Latest / Contractor Business Builder Podcast / The Hidden Cost Of Being Lowest Bid

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The Hidden Cost Of Being Lowest Bid · Contractor Business Builder Podcast

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  If you're underpricing jobs just to stay competitive, you're not
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  just losing money, you're digging a hole you may never
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  climb out of. Today I'm going to show you why
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  too many contractors are working harder for less and how you can
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  flip the script fast. So I've been here, I know how it
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  feels. You've got projects, you want to
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  stay busy. Maybe a big project comes along
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  that's really like, you know, larger scale than you're used
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  to, and you are tempted to cut your price down or do whatever
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  you need to do in order to land the project.
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  But this is a really vicious cycle that can ruin your
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  profitability and really wreck your entire business.
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  So I'm gonna be sharing with you 4 different ways that are kind
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  of hidden to a lot of contractors that they don't
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  realize when they try to, you know, get in and win a job at a
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  lower price. And then I'll be sharing with
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  you three ways in which you can make sure that you can price
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  higher and still land projects and be much more profitable and
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  run a much Better Business at the end of the day, that gives
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  you that time, the freedom and profitability that you're
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  looking for. So the first thing is you become
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  known as the cheap builder. So the problem with cutting your
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  prices and just trying to, you know, compete on price too much
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  is once you've done that for one person, if they refer you to
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  someone else, guess what they're going to say, I went with this
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  contractor, they were cheaper than the other people.
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  You should go talk with them, right?
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  And you create this expectation down the line and you're
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  branding, you're messaging your sales, you kind of you become
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  known as that cheap builder. Also, you're going to get used
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  to selling jobs on price. So in order to get more jobs,
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  you end up just kind of either being cheap on price, you don't
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  actually improve your sales abilities or the rest of the
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  things that need in business that can help you get a better
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  price from different clients. I'm sure with you those just a
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  little bit. But I want to really dive into
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  this because it's a mental blind spot that many builders can
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  have. And I'm not in my high horse
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  here. I've been there.
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  I've I've price jobs too cheaply and paid for in the end.
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  I hate seeing it and that's why I want to help you with this
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  today. So 2 cheaper projects, you get
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  cheap clients, you get cheap culture, your employees, even
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  the trades around you start to expect that and you kind of just
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  you have a lower trust. If someone pays less for
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  service, like even though you may be great and perform and get
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  them results, the trust and the expectation are just lowered.
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  But you end up getting clients that are still expecting a lot
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  more just because their money is like so important to them and
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  they want economy over, you know, quality, which is not a
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  good place that you want to be as a builder.
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  So second point that I'm going to mention here as far as what
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  you know, one of these hidden kind of costs is you, you end up
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  scrambling for profitability. So because you've undersold a
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  job now you gotta try to cut corners.
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  You're gonna probably get cheaper Subs.
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  You're gonna have to do change orders to make up some margins
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  or profit here or there. And you're going to try to get
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  cheap materials or materials on sale or maybe materials that
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  take a long order time, whatever it may be.
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  And it's going to affect your business as a whole.
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  It's going to make your business harder to manage and it's going
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  to end up just hurting your reputation long term, which
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  again, is just that vicious cycle that once you do it super
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  job and if your materials you're cold, you don't last.
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  You're just shooting yourself in the foot later on.
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  And you become kind of this reciprocal site cycle of being
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  the chief builder with cheap materials and then, you know,
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  having warranty issues and all this other stuff that comes down
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  the line. Third one is late to pay.
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  So when your cash flow is too tight or maybe mistakes were
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  happening on the job and you didn't have a good enough
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  margins or contingencies for it, now your cash flow suffers.
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  You know, it's harder to pay Subs on time.
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  Suppliers don't get paid on time, our employees maybe you
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  have to take on, you know, more loans to finance business or new
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  growth opportunities or whatever.
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  And it's just this vicious cycle again of not having enough money
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  to really run a business properly.
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  And there's no there's no kind of insurance at all.
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  If the anything goes sideways or you miss something in your
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  estimate or scheduling comes into play or you have a bad
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  client or all the million and one things that can go wrong
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  with the construction project if you don't have good margins, all
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  that can happen. And the 4th 1:00 I'm going to
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  mention here as a hidden cost is you are not going to be able to
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  scale. There's this fallacy of if I get
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  more projects or larger projects, I will make more
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  money. The problem is I can say never
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  happens. I've yet to see it happen where
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  a company can just continue to operate at low margins and scale
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  up and get large projects and grow a large profitable
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  business. The problem being is that when
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  you start to get more projects, now you're going to have to hire
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  project managers. You're going to probably need
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  better software and they need some consultation as far as how
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  to build and scale your business.
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  You're gonna need better marketing to facilitate that
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  engine. You may have to hire better
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  employees. So all of that.
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  You need a good healthy margin in order to facilitate that
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  growth. And what often happens is guys
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  grow without getting that in place.
