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View Full Version : starting a customer off w/ a low price and raising the prices on each job



huggytree
07-12-2009, 08:15 PM
I have a new customer to bid on tomarrow. They said the reason they are shopping for a new or 2nd plumber is because their regular plumber seems to have raised his prices....so price is what they are looking for...

I know their regular plumber and i can easily beat them on price and still make some profit....since im slowing down for the summer Im just glad to get some work.

I have always given the same 'normal' price on all jobs no matter the season or how slow or busy work is...some shops constantly raise & lower their prices to keep busy...i havent

I was planning on this strategy for the winter since i sit at home all Feb & March.....but now that its the summer slow down and i have a new opportunity i may try it w/ them...

if they are looking for a low price guy (im not) then they will dump me either way...this way ill be the low price guy until Fall when i get busy and raise the bids...

Ill be low, but not too low...just enough to make sure Im lower (and i still might not be..who knows..priceing is so weird this year)

i have avoided the low price scammer type builders 100%...i havent lost anything while most of my competition has lost $20,000-$50,000 this past year...i think its because i dont give a low price bid to get the first job....that type of customer shops around on every new house to find someone who uses that strategy...

any opinions?

i will try it anyways just to try it....every strategy is worth trying once...

Steve B
07-12-2009, 09:42 PM
I would stick with your original strategy.

It seems like you answered your question already with this statement:

"i have avoided the low price scammer type builders 100%...i havent lost anything while most of my competition has lost $20,000-$50,000 this past year...i think its because i dont give a low price bid to get the first job....that type of customer shops around on every new house to find someone who uses that strategy..."

orion_joel
07-13-2009, 03:18 AM
Huggy i agree with Steve. The way that you have previously defended cutting your prices, says to me, that this is not really where you want to be. One of the things that you need to consider in doing this is the way that people can talk and the way things get around.

This guy may be a new customer for your, however what if he actually knows your best customer and was referred by him. You give a lower then normal price, then word gets back to the other guy, next thing he will be questioning the prices that you give him. While pricing differently from one customer to the next can succeed based on level of work they give to you, giving a lower price just to land a deal now, only to look towards a price increase down the down, to me is not really a successful strategy long term, even short term it can hurt your business more then you may like.

Spider
07-13-2009, 11:14 AM
HT, I think your approach is correct.

For those who advise maintaining your high prices, I offer this explanation --

Preparing bids for construction work is not the same as pricing products for sale nor even pricing other service type work.

When I was bidding for this type of work - and indeed, pricing for entire contruction projects - I would make bid allowances, up or down, for a particularly helpful engineer, a difficult contractor, picky client, easy access, number of visits necessary, distance from storage area to building, site drainage, finished location of key components, and many other less obvious conditions that would affect my costs.

There are a great many variables that affect work on a construction site. There is no way a contractor can determine if you price low this time and price high next time, other than by comparing prices from each competing subcontractor. And even then, he can only say that one is higher than another, not than one is "pricing high" or "pricing low."

I believe the most efficient and profitable way of bidding for work of this nature is to calculate one's anticipated *actual* costs and add profit relevant on the conditions in existence at each bid. Lack of work is one reason to lower one's profit in order to secure work. Abundance of work is a good reason to increase one's profit calculation to reduce one's workload.

orion_joel
07-14-2009, 01:57 AM
Frederick, i agree with you, however still stand by what i said. I am pretty sure i can remember more then a few times HT has brought the topic up before or the idea has been brought up and HT has been determined not to take this path.

I mean end of day the choice is purely up to HT. I just think that it is something you need to be careful, and try to not make any big pushes up or down in price to suddenly, as if things do not turn out how you expect there is potential that you can annoy one customer over another.

I would respond fairly similarly, if the question had been i have a customer who seems rich with no idea about anything should i put the price up for him. I would still say probably not try and stick around what you normally charge, yes you may offer him the best quality fittings and accessories, however this is where the additional profit would be made.

Spider
07-14-2009, 10:50 AM
...if things do not turn out how you expect there is potential that you can annoy one customer over another...That is a valid comment when one is dealing with retail customers. The mere appearance of "trying to take advantage of" can be very damaging. However, I think this less likely to be the case when one is dealing with contractors to whom one would be subcontracted. It is to be expected that the contractor has, at least, a rudamentary knowledge of the work being bid and would be less concerned about why one's bid price is what it is.

