As more competition fights for fewer pieces of the pie, it will become increasingly tempting to lower your prices in order to stay competitive. I understand this completely, because I operate a decorative concrete company in one of the most competitive and hard-hit housing economies in our nation. In times like these it’s always tempting to lower prices, but I’m hoping after reading this article you might try another approach. Regardless of trade or business, lowering prices to compete is a race to the bottom that many companies don’t survive.
I’m not dogging your competition, but if they are like most, they are not good businessmen. I’m not saying they aren’t good at the art of decorative concrete — I’m saying they aren’t good at the art of business. Most don’t seem to recognize the fact that each discounted dollar comes off the profit side of bookkeeping. If you are going head-to-head with someone who acts like they’re unfamiliar with basic business accounting principles you are racing with the financially blind in hopes of victory. This race is dangerous, because many times your competition will go far beyond the threshold of profitability, losing money to get the job. How can you compete with that? Why would you want to?
It wasn’t long ago folks valued quality over inexpensiveness, realizing something well-made could last many times longer than a cheaper version. But now, our nation has become accustomed to cheapness. At first, you might think this could complicate our goal of finding you more work, but after further consideration, not so. The mindset of those still buying our services is changing. Yes, they still want the best price available but they also want the most for their money. Let me give you an example.
I like to take another approach in a competitive market like the one we work in today. You can do more for your customer by adding discounted or free incentives, all costing you much less than reducing your bid would. We already discussed how discounting off the bottom line is a 100 percent loss of profit. But adding a feature to a concrete counter or a reseal to an outdoor project is just as valuable to your customer and will cost you much less than discounting off the bid.
Providing extra work as an incentive only costs you part of what a discount would. If you charge $800 for a concrete counter but give it away as an incentive you are not losing $800. I doubt the loss is any more than half that. If you give away an outdoor reseal that retails for 80 cents per square foot, it doesn’t cost you 80 cents but closer to 40 cents per square foot.
The idea here is to decrease the amount you’re discounting and make your bottom line stronger. If you do the incentive work personally, the only thing you’re out is time and some materials. Creative ways to land more work are possible without discounting the profit of your next job.
The reason more don’t add incentives to compete is because the natural thing to do is lower the price. But again, this bottom-line discounting can be a dangerous game, especially when played with contractors who have less business savvy.
To work, ideas like this one require a solid reputation for quality work and reasonable prices. Our contracting business went through a phase back in the housing boom where customers were led to believe our services were too expensive. This really took some work to fix, as the market corrected and fewer folks were making decorative concrete improvements. It wasn’t a big deal when our firm was the only one bidding a negotiated project, but boy have things changed. One way we changed perception was to add incentives at no cost to our customers. This certainly helped, but it did take some time.
Your business can continue to prosper, but make no mistake, creative benefits for your customers are necessary — that is, creative benefits that don’t rob your profit.
Doug Carlton operates Carlton Concrete Inc. in Visalia, Calif. He can be reached at [email protected]