing you..
NO, you shouldn’t discount because if you do, you’re very likely to be doing marginally unprofitable work if you do.
Reason 2 – I don’t see a lot of desperate trades businesses running around ditching their prices
I don’t see it here in Australia, in the UK, in New Zealand or in the U.S.
Markets and prices right now at least, are holding up fine so you certainly should not be discounting to price-match an imaginary competitor.
And don’t be mad at your customer for being a dick and trying it on. They’re just having a go. Lots of people think it’s cool.
Recommended Reading: What To Do When Someone Says “Your Quote Was More Expensive”
I’m talking businesses, builders, commercial customers as well as mommy and daddy at home wanting to get a discount.
Lots of people think it’s cool and even necessary to try to get a discount out of trades. They think that’s part of the game.
And they’ll use any leverage to persuade you and it doesn’t have to be true. So don’t be sh*tty with them, they just do what they think is clever.
Reason 3 – Price.
(This is a topic close to my heart.)
Price and especially discounting is not really what counts here.
Your customer is probably not really considering using someone else instead of your business.
I could be wrong, but they very probably aren’t. They’re much more likely to be trying to get you down a bit because that makes them feel clever and powerful.
This is where sales work comes in.
You’re the one best placed as a salesperson to figure out if they really are negotiating with two equally credible trades businesses or not.
And that’s the crux of this point I’m making.
If your customer is talking to two equally good trades businesses, then the deciding factor is the price. That’s all there is left, that’s different.
That’s very rare, isn’t it? That’s really rare that they’re talking to two or three equally good and comparable trades businesses. It’s much more likely that they’re not the same.
If your competitor is equally good, they’ve probably got a very similar cost structure to you and therefore, a very similar price structure. So if there’s a cheaper competitor out there, something’s probably different. This is not an absolute but very probably.
You should know why your business is good, and you should know how your business compares to your competitors and you should lead the discussion with your competitor down that track if they start talking about pricing.
You should help them compare apples to apples — your apples to your competitors perhaps, somewhat inferior apples.
You should help them understand what they get for the extra bit that they pay for your business. It could be a number of things.
- Quality of the work.
- Quality of the finish.
- Attention to detail.
- Time you spend doing the job. (We all know that a job done in one hour is not as good as a job that takes somebody two hours unless it’s somebody slow. But if someone’s taking extra time to take extra care and attention, you’re going to get a better finish).
- The way you do your price.
- What you include in your price.
- The chance of additional charges.
It could be lots of things that separate you from your competition.
That’s the conversation you should be having. This is true whether it’s COVID-19 or no, but don’t let people use COVID-19 to bullsh*t you. Stick to your guns and know your worth.
We all know the difference between a project home and a better home, built by a builder who cares.
We all know the difference between a KIA and a BMW. You don’t see BMW discounting do you?
If you went into a BMW dealership and said, “Oh, that’s nice, $330,000” there but there’s a KIA down the road for $20,000 less, they would laugh.
Don’t do that!
Stick to being BMW. Know where you sit in the marketplace and match your price to that.
I help people do this. I help people understand their position in the marketplace, understand their price relative to that position and get brave in negotiations and maintain their margins when confronted by price pressure.
Do you want to talk about whether it should be helping you?
That’s my job. I’m a business coach for trades and builders and I help people maintain their margins, it’s a big focus of mine — maintaining your margins, making more money, being profitable.
If you think, you might want me to help you. Book a 10-minute chat.
We’ll spend 10 minutes if we like each other and if we qualify each other in that short chat we’ll have a one-hour strategy session together.
At the end of that, we decide if we’re doing coaching.
There are four ways you can engage with me:
1. Subscribe to these emails and get them once a week in your inbox so you never miss a video from me.
2. Join the Trades Business Toolshed Facebook Group where you can watch these videos, ask me questions or talk to your peers.
3. Attend my next Tools Down workshop.
4. Book yourself a 10-minute chat with me. We’ll talk about whether coaching is right for you now and if it is, we’ll go further into the process before you have to make your mind up.
See you later.