Mentoring An Underpriced Competitor

 
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Old 02-24-2008, 04:41 AM   #1
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Mentoring An Underpriced Competitor


This came about during the discussion about when will the hacks wind up going out of business, but I thought that this premise might be worthwhile to consider.

I do not mean to give away any of your best tips and secrets to sales, but as a business to business development with a newbie or competitor of yours, who seems to undervalue his work by charging way too little. If you could upgrade their stance on proper pricing, would that not allow for you, yourself to remain more competitive in the market place?

I actually know of a competitor of mine, who does significant volume, but charge sometines 1/2 as much as myself. Obviously, they do not have as many upgraded options included in their sold projects as I do, but there is so much money being left on the table on almost every single job they get.

The danged shame of it, is that they provide a decent looking job site and nicely looking installed roof and deserve to charge so much more for it. They would rather have 3 crews working each day, making only $100.oo per day in profit on the whole job. WTF?

So, here goes with the rest of the premise from a copy/paste out of that other thread.



Are They Hacks, Or Just Untrained Businessmen?

I feel that both a great economy and a poor one, will bring out the proliferation of so-called hack contractors.

Not all of them are hacks, but are beginners and unfamiliar with the true costs of doing business properly.

They tend to price their jobs for slightly more than previous wages and not for company profit and sustainability.

Has anyone ever considered taking such a contractor out to lunch and possibly even offer some business mentorship?

What could it hurt, if they were to believe what information you had to dispense to them?

The worst thing that I see happening out of that scenario, is that they actually take some of your advice and learn to price for profit and not for wages. Then there is not such a large disparity in prices, yet there will still remain one for some time while they gain the confidence and grow and learn how to actually run a business rather than keep themselves employed.

If that is the definition of many "Hacks" out there, then I was one for several years minimum, before someone else offered me such advice. Yes, one of my own current competitors co-owners took me off to the side and showed the prices that they were getting, which was about double of what I had been charging during my early years.

In a good economy, I see some employees see the field of "Greens" that seem to be rolling in, and they justifiably want a piece of the pie.

In a poor economy, it may be just a matter of survival, for without working for themselves, they may not have any job and could not support their families.

There are no economic times where the so called "hacks" are forced out of business.

Don't be so quick to disparage someone who just doesn't know what he doesn't know yet.

Ed

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Old 02-24-2008, 05:34 AM   #2
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Re: Mentoring An Underpriced Competitor


You're a good man, Ed.

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Old 02-24-2008, 07:14 AM   #3
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Re: Mentoring An Underpriced Competitor


you're a smart man ed
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Old 02-24-2008, 07:26 AM   #4
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Re: Mentoring An Underpriced Competitor


Ed

I have actually done this with two contractors here where I am. Both did good work but undercharged badly. We use to meet on jobs all the time and finally I would speak to them and invited them to my office and showed them how I thought they were undercharging and also not providing homeowners and their workers with basic necessities. I showed them how improving their companies image and providing workmans comp, insurance etc for their guys was must to become sucessful as a business.

The problem I have found are many HACKS that just want to get buy and make a few bucks or have some hidden agenda so they don't have or want the legal, licensing and insurance problems associated with running a legit business.

They are in business because they offer a service at a price point that some ho are looking for. A price point you or I and many here can't match because we pay our dues for being legit contractors and care about our work and employees.

We can only help the ones that want to be helped. But most hacks from what I have seen in my 20 plus years in this business are content with being hacks. Believe it or not I know many of them that make more money than I do at that price point, because they don't carry the business burdens I do or cut corners with their work and make big bucks.

Most homeowners are not aware of the pitfalls of hiring these guys. HO's want their house paint. Rory of R&B'S wants 8000 and Mack the painter wants 5800 and all they have is 5000 who do you think gets hired. Mack does after they negotiate him down to 4800.

HO's do not think about accidents, deaths, some one might burn the house down, slips and falls on their property and gets sued does not come into play in their minds.


Drugs are illegal and jail time for buying and selling them are more than enough to scare me away from them but It's still a multi billion dollar industry. Why? someone is always willing to take the chance on selling them and there is always people willing to buy them even knowing the consequences are enormous.

