AUGUST 2014
SPOTLIGHT www.dakotasupplygroup.com
Tom's Current
Drawing The (Bottom) line On Pricing If you’ve read “Tom’s Current” before, you know that I’m a fan of consultant Michael Stone. He’s been around the block a few times and always has a practical, procontractor take on issues. Recently, his blog featured a question from a contractor who was being pressured to accept a cost-plus arrangement on a job rather than his original fixed-price quote. Michael’s advice was very black and white: don’t do it. Now this isn’t going to be an article about the complex pros (very few) and cons (too many to list) of cost-plus bidding. Go to Michael’s web site at markupandprofit.com if you want to read more about that. Instead, I’m going to do my best to address the bigger picture behind issues like this: developers/general contractors/customers who simply want you to work cheaper. Here’s a sentence you’ve probably heard ten thousand times: “If only you weren’t so expensive.” Some contractors – especially new ones – fall prey to this siren song. “If I lower my price, I’m going to be so busy that I’ll make that money back in sheer volume,” they say to me. But let me tell you, I’ve been doing this a really long time, and they never do.
Instead, a weird thing happens. Rather than having fewer jobs that they make money on, they get a ton of jobs that they lose money on. You don’t need a Harvard business degree to see where this is going. If you’re busy but all the ink is red, then you can be out of business pretty fast. So what can you do? The first step is understanding that when a customer sees you as too expensive, the problem almost always lies with the customer, not with you. You don’t need to change your pricing, you need to change your customer. Most of the time that means helping them appreciate the value in what you do and the things you sell. Once in a while, it means literally changing customers – trading one who doesn’t get your pricing for another who does. Here’s some good news: enlightening prospective customers on the value of your work might be easier than you think. How much do they know about what it is you do? Do they know that you guarantee your work? Do they know about your policy regarding deadlines? Have they spoken to any of your references or current customers? With a little work improving your communication, you can go from being expensive to being invaluable. Don’t be too hasty to lower your price. Instead, work with your customers to build understanding, elevate standards and even raise expectations. We can help with everything from sales support to marketing materials to online business tools. Together, we’ll make it clear that you’re worth every penny you charge.