Constructing the right price

Benjamin Dyer is CEO and co-founder of Powered Now

I’m in a somewhat fortunate position, I get to speak to a lot of construction companies in my role. It’s fascinating as I don’t think I’ve come across two companies that are really alike, however there is one common element the more successful ones have, they don’t compete on price.

By ‘don’t compete on price’ what I mean is, they don’t allow price to become the main reason their company is chosen for work, and they definitely never commit themselves to beating other prices whatever they are.

I find this fascinating, but its very tempting to focus on price, especially in a competitive market such as construction. In this article I explain some of the problems when you make price your primary way of competing, and then try to suggest some alternative strategies.

 

It doesn’t make sense

Supermarkets buy in bulk so are able to wipe out many local shops because they have huge economies of scale. This is known as a cost advantage.

Most construction companies sadly don’t have much of a cost advantage over one another. Therefore one of the only ways that you can consistently beat others is by paying you and your staff less per hour or cutting corners, not a good business strategy!

 

You will deal with more difficult customers

In general, those customers most keen on a “deal” will also be the most demanding, the most difficult and as a result the most challenging at paying. Are they the type that you want? Or would you prefer your competitors to have them to themselves?

 

Impacts recommendations

As I described earlier, the standard strategies for lowering prices are not very attractive. I’ve seen companies that end up in disputes over cutting corners and this has a terrible knock on effect, you will never be recommended.

Recommendations generally lead to uncontested quotes and without them you will always find yourselves competing with others. It’s a vicious circle thats very hard to break.

 

You can prosper by not doing it

There are a number of different approaches you can adopt. The first is to always emphasise quality when you are discussing the job, and do your best to demonstrate your expertise to the prospect without irritating them by being a know-it-all.

Guy Hodgson, Screwfix tradesman of the year for the West Midlands, suggests: “The way to win business is to go in person to see the client. Listen hard and try to contribute useful suggestions. If you don’t know something, say so. Then later do research and call them back. Get your quotation or estimate to them quickly. Strike while the iron is hot.” His approach is to impress with expertise, not price, and thus Guy has a thriving business.

As Hodgson says, a tip is to be very fast at producing a quotation when one is requested. Many tradesmen are slow to respond and home owners can get very frustrated waiting.

Maybe you could experiment with saying that if a decision is given by a certain date, you can start on the following week, but that commitment ends if they don’t make a decision in time. That way you can use the lack of speed by competitors to provide your advantage. Of course your bid does need to be reasonable as well.

Just be careful that you can deliver. If you force your customer’s hand, setting their expectations that they will get a fast job and then they get something else, this will cause big problems.

Some of the companies I have interviewed simply don’t quote when they are in competition with others – the cost of preparing failed quotes is too high and they don’t wish to compete on price. They work hard to generate enough leads so they can afford to just quote for the ones where there isn’t any competition.

 

Be firm

Competing on price is the quickest way to lose money and probably after poor workmanship is the biggest reason for construction businesses fail. No one is suggesting that rip-off pricing will work but fair pricing that provides for a good job and a decent profit should always be your aim.

Sometimes it’s hard to wean yourself off low prices and it can take persistence and a lot of confidence. However while no two construction campaigns are alike you can use this to your advantage.

 

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About the author

Benjamin Dyer is CEO and co-founder of Powered Now. Powered Now’s mobile app aims to take the pain out of paperwork for individual trades people as well as small field trade businesses.

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