The HO's keep buying from the Hacks and they have no incentive to reform or better themselves so the cycle continues on and on
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Old 02-24-2008, 07:29 AM   #5
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Re: Mentoring An Underpriced Competitor


I may not be reading this right, but to me it looks like you (Ed) are talking about good tradesman (not "hacks", or bad quality ones so to speak), that severely under-price or under-bid

Certainly many may be un-trained in the ways of business
But I believe many of those types are of the "Price To Close" school of sales
They feel that they are more likely to get the job if they can beat any price out there
As they have no sales skills, and/or any desire to get any
Why should they, they are not a "salesman", or don't care for the 'salesman" type...they probably think that's why they are so busy
Because they are busy, they think they are doing business right

This is just an observation I have found to be true over the years
If the competitor you are taking to lunch is one of these, they may have this perspective that they have to price cheap or the work will dry up

This would be a good point to bring up at your meeting, and a tough one for them to wrap their head around...being less "busy" but more profitable is a good thing
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Old 02-24-2008, 07:39 AM   #6
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Re: Mentoring An Underpriced Competitor


I took a competitor out to lunch a few years ago. We both lived and worked in the same area. If my bid was 10K his would be 7K. He told me he did a million in sales and had to borrow 25K from his wife to pay the bills. He is licensed and legit and a nice guy. I told him I was asking people if he was giving them a price also, and if he was I didn't pursue the jobs because when I bid against him his price was always a lot lower. I think I got through to him, but he still bids low and I no longer market in that area. I gave him my older Hometech books and helped him put a bid together for a large job, he thought using Hometech was great but he just wouldn't markup past 20%. He's still a nice guy and still broke. What ya gonna do?
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Old 02-24-2008, 07:41 AM   #7
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Re: Mentoring An Underpriced Competitor


Slickshift

You are right I use the term HACKS and should have been clearer in my response and maybe say hacks and underpriced contractors. But my rant was focused on two things HACKS that want to stay hacks and underpriced contractors. Who like you say are happy having work and don't really care about being solid business men, just having work and getting by and not realizing that it will lead to burn out or one bad job or non paying customer or job accident wipe them out of existence
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Old 02-24-2008, 08:21 AM   #8
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Re: Mentoring An Underpriced Competitor


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Originally Posted by silvertree View Post
If my bid was 10K his would be 7K. He told me he did a million in sales and had to borrow 25K from his wife to pay the bills. He is licensed and legit and a nice guy.
High sales hide a multitude of sins
And it's very difficult to get through to some of these people
Often because their sales figures are high, they figure they are doing it right and don't want to change...after all, they have high sales right?

Obviously if this guy was pricing closer to you, he might be "working" less
But if he dropped 25% in sales, but charged 25% more, he wouldn't have to borrow money from his wife to pay the bills
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Old 02-24-2008, 08:24 AM   #9
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Re: Mentoring An Underpriced Competitor


Ed,
I am a firm believer of this mentality, and the comment that Slick made about the thought that work will dry up rings true to alot of guys starting out as tradesman becoming businessmen.
My experience is that if you are pricing fair, based on your costs, you will be maintain growth and as time goes on will begin to either charge more or less based again on costs. The small guy does charge too little, 99 percent of the time. Talking to them today about it will help in the future.
This can be a good reason for belonging to an association or inviting them as a guest to join the association. It shows that professional business do come together for a common goal.
Keeping your enemy closer then your friends is a good way of looking at it aswell. That fact is that he may teach you something.
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Old 02-24-2008, 09:33 AM   #10
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Re: Mentoring An Underpriced Competitor


I say it all goes back to the first day that guy was first called a subcontractor.

Now to eds original post. As a business, volume will make up some, for a low price. I read somewhere if you discount your rates 10%, you have to do something like 88% more volume to break even, or to get back where you were at.
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Old 02-24-2008, 09:59 AM   #11
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Re: Mentoring An Underpriced Competitor


I'd have to totally agree. This industry has seen to much downward price pressure causing it to be too hard to provide living wages for our employees. The industry looks like it's for sucker's when young people consider it for a career. Why go into construction and make a crappy living? When I was a kid construction was a coveted job that paid very well. The construction guys I knew made great money, had money in their pockets, drove fast cars.... etc..
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Old 02-24-2008, 10:01 AM   #12
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Re: Mentoring An Underpriced Competitor


Educating the competition has always been a major aspect of this business.......Learning from them also......
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Old 02-24-2008, 10:11 AM   #13
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Re: Mentoring An Underpriced Competitor


Quote:
Originally Posted by Mike Finley View Post
I'd have to totally agree. This industry has seen to much downward price pressure causing it to be too hard to provide living wages for our employees. The industry looks like it's for sucker's when young people consider it for a career. Why go into construction and make a crappy living? When I was a kid construction was a coveted job that paid very well. The construction guys I knew made great money, had money in their pockets, drove fast cars.... etc..
Flash forward to now & how many are still in business? I saw guys like that when I was coming up, too. When you're young & broke, it's easy to be deceived by these "flash in the pan" types.