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  A good margins, you know, good systems, processes, whatever.
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  But we're talking about the money side of things here.
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  Without that proper margin to scale, everything gets really
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  tight. And if you're not watching your
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  finances really close, you very soon tipped the scales to
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  becoming unprofitable and everything kind of just becomes
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  a House of Cards and falls flat because you can't afford to hire
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  and facilitate that larger business that operates with all
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  those different projects or larger projects, what have you.
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  Quality dives, reputation dives. It's just, it's a recipe for
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  disaster. And I see it way too much.
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  So now that you know some of the hidden costs of underpricing
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  projects, I want to give you 3 action items here that to help
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  you really define your margins and enable you to charge more
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  and still land a good number of projects for you.
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  So number .5 here is become a pro brand, right?
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  Really invest in good branding. It really doesn't take a lot of
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  money, it just takes a bit of time.
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  You will probably need to hire someone you know, to build a
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  nice website and get the graphics.
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  But you don't have to spend necessarily, you know 10s of
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  thousands of dollars. You can hire someone, typically
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  couple 1000 buyers get some nice branding in place.
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  Doesn't have to be perfect right now depending on how big you are
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  as a company. But if your branding is cheap or
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  doesn't look up to par of other builders in your area, economy
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  driven types of people are going to see your branding and they're
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  going to your branding looks cheap.
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  So they're going to think this is a cheap builder and that's
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  why you keep kidding cheap clients, right?
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  When you're branding looks really nice, it looks
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  professional and in a good place and like the type of, you know,
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  company that good quality clients want to work with.
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  Now you've got that hit and you have clients that are coming
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  through and they expect a certain quality and level of
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  service as well as a certain price based off your branding.
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  It's just a perception thing. And of course, you know, there's
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  people with amazing branding and the company sucks and they
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  provide, you know, crap service that happens.
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  But if you don't have that good branding, your expectation is
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  that you can be the chief builder and you're going to have
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  that disconnect with being able to sell projects at a higher
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  enough margin. So really invest some time in
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  branding, get some, you know, branded shirts, decals, website,
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  all this type of stuff. I've got other videos on
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  branding if you need, you know, specific points on that.
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  Number six is pro precon. So if you are quality builder,
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  you are going to need to have a really great pre construction
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  process. And that doesn't mean you need
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  in-house design necessarily or you need to hire an architect or
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  you know, all these things that may go along with the
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  preconstruction. But you need to be able to solve
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  that problem and be the solution for clients who come to you so
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  that you have a really high level of service in the
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  preconstruction stage. Because any quality client is
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  going to want to work with someone who can provide a high
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  level of service. And that's how you can
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  differentiate yourself in the preconstruction so that when you
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  move into the construction contract, it's not just on price
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  and you're not competing against, you know, three or five
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  other builders because you've already built this relationship
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  with the client, with their designer or your designer.
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  Ideally you are referring interior designers, architects,
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  whoever may they may need during the design process.
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  You're getting the permits, you're doing the the budgeting
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  pricing for them and, and just helping them with the scheduling
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  and everything so that when it comes time to them actually
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  going into the construction phase there, do you know the
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  price? They've worked with you, they've
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  had a great experience. There's no reason for them not
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  to continue into the construction.
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  The odd one may still want to go get other peoples bids, but it's
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  rare and you're going to need that if you want to get good
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  margins on the other end. And the last one I'm going to
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  mention here, number 7 is the pro experience.
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  So you need a professional, high level of quality, high, you
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  know, margin type builder experience for the client
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  through and through. So that doesn't mean just being
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  available by phone or going that extra mile.
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  It really means having a system in place that's going to always
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  make sure the client is taken care of, their issues are
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  tracked, that your business is operating in a systemized,
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  predictable way. They're getting invoiced on
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  time, The invoices are clear, every process is clear.
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  You're always providing them with updates on the project,
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  what's going on, you're setting expectations early.
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  You're, you know, setting up lots of protection inside the
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  home, whether that security around the house or you know,
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  protection on the floors and countertops.
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  So everything has to be clean, organized, functioning at a very
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  high level. And when you can provide that
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  type of service, you are going to have really good clients
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  coming, you know, through your business on a constant wheel
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  because good quality clients are going to refer to good quality
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  people. And I've found in my experience
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  that the professional types of people want to work with
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  professional businesses, they're willing to spend a bit more.
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  People are going to associate with other people that are
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  similar to them. So if you are working with
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  higher end clients, they're going to know other higher end
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  people, social economics of, you know, people surround themselves
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  with similar people to themselves.
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  So that is where you get in the virtuous cycle of good clients
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  turn into better clients and better clients and you can kind
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  of raise the bar with your margins and your clientele and
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  your business and some beautiful thing all at the same time.
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  So if you want to learn how to provide an amazing client
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  experience, go check out this next video all about how to set
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  up a great client experience system in your business.
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  I'll see you.