Value Engineering? WTF is it?
Click on the video to watch it (Runtime 3 minutes and 30 seconds)
If you’d rather read the transcript it’s here below.
What a great term! It also means that you can’t have a discount I think and I want to talk to you about it.
So I’m Jon as you know from Small Fish Business Coaching. I run the Tradies Toolbox Coaching Program and it’s for trade business owners who want to grow and scale, and build a business that’s more than just a job.
Now I was chatting to a client of mine the other day, we were doing a coaching session, Bill from EverBuilt which is a building business in Sydney. They do commercial and domestic building work and they are very proud just as I would be proud of the quality of the work they do and of the way they get repeat work. And I think that’s a good way to build a business, don’t you?
Anyway, Bill taught me this great term, “Value Engineering,” we were talking about the sales process and the pressure that people put him under (and put you under) when you’re quoting on jobs, and how he resisted and he said, “Yeah, if someone asked me to reduce the price, I’m always happy to start doing a bit of value engineering.”
And I just thought what a great term. It means this…
“Sure we can make it cheaper for you, what should we take out?”
And I liked it, I wanted to share it because I thought it was funny and Bill said it was all right if I did. So I want to talk about this, we feel pressure when somebody asks us to reduce our price. We feel an implied threat. There’s an implied threat right?
“I won’t buy it from you or might not buy it from you if you don’t reduce your price. You really need to and probably other people are cheaper and just as good as you.”
In fact, that’s often not the case. Some people just want to ask, they ask us. There’s a psychological personality type where people ask and if they don’t get a YES, they’re fine with it.
There are others who want it the cheapest possible and you know… you won’t win this way every time but if you do use this strategy you might maintain better margins in the jobs you do which is important.
So if you feel confident that your rates, your hourly rate and you build this margin if that’s how you calculate your price, if they’re fair and you’re sure they’re fair, then you should stay confident in that, and then stand-your-ground and say, “The prices and my rates are fair if you want to reduce the cost, we need to change the design. Let’s look at some value engineering.”
I think that’s a valid approach for you to take and this only works if your prices are fair and reasonable in the first place. And if you’re confident that your design is a good one, and you haven’t missed something, I don’t know that’s always a fear when you get challenged on your price.
So look, it’s good to engineer the value in the build you’ve designed and quoted for, if something needs to take price out rather than feeling the need to cut your rate or cut your profits because as we all know, margins and profits are necessary to run your business, to run your successful healthy business, and to still be around when they need you to come back and do something else.
This is a great way to position yourself when you’re quoting for jobs, if you’re brave tell them what your rates are and how you use those rates to calculate the price of a project. If you’re brave, I think you should, and could, and can.
If you’re not so brave then just stick to your guns and don’t discount and say, “it’s a fair price for the job you’ve asked me to quote and I won’t change the price for this job but we can change the design, we can do some value engineering and reduce the price of the job, or the cost of the job to you, if that’s what you need.”
So if you feel a discount pressure, why don’t you give it a try?
And if you give it a try… I would of course really like to hear how it went for you.