One guy in particular had it all--big house, cars, boat, vacations to the Caymans every Christmas. But it was all show. The IRS finally caught up to him--as did a divorce, various other legal issues, and his habit of using his subs/employees money to go on vacation or buy new toys.

I still see guys like that around--but I see them for the monuments to indebtedness and excess they really are.
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Old 02-24-2008, 10:31 AM   #14
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Re: Mentoring An Underpriced Competitor


Ed,
Is this just a futile subject though? I agree with you, and I feel that most painting contractors, I would include other trades but I don't work in those fields, if examined, do not charge nearly enough. It's easy to do. Figure out how much you pay in a year for everything and what percentage of sales that is. Here is a sample:

For me,

Labor- 30-33%
WC/benefits- 10-12%
Marketing- 10%
Paint/Materials incl. HD, Lowes, etc-12%
Misc. overhead (cell, internet, whatever, vehicle payment, etc)- 10%
True Profit- 21-28%

That true profit number is basically what my taxable income comes out to, so I could be wrong, but it yours doesn't fit into that equation the prices need to come up. Not just to bank more money either, but to be able to pay your bills. Is this an unrealistic illustration for other guys or am I in fact charging too little?
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Old 02-24-2008, 10:32 AM   #15
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Re: Mentoring An Underpriced Competitor


I understand what you are saying Chris. What I meant was more about workers in construction and not owners. When I was a kid the highest paying summer jobs around were in construction and you had to know somebody to get the job. It took me 2 summers to get a construction job back then. I think things are a little different now.
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Old 02-24-2008, 11:00 AM   #16
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Re: Mentoring An Underpriced Competitor


Point taken. I agree.
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Old 02-24-2008, 11:02 AM   #17
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Re: Mentoring An Underpriced Competitor


This is a wide and vast subject.

I started in contracting as a painter two years ago after getting my life together and in order. I grew up not liking school and trying to find a way to retire young and rich. My father owned a business and worked hard to support his family. I had a passion of being "good with my hands" but couldnt think of what to do. I got a manufacturing job and was paid "good" wages but not good enough for my own thoughts. Since I started reading self help books, business books, investment, and retiring rich books. I knew I had to do this on my own.

Now after seeing what business really is by experience, its a hard thing harder than one can imagine(actually a profitable and growing business) I still would urge people try after educating themselves.

I dont know if its painting or what but I havnt been affected by the socalled "hacks" although I do see the $250 for two rooms walls only yada yada crap. I never lowered my price over this and never thought it was competition, just a laugh and hope they satisfy their customers.

I think 2-3 years ago when I wanted to start a business I heard about
the career choices out there:
Either go to school for a computer line of work
or
become a contractor
Becoming a contractor always has better numbers and security: hence there is always population growth meaning more land development, houses being built, electric work, framing, roofing, siding, decks, etc.
or
renovations of older homes and sorts
So there is always "work to do"

Now someone that got into contracting and lowers their price to get more volume but less profit has a way of doing business just like someone raising their prices to have higher profits but less work(unless recyling the profits into adv and marketing to get more work)

If a hack is a hack (in your eyes) then let them be because if they are doing something illegal then great it will eventually catch up to them (or nudge the law to help before someone gets hurt)

For Example to any Contractor---The big guy that was here before me might think I am a hack if my prices are lower than his and he see's less wok for himself. But what about me thinking he does work that is lesser in quality I think he is a HACK!

Did this topic come about because of the economy and less work or slow time of the year/season?

I tell myself "whatever" but maybe I dont have the true hack-hater in me yet!
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Old 02-24-2008, 12:18 PM   #18
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Re: Mentoring An Underpriced Competitor


Dayexco has an interesting proverb in his signature, "When the student is ready, the teacher will appear."

I think that in order to help some of these folks, they must first realize that what they are doing is not working for them; that they are not getting the results they expected.

Several of the subs we've worked with over the years are like this. They prefer to operate out of a checkbook instead of a business software package. When tax time comes, they just turn over their checkbook register to the accountant and hope for the best.

