Under-pricing a job can have a long-term effect on your business. Learn how to price effectively and set yourself apart from the competition.
In an effort to gain business and retain employees, some contractors bid much lower than their normal prices. But bidding too low can have many negative long-term consequences, says Adam Messner, CEO of electrical supply company LiveWire, based in San Francisco. Messner says he often hears from contractors who have to pinch pennies wherever they can because they bid a project lower than they should have.
“It’s usually, ‘I just bid this job because I have so many people on staff, and I need to keep them busy,’” he says.
It might seem that any type of work is beneficial, but bidding too low will not only drain your resources — while giving you little to no profit margin — but it can also damage your business. Your customers will grow accustomed to the low prices, and then you’ll be stuck with decreased revenue.
Luckily, there are steps other than low prices you can take to make your company stand out:
Emphasize the Service, Not the Commodity
In construction, customers appreciate low prices, but they value a great working relationship. You can really set yourself apart by giving a professional presentation. Educating your potential customers about the value and workmanship that’s going into the products and services you provide will make them feel confident about their investment.
Messner strongly recommends going the extra step any way you can. If possible, buy parts in bulk. It’s less expensive, and it will give you the opportunity to give the customer some spare parts, and score you extra points.
Also, customers always appreciate additional free services. Assess what services you can offer for free that won’t set you back too much. Messner suggests offering a free warranty or follow-up visit to make sure the customer is satisfied with your work. This gives you more time with customers, which will increase their loyalty because you’re showing them that you are a trustworthy professional who cares about keeping them happy.
Research Your Competition
You’re never sure about the kind of job you should be bidding until you know whom you’re bidding against. Keep tabs on your competition so you know how your services compare. Messner says usually you’re only given five minutes to prove why you’re a better choice over another contractor, so it’s important to know if you can compete with their prices. And if you can’t, then you’ll know to emphasize your quality of service instead and present yourself as the better candidate.
If you’re still considering lowering prices slightly to remain competitive, there are important things to remember if you don’t want to end up in the red.
Beware of Fluctuating Prices
It’s not uncommon for the prices of commodities to vary after you’ve quoted them. Messner says they can fluctuate as much as 5 percent in any given month. Therefore, you should get a written estimate from suppliers that’s good for 30 days to lock down prices. That way you can give your customers a 30-day estimate and don’t have to contend with price fluctuations.
Research Parts and Availability
If you’re bidding a project that’s three to six months away, Messner highly recommends checking with your supplier to see if there’s a chance the part will become obsolete. Typically, manufacturers can give a six-month notice if a line will be canceled. Otherwise, a canceled part can cost you thousands of dollars down the line if it goes with an elaborate electrical system that would need to be entirely re-designed, for example.
“If you’re bidding thinly, triple check your list materials,” Messner says. He says he often gets calls from contractors who overlooked a part in the original bid and are looking for a cheap price because they have to make up the cost difference. Ensure your material list covers everything you need.
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