There’s tension around price, isn’t there? 

Always.

You need to charge enough to cover your business costs and risks and make a profit or why would you bother owning and running your own business?

But there’s downward pressure on you, from all around.

• From the narrative that trades and building businesses will try to overcharge people and people should work hard to practise this (unlike supermarkets or banks or lawyers, doctors, shops, accountants, etc –we’re not encouraged to challenge their prices so much, are we?)

• From your customers who may or may not be influenced by that narrative.

• From your competitors offering to do work at different prices than your prices (I very carefully didn’t say ‘the same work’ then).

Now when you think about your competition, in any given situation, you tend to imagine it’s a comparable business and a comparable job, don’t you?

Particularly, if a customer or a potential customer is getting two or more quotes and they’re telling you another one is cheaper, both you or they will default to that scenario, won’t you?

But the reality is different, isn’t it?

The two “offerings” are not necessarily the same. 

You’re a trade business. You operate in an environment where costs are real or “hard”.

Materials cost what they cost, it’s highly unlikely that your competitor has found some secret deal.

Labour costs what it costs – there are laws – there’s some movement here but not lots.

Good people cost more than less good people, and so on.

So if an alternative to what you’re proposing is coming in cheaper than you, something gives, doesn’t it?

I think it’s worth examining what it could be so you can help your customer understand and make an informed choice rather than an uninformed non-choice.

I was talking to my client, Matt about this this morning.

He’s a residential builder and he’s been told he’s expensive a few times recently and he’s frustrated.

He’s not greedy, he’s charging a 24% gross margin and $78ph for carpentry and 3 or 4 people have told him he’s expensive.

He doesn’t know whether they’re reacting to prices for building going up 50% in the last 3 years or if they’re comparing his quote to someone else’s and he’s more expensive.

He doesn’t know if the comparisons are apples to apples either.

He’s going back to ask, because here’s the rub – if he’s lots more expensive, something is going on. I want to talk about what it could be because, as I said, it’s up to you to help your customers understand what it is, so they choose between your more expensive quote and the cheaper but probably much sh**#r option from someone else.

Let’s look at what could be going on:

1. You could be charging too much. You have to consider this possibility, don’t you? It is possible and you should satisfy yourself that it’s not you, first. 

What margins are you charging? What’s your labour rate?

If you’re not being greedy here, then the effect of a few percent is small.

Are your subcontractors charging too much (if you have them)?

Are you bad at estimating?

All these could be true and it’s possible (I suppose) that you’re doing all of them – margin too fat, labour rate too high, subcontractors taking the piss, allowances all wrong.

But it’s not very likely , is it?

Sanity check your rates and margins with your peers, or with me.

Check in with your subcontractors on their labour rates and margins.

Go back through some old jobs and calculate profitability (gross margin) on some of them.

If you’re not making stupid money on your jobs, it’s probably not that, is it?

Matt and I did a quick calculation.

If he knocks $10ph off his $78 charge-out rate, that will knock maybe 3% off the job cost.

They said it was a lot more than that.

2. The Competitor —> They’re comparing you too — Cutting Corners somehow

That could be it, couldn’t it?

Maybe they’ve found a magic source of cheap labour – backpackers being paid cash, maybe.

Maybe they’re not doing safety property and saving money that way (is this something your customer wants to be part of?).

Maybe they’ll use inferior components or materials – is that what your customer wants?  Can they check?

Maybe they rush the work and don’t take the time like you do or rush their subcontractors — this surely affects quality.

Another client, Lawson, lost a job to a cheaper competitor but did some other jobs on the same site and they uncovered, sh*t!y inferior components and shoddy work that was hidden inside the walls.

That client now knows what to expect from the other guy.

3. The Competitor is Playing Games with the Scope 

This is a thing. People will deliberately play with the scope and quote a reduced scope that doesn’t include all the things another business might consider should be included. Then, they raise variations along the way.

The original quote looks cheaper but the final price ends up being much higher.

People can exclude stuff (in their small print), quote for lower quality components than specified, make very small allowances for provisional sums.

It’s a sh*tty thing to do but it’s quite common. 

Matt said he prides himself on his full scopes which means the cost doesn’t creep up much unless people add in more stuff.

So there are 3 things that could be going on and your customer isn’t likely to clock them.

It’s up to you to help them understand that these things could be happening and help them check.

Help them at least understand the possible reasons someone else is cheaper or might be cheaper and how to compare your quote to the alternatives.

This is part of your sales process and you should be building a sales process and building your sales skills and investing more of your time into sales.

This is how you’re going to counter these comments, how you’re going to build relationships and trust with your customers and how you’re going to win more of the jobs you quote.

It’s part of my coaching program.

Do you want to get better at sales and win more jobs rather than being told you’re too expensive when you submit your quote?

Maybe you should look into my coaching.

Book a call, that’s how that work. 🙂