It’s more than price (and this is where you make money from marketing)

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Why is “low price wins the job” so prevalent in the construction industry, and what can you do to escape the trap?

You should read closely Mike Jeffries’ recent posting describing how decisions are not primarily made on price, because price-sensitive decision-making seems to rule the business mind-set of far too many contractors.

The game in the traditional practice is “Low bid wins the job” and the biggest anger occurs among sub-trades and suppliers when general contractors or owners engage in bid shopping — that is, playing off bidders against each other after the supposed closing deadline.

It’s all about price, it seems.

Of course, if you’ve been a bid shopping victim, you probably will say: “Hey, maybe price isn’t that important for most industries, but it sure is for ours” — and you would be correct, to a point. That point occurs when you’ve allowed your business to degrade its marketing/business message to a commodity level. “We do drywall” or “we install mechanical systems” invites owners and decision-makers to compare your services to several other direct competitors, all of whom meet the basic standards. In this situation, if you want the business, you won’t get it unless you price your services competitively.

I think we are all living in la-la-land in thinking these industry norms will disappear anytime soon. At this level, business survival depends on internal efficiencies, solid pricing on the supply side, and careful management so you align your resources with your markets (you need to have the right number of qualified tradespeople ready to work, when required, but only when you have work for them.)

However, the critical mind-gap/switch occurs when you think about the incremental potential that can occur when you can find some — leading to an increasing percentage — of your business that doesn’t depend on price.

This business can include:

  • Higher-end specialized services, where you have capacities others lack;
  • Strong, loyal and direct client relationships, where you will be “wired” to win the work;
  • Thoughtful community-centric marketing, where your reputation has reached the point that there is no need to shop around.

You most likely have some of this business now. I urge you to study it and see if you can expand/replicate/improve it — because a small increase in the higher-margin and less price-sensitive¬†work will truly improve your bottom line. And it is this sort of work where thoughtful marketing provides the greatest advantages to you.

Then why don’t you do more of it? The answer, I fear, lies in both this industry’s sales and economic cycles.

Relationship-builidng and “must have” relationships take time to nurture; you won’t just wake up one morning and achieve them at the 3 p.m. Thursday bid closing deadline. Since there isn’t immediate pay-off, and you have immediate bid/response/estimating opportunities that lead to immediate work, you naturally go for these priorities.

Worse, in good times, when you might have some surplus resources and cash for longer-range marketing strategies, you don’t need to do these things — the market (and inherent shortages), allow you to bid your competitive prices higher and make good money — in fact your biggest challenge may be finding enough skilled workers.

Conversely, when things turn south and you might be interested in trying new things to discover business, you don’t have the cash for experimentation and long-cycle initiatives, and you are (alas) tempted to chase even harder and more desperately after the low-bid-wins-the-job work.

I don’t have simple answers to this paradox, other than to urge you to follow the 20 per cent rule, similar to Google’s internal policies, where the organization gives its employees one day a week to work on projects of their choosing.

You may need to impose some discipline on yourself at first until it becomes a habit, but clear a day a week for thoughtful longer-range marketing and business development strategies. Bake it into your routines. After three months, the change should be habit, and I expect after six months you’ll see the results in the bottom line.

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