They manage their business by fighting brush fires instead of making plans to avoid those problems.

In order to mentor these folks, they first have to realize they have a problem and they have to decide its time to make a change. Sometimes just asking two questions can make all the difference in the world.

Do you have a problem running your business the way you think it should be run? If so, would you like some help to make those changes?
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Old 02-24-2008, 01:39 PM   #19
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Re: Mentoring An Underpriced Competitor


Quote:
Originally Posted by slickshift View Post
I may not be reading this right, but to me it looks like you (Ed) are talking about good tradesman (not "hacks", or bad quality ones so to speak), that severely under-price or under-bid
Yes, I was referring to someone who tries to do quality work. It may not be at the top of the pricing pyramid and they either intentionally or unknowingly leave too many upgrades out of the specifications and charge too little to be fair to them and their workers.

Quote:
Originally Posted by slickshift View Post
High sales hide a multitude of sins
And it's very difficult to get through to some of these people
Often because their sales figures are high, they figure they are doing it right and don't want to change...after all, they have high sales right?
It is called "EGO". I am busy so I am right. I went to a seminar back in 1988 and about 10 additional times, from Richard Kaller, who was running a CES, Contractor Educational Series, program sponsored by Certainteed. One thing he did with these middle of the road but adequate contractors, was to sit them down and explain business and true profit to them. He would show them that they could make more money by being his subcontractors than by working for themselves. Basically, he bought up a whole bunch of company names and phone numbers and eliminated some of his low ball, yet decent quality contractors from the equation.

Quote:
Originally Posted by woodmagman View Post
Ed,
I am a firm believer of this mentality, and the comment that Slick made about the thought that work will dry up rings true to alot of guys starting out as tradesman becoming businessmen.

Talking to them today about it will help in the future.

This is called "FEAR" of survival. Now, we have EGO and FEAR. Two very strong, yet opposing emotions. To get past these, a true image, not the imagined perspective of their business must be believed by them.

Quote:
Originally Posted by Double-A View Post
Dayexco has an interesting proverb in his signature, "When the student is ready, the teacher will appear."


In order to mentor these folks, they first have to realize they have a problem and they have to decide its time to make a change. Sometimes just asking two questions can make all the difference in the world.

Do you have a problem running your business the way you think it should be run? If so, would you like some help to make those changes?
That signature line is so true and right on the mark.

I would further add, that one way to teach someone to accept your ideology, is to NOT tell them how they should be doing things. Most of us are guys and we just plain old reject someone telling us that we are wrong. We will rationalize our weaknesses into our perceived strengths.

12 Step programs break down this barrier in a simple method. It is called story telling. In this manner, you do not tell the disparaged individual how and what they are doing is wrong.

Instead, you share your story with them.
How it was back then.
What happened.
How it is now.

By projecting your own defects and weaknesses and short-comings, the other party can hopefully see some similarities in the picture being drawn. At that point, they are teachable.

Very good responses from everyone so far.

Ed
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Old 02-24-2008, 02:30 PM   #20
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Re: Mentoring An Underpriced Competitor


I’m really grateful that I stumbled upon this thread. I just recently found this website and have been reading everything for the past several days. I find this forum to be a wealth of knowledge.

I am a newly licensed contractor, focusing mainly on smaller jobs like decks and basements, etc. I take pride in the quality of my work, but have been very disappointed in my returns thus far. My biggest problem is that I was “away” from the industry for almost 6 years and just had no idea how much costs have actually gone up in that time. I find that while pricing a job I am always second guessing myself, thinking that my prices are going to be too high, only to find out that I undercut myself. A good example is recently I priced a job that I did not really want in the first place because it was a little further than I wanted to go. I thought that I really padded the price to where if I did get it, it would be worth my while. The HO had two other quotes from local contractors and mine was the cheapest by about 30%. This was when I realized that I was not doing something right on the business end, and hence led me to start searching online for help such as this forum.

I’m a small contractor right now, no employees, work out of my home, etc. Since I do not have previous year sales data it is very difficult to project my overhead, taxes, business expenses, etc in order to add all of these important factors to my prices. I would love some advice on common practices for other companies when they were starting up. I normally price my jobs by figuring out my materials, then estimating the time in which it will take me to get it done. This is just not working for me. I want to be inline with the industry, and definitely do not want to be considered a “hack”, as I feel I offer high quality craftsmanship.

Thanks again for this thread and your willingness to help the new guys.

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