How to Escape Low Pricing

Before the economic slowdown, contractors had plenty of construction work to keep them busy. You simply had to bid enough jobs, and you were generally awarded one out of five projects at a reasonable markup. This allowed your company to keep growing. When repeat customers called or bid solicitation services offered projects to bid, you picked up plans, completed take-offs and submitted proposals. Then you waited for the results.

This simple system kept your pipeline full and your crews busy. Because you had many work opportunities and few competitors, you didn’t need to implement a sales and marketing program, offer more than your competition or be selective in what you bid. You simply had to be the low bidder on enough jobs, and your business would be fine. This low-bid treadmill has been in effect for more than 20 years, so why would you run your business any differently?

Then, the Great Recession hit, and contractors faced a new business climate. Permits and total construction dropped as much as 80 percent overnight. Too many competitors faced too few projects on which to bid. Margins fell off the cliff, and sustaining previous business levels was impossible. In order to keep their companies alive, most contractors kept doing what they had always done to find and procure work, but at an increased level. They figured if they bid more work, they would win more work. But this unsustainable strategy didn’t keep their bank accounts full.

Bidding more work is never the answer to growing a successful construction business. Bidding minimum per plans and specifications against 10 or more competitors who sell low price in order to win contracts won’t make you rich. Bidding on projects for which almost any company can get on the bid list wipes out your odds of making a profit. The only answer is to bid the right projects with the right profit margins against the right competitors.

In order to remain competitive, most contractors tend to lower costs and margins. This only works to a point, as all of your competitors are trying the same strategy. The long-term answer is to seek better customers and focus on opportunities with less competition. This strategy is not as easy as waiting for your repeat customers to ask you to bid projects or using project bid lead services to supply your company with projects on which to bid. These old methods get you on plenty of bid lists but with too many competitors and for customers who only buy low price. This marketing and sales strategy doesn’t work today.

In order to increase profitable sales, you’ll have to implement a business development plan to get off the low-bid treadmill. Doing more than bidding to get work is not easy and requires a commitment to finding markets in which customers value service, quality, expertise and professionalism.

Would you rather build business by completing repeat construction for hospitals or bidding on low-price shopping centers against every contractor in town? Would you rather work for oil and gas companies or real estate developers who need the lowest price? The choice is yours.

One way to win quality work is to seek projects with a high barrier to entry. Many customers demand more from their contractors than low price and quality work. They typically rely on a few excellent, qualified contractors to do all their work. Generally, the more difficult it is to get on the bid list, the fewer the competitors and higher the profit margins. Many customers demand specialized skills, design-assist capacities, engineering services, intense training standards or specified product providers.

For example, many customers, such as power companies or hospitals, demand safety standards beyond the industry norm, drug testing, high employee clearance requirements or technical expertise. Other high-barrier-to-entry customers, such as food processing plants or medical remodels, require night work, unusually clean installations or the utmost quality standards. Other customers, such as government or certain military departments, require specific qualifications such as veteran, minority, disabled or disadvantaged business entities, or long qualification processes and intense selection procedures.

The other option to increase your margins against less competition is to develop loyal customers who award you at least 33 percent of their work on a regular basis. Repeat customers award contracts when you’re the low bidder. Loyal customers give you their work whenever possible because they have a trusted relationship with you. Almost every contractor does good work and tries hard to finish projects on time. Being a good contractor is expected and is not enough to build loyalty. Winning loyal customers requires a specific action plan.

Make a list of your top customer targets, and draft a plan to spend time with them each quarter in relationship-building settings, including lunches, ball games, trade shows or any other event that will allow you to get to know your customer better. Bidding any project at any price for any customer won’t improve your bottom line. Finding better work and new customers is the only answer and is worth the effort. To help you develop a customer plan, email [email protected] to get a copy of Winning Ways To Win More Work!