In yesterday’s posting, I observed about some pricing challenges, especially when the market for traditionally-priced services collapses because of technological change, thankfully, not yet a life-threatening issue in the architectural, engineering and construction community, but a real concern for advertising sales dependent publishers like me.
Pricing, however, is still one of the key components in the marketing/profitability puzzle for AEC practitioners. Ideally, you would like to achieve truly high (return on direct cost) “value pricing” with virtually no marketing and sales cost or effort. This happens if you are fortunate enough to achieve celebrity and widespread recognition as the true leader/expert within your field.
This isn’t too common for start-ups.Here, you have the uphill battle of building trust among strangers, and so either need to build your business on existing relationships (former employers/clients, personal friends and family members) or though low-bid-wins-the job competitions. As a rule, you’ll likely under-price your services. Sometimes this underpricing is intentional but usually it is because you don’t know the true overhead costs in running your new business and, as a start-up, your overhead and fixed costs are often lower than established enterprises. You can eke out a living, sometimes, as low bidder for a job that would be utterly unprofitable for your competition.
Over the years, I’ve met several contractors who started out this way. If you are really good, word of mouth spreads quickly. Without much if any marketing effort, you’ll receive calls from friends, neighbours, former clients and the like — and you’ll (in a good economic environment) be so busy you won’t know what hit you (and you may discover you are either working for virtually nothing or worse, as your business grows and you are starting to lose money because of the higher built-in costs.)
Nevertheless, if you are careful, you can begin raising your prices, developing business systems and policies, and mature into a successful organization. You probably would benefit from consulting services offered by Michael Stone (general business) or Mike Jeffries (marketing) and of course you can call me for some tips.
The bigger challenge is knowing when and how to integrate systematized marketing and sales practices into your business and pricing strategies. This is a major break-through, and requires you to be ready to spend up front cash (and/or much time) on learning and implementing strategies to build on your reputation, attract the right clients, and then “sell” them through the decision-making funnel until they are ready to do business with you.
Successful businesses have this process down to a science (with a bit of artistic creativity.) They know the cost per lead, the likely number of average contacts they will need for a sale, their margins, and more. Pricing is tested and adjusted scientifically, for optimal results.
I don’t have statistics on the numbers of AEC businesses which reach this stage but sense it is a relatively small percentage. Most, after years in business, still fly by the seat of their pants with pricing, marketing systems, and the like, living in part on reputation and more seriously on inertia — great clients can be sticky, even if there are better deals out there in the real world.
Nevertheless, I would advocate that low pricing strategy can make sense at the very start-up of your business. However, you will need to evolve — setting in motion basic marketing principles and models an controls. Read my books ?about construction marketing and social media for some suggestions. Call some qualified consultants if you need guidance. Finally, consider joining and participating in relevant associations — ideally client-centric (they have marketing committees and groups) but also relevant to your own trade or business. ?(I especially think the Society for Marketing Professional Services (smps.org) is useful for AEC marketers.)?