A reminder about the perils of competing on price

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If you think the best way to win business is to offer the lowest price, you will lose.

Michael Stone has published a timely reminder that if your primary way of winning new clients is by pricing low, you are heading for disaster.

  1. If you charge less for a job than it costs you to build, you’ll take money out of your own pocket to build that job.
  2. Over the course of a year, if you charge less for your jobs than what you need to pay your overhead expenses, you’ll take money out of your own pocket to pay overhead.
  3. Either way, you’ll go without a salary and work for free until you get tired and quit, or go broke.

The challenge is you need to find clients who will pay enough for you to be viable, and that, essentially, means being able to find the right kind of clients.

Far too many contractors think the way to win work is to bid for it — this is especially the case in the ICI sector, where it is almost like a cattle call when an owner or general contractor invites bids. Sometimes you can come “low” through creative efficiencies in delivering the work; and occasionally, you may not have serious competition where you can price your work at a level sufficiently high to be profitable.  I suppose if all of your competitors are playing the same game, you might eke out a living — but you probably will end up earning more meaningful profits through sole-source maintenance work and callbacks than from the original job.

There is a better way to do it especially in the residential environment but also in the ICI world. You determine your unique expertise and advantages and then make sure potential clients know about these special qualities that allow you to excel. And then you execute the work flawlessly, building your credentials, references, testimonials (and repeat work). In the residential environment, social media and other forms of advertising can be worth their weight in gold. (In the ICI world, a partnership with specialized media organizations such as ours will be profitable if you think beyond advertising: Look for relationships, connections, association involvement and market research as part of the package of services.)

Just get beyond price. You’ll lose if you always go low.

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