When I say “Don’t compete on price” I don’t mean that any price is acceptable, what I mean is that you shouldn’t allow price to become the main reason your company is chosen for jobs. And you definitely must never commit yourself to beating other prices whatever they are.
So in the sections below I explain just what the problems are when you make price your primary way of competing, and then try to suggest some alternative strategies.
It doesn’t make sense
Supermarkets were able to wipe out many local shops because they had huge economies of scale. They bought in bulk so could force supplier’s prices down. This is known as a cost advantage and they had it over the local boys.
Most trades businesses do not have a cost advantage over one another. Maybe you do because you have some secret way of doing work that no one else knows about, but that would be unusual. So if you have no intrinsic cost advantage, the only way that you can consistently beat other people will be by paying you and your staff less per hour or cutting corners. That’s not a good business strategy.
You will deal with more difficult customers
In general, those customers most keen on a “deal” will also be the most demanding, the most difficult, the most fault picking and as a result the most difficult about paying. This type of customer knows the price of everything and the value of nothing. Are they the type that you want? Or would you prefer your competitors to have them to themselves?
It’s the last refuge
A lot of inexperienced (and too many experienced) business people compete on price because they aren’t clear on alternative strategies. That’s not a good reason for doing it.
You will be poorer
As we described earlier, you can achieve a lower price by paying yourself and your staff less but this will make you poorer. The alternative is to cut corners to do the job in less time which doesn’t satisfy the customer, will lead to disputes and means that you will never be recommended. In the worst cases it will lead to unpleasant encounters with trading standards. Either way as recommendations are what lead to uncontested quotes, you will always find yourselves competing with others. It’s a vicious circle - you will find yourself competing with others – on price – again and again. Whichever happens you will end up poorer.
You can prosper by not doing it
There are a number of different approaches you can adopt. The first is to always emphasise quality when you are discussing the job, and do your best to demonstrate your expertise to the prospect without irritating them by being a know-it-all.
Matthew Stevenson, whose business Liverpool Landscapes is growing fast says:
“If you are to win contracts when you are not the cheapest quote, you need to explain to people that if they get three quotes they aren’t likely to all be for the same job, in terms of the quality of materials and workmanship. Often, if low cost work is carried out, it may look fine to start with, but deteriorate quickly, as good quality cannot always initially be seen. Best price isn’t the same as best value.”
Guy Hodgson, Screwfix tradesman of the year for the West Midlands, suggests
“The way to win business is to go in person to see the client. Listen hard and try to contribute useful suggestions. If you don’t know something, say so. Then later do research and call them back. Get your quotation or estimate to them quickly. Strike while the iron is hot.”
His approach is to impress with expertise, not price, and like Stevenson he has a thriving business.
As Hodgson says, a tip is to be very fast at producing a quotation when one is requested. Many tradesmen are slow to respond and home owners can get very frustrated waiting.
Maybe you could experiment with saying that if a decision is given by a certain date, you can start on the following week, but that commitment ends if they don’t make a decision in time. That way you can use the lack of speed by competitors to provide your advantage. Of course your bid does need to be reasonable as well.
Just be careful that you can deliver. If you force your customer’s hand, setting their expectations that they will get a fast job and then they get something else, this will cause big problems.
Some of the tradesmen that we have interviewed simply don’t quote when they are in competition with others – the cost of preparing failed quotes is too high and they don’t wish to compete on price. They work hard to generate enough leads so they can afford to just quote for the ones where there isn’t any competition.
Competing on price is the quickest way to lose money and probably after poor workmanship is the biggest reason for trades businesses failing. No one is suggesting that rip-off pricing will work but fair pricing that provides for a good job and a decent profit should always be your aim.
Sometimes it’s hard to wean yourself off low prices and it can take persistence and a lot of confidence. But once you succeed, you will never look back. Good luck and please let us know at Powered Now about both good and bad experiences of following this strategy.