Strategies For Dealing With Current Market Conditions

john elliott

There is one subject that comes up time and again on contractors’ forums, and that is, how to compete with lowballers. I know this subject had been talked about here over and over again, but it is so important that I think it should be re-opened frequently. The essence of the problem is- that anyone who is playing the game by the rules i.e. using legal labor and paying them correctly, having all the required licences, insurance and permits, cannot compete with others who are not playing by the same rules.

Now I have read here and elsewhere numerous strategies for dealing with this problem, and some of them work, for some of us, some of the time, in some areas. The root of the problem is, in my opinion, that most of the consumers of our services are looking for a bargain, and find it hard to resist a lower price. We can tell them all about our quality, about how using us is so much safer and will get them a so much better job, but the lure of that low price is hard to overcome.

Any business which is based on offering the customer a better service, at a higher price, is in a difficult position. Not an impossible one by any means, but difficult. It’s a business model which is not one I would choose if I had a choice. I don’t know about the USA, but in the UK the low-price airlines have cut deeply into the profits of the traditional carriers. I know plenty of people who can afford to fly first class (I’ve driven them to the airports in their Bentleys) who love to save a couple of hundred by flying with the cheapest airline they can find. These people have so much money that they will never spend it all, and yet they are ready to spend a few hours in discomfort to get a cheaper fare. What chance has a contractor got when this kind of attitude has become so prevalent and fashionable?

If my business depended on large amounts of expensive labor (it doesn’t, fortunately) then I would be looking to do something about that. Maybe I would sub out everything, or maybe even consider a different line of (related) work. I already am doing everything I can to lower costs without dropping quality below my own acceptable level. For instance, I have invested in an edgebander and now offer melamine cabinets as well as the varnished birch plywood that I have always offered. This has meant that I can offer my stuff for quite a bit less, and so far it’s working so well I might as well drop the plywood altogether ( I won’t because it’s good to offer at least 2 prices, 3’s even better)

I’d be interested to read your comments, and on finding out if you are experiencing much downward pressure on your prices and whether you have a strategy for dealing with that.

John

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Ed the Roofer said "John too, in his crass and blunt demeanor.............."

EricTheHandyman

John, I'm feeling your pain, brother. I've been losing a lot of bids to hacks lately. Everybody is looking for the cheapest deal. The assumption is that because I call myself a handyman, that I must be cheap, because there are a lot of hack handymen out there that are.

As to the topic, my strategy is differentiation and education. Thanks mostly to what I have learned from others on this site and on Painttalk, I am putting the finishing touches on a bid folder to leave with a potential customer that contains items about my experience, licensing, insurance, and comments from past customers. It also has info put out by the state on how to select a contractor. My hope is that this will differentiate me from the hacks, as well as educate the customer on hiring a licensed, insured professional. Time will tell if it works or not.

clearwater507

i can definatly feel the pressure..havent won a bid in weeks!!!!.cant tell you what the next move will be.i dont know myself.we have a serious problem with mexican(illegals) ..working for pennys..not sure if that is the root of the problem...but it dont help, with the economy the way it is.the future looks bleak.......

genecarp

guys, the secret is the relationships we build, not the prices we give, if you dont start to rethink the way you pursue buisness in this climate, your going to have a difficult time, when you get in with a good client, one client, dont be good, be great, exceed his expectations of what he believes a good job is. once you solidify this relation, you will have access to all his family and friends, just one guy handled correctly can make you biz, it worked for me.

W-Tinc

Thats a great post, the cool thing is its what we would like to do anyway if given the chance regardless of needing the business.

A couple things I will do this year to try to improve my results:

Create a nice website with quality products to try attracting the type of customer we want. Already picked out and in line with the company so many people here use, hopefully noone will ream me for jumping on the bandwagon lol.
Canvas around all jobs in progress, either personally or hire someone good.

Start offering a standard referral fee, like 3% or so, to all people I see on a weekly or monthly basis for any work they send my way. Tradespeople, but also realtor, banker, hair care professional, etc.

Not waste alot of money advertising in places I know cheap competition advertises.

I hope these things help get me away from bidding wars somewhat.

This topic reminds me of an old sales saying: Throw enough sh!t at the wall and some is bound to stick..its funny thats kinda hard to reconcile with what we are trying to do but its still basically true.

joecrete

I charge more than most people in my business and I get about 45% closing rate out of my sales. I had to change a few habits before that happened.

1.Start showing on time
2.Call customers in ongoing jobs every day to make sure they are happy.
3.Resolve complains immediately even if it cost me more.
4.Post cards and news letters to keep me in their minds.

Angus

Very smart. We strive for the same. Put your voice or face in front of them, they will remember. Even if the job goes south, keeping in contact and resolving the issues is 95% refferal on the back end. Do what you do. Dont second guess, or "Ill do it for 10% less". It WILL screw you every time.

Halo

Supply and demand will always have an impact on pricing. I think it would be nieve to not believe it will.

There was a period where prices were being driven higher simply because the work load allowed it. The proverbial tables are being turned. I do believe everything mentioned previously is critical after an initial experience, but that is only to help increase your future viability.

The price pressures are from top to bottom, all of us. I have recently contacted some subs for tighter bids. It is what it is. As proffesionals we need to be aware and understand what is involved with staying competitive in all cycles. It is easy to miss-interpret such an event as "us" lowering our worth or trade. That it my opinion is an un-educated position.

Be smart on all fronts. Survival and long term viability is a thinking man's game.

john elliott

I notice a lot, but not all, the replies deal with showing present and potential customers that your work is better and that therefore you are worth more money.

I aclnowledge that that is always good practice, but am concerned that in many cases the customer is already aware that you are offering a better, and more expensive, service, and chooses the lower price anyway.

If this is the case, and I am finding it to be so more and more, then showing them better value is pretty much a waste of time, they already know it. What I am finding is that I need to show them a better price.

John

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Ed the Roofer said "John too, in his crass and blunt demeanor.............."

joecrete

I will give you an example of something we did this year to stay competitive.
We do concrete overlays on walls and floors (mostly high end work), we noticed that even wealthy people didn't wanted to part with their money that easily this year. So we contacted garage builders (retrofit) and found out their customers don't want to replace the foundation specially if it is in a fair condition. So we came up with a program to restore the garage foundations. It is cheaper to the customer to replace a garage, but our overhead and profit stays the same and we added the extra cost of moving more crews around.
It is working.

"Do your research, If you don't know what you are doing, what you don't expect will happen."

Bone Saw

I agree 100%, problem is material costs keep going up, suppliers need to operate by certain margines to remain profitable (business common sense 101), and there is just too many "contractors" buying work.

John, very good and insightfull piece you wrote, I especially like investing in ways to offer better pricing without comprimising your work I have been doing the same myself, by offering optional lower spec's (l/180@50 instead of standard l/360 @70) which doesn't really yeild a huge savings considering framing is usually less than a quarter of my material costs, but is the most time and labor intensive aspect, another big "hidden" cost area that I have virtually eliminated from the get go, but emphasize alot on now is waste, dumpsters, dump fees and associated labor, in building in optimal material usage "into" the design.

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john elliott

I like it. Not so much of a problem for me but a good example of looking carefully at every aspect of what one does.

One thing I am looking at is comparing the cost of any given piece of hardware with the time it might save (or cost) me to use it over a different version of the same thing. Drawer runners would be a good example. There's a more expensive type that saves maybe half an hour on each drawer I make. Well worth the extra money in this case.

John

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Ed the Roofer said "John too, in his crass and blunt demeanor.............."