If one only deals with retail customers, one's outlook would be very different to another's who only deals with contractors. HT deals with both, and his consideration will necessarily change depending on the type of bid. In the case of the original post, though, he is considering lowering his prices to a contractor in order to be more certain of securing work in a lean period. That is a very different situation to quoting a private homeowner for work during a period when he is already overloaded.

Steve B
07-14-2009, 11:25 AM
I think HT quotes his prices with an Hourly rate - so the whole theory of a customer not be being able to compare is not valid in those cases.

Business Attorney
07-14-2009, 11:37 AM
One alternative is to offer a discount, rather than lowering your rates. Sort of like the car companies do with rebates, soft drink companies do with promotions, and airlines do with "load balancing".

Say that you know August is going to be slow. Tell that customer (and similar customers) that you are offering a 10% discount for work done in August.

That serves several purposes. First, it puts pressure on them to get the work done when you are slow because they know the discount is for a limited period. Second, it reinforces your basic rate. Third, it let's them know that they are getting a bargain (which just quoting a lower rate would not necessarily do). Fourth, if they need you when your prices are higher, you won't be viewed as having raised your rates.

huggytree
07-14-2009, 08:56 PM
my bids contain no hourly rate...i do small jobs (under $1k) at T&M and they see my hourly rate there....my hourly rate is nothing i hide. I let everyone know who asks.

i may like the idea of the 10% off idea...ill have to think of the pos & neg aspects.

i gave the bid yesterday...called back today to see if they had questions...no response..

they ALL answer the phone on the 1st or 2nd ring when they are waiting for a bid to come...once it comes somehow they cant get to the phone anymore...i wanted to see if i beat the other guy or not....100 year old house...potential problems are almost guaranteed...my bid wasnt low, but it was lower than i normally would have done...

thx4yrtym
07-15-2009, 07:31 AM
Huggy,

While considering your options on discounts you might look at an alternative.

Any discount comes directly off YOUR bottom line. The whole discount. On the other hand if instead you offer additional product for free you can reduce the hit to the bottom line while still providing the customer with a valued discount.

Let's assume that you mark up materials 100% . If you are doing a new bathroom for someone and the wife mentions her interest in a new kitchen faucet. A nice faucet installed free could cost you much less than a flat discount on the job and the value from the customer's perspective is the same or greater. A nice faucet installed might sell for ?? $350.00 but only cost you $130.00 Plus your time, but you are already there.

We used to offer a free installed quality storm door as a tool to close a deal on a house full of windows.


Hope this makes sense.

Spider
07-15-2009, 09:50 AM
That makes a lot of sense, Gregg. I would suggest that an item (such as a new faucet) that would normally cost the client $500 would be of more obvious value to the client than a $500 discount. The fact that a $500 item might *cost* the business only $300 is an added advantage.

Great suggestion!

huggytree
07-15-2009, 03:15 PM
My markup on 'parts' is usually 35-50%

markup on fixtures is 30-35%

i wish fixture markup was 200% or more.....

Home Depot charges less than i can even buy some of the fixtures for...i cant mark them up much.

i do charge 100% markup on parts for small 1-2 hour jobs.

orion_joel
07-15-2009, 08:05 PM
This parts issue seems to be a issue for many markets, Technology is an excellent case, to get away from the price shopper market you need to get away from any product that is sold via retail channels. To do this you move to the market that is dominated by manufacture's selling direct.

I doubt the same is true of the plumbing or most other building industries as the technology, however getting the parts at a price you can make money on is always a bit of an issue.

Spider
07-16-2009, 12:37 AM
It seems to me that "marking up" parts or fixtures is a topic for retail businesses. One buys items as $x each, mark them up y% and sell them for $z. The % mark-up is an addition for profit.

This is not appropriate for contracting or service businesses that provide parts or fixtures along with a labor component - unless the "mark up" is strictly for additional materials - as in, adding 10% for wastage, or 15% for consumables (like glue, putty, nails, nuts and bolts, solder, labels, etc.)

If one takes a "retail" approach for contracting/service work, one loses control of the amount of profit that will be included in one's price. The result is a loss of control of the bid price, so that one is sometimes high and sometimes low without really knowing why.

The most accurate method of calculating a price for contracting and service work is to use only the cost of the item plus consumables, plus the actual cost of labor, and add the desired profit at the end.

orion_joel
07-16-2009, 01:50 AM
Frederick, i do understand where you are coming from and i only wish that this were the case. In some instances it does work. For business or people that just want a total price, you do not need to break things down.

However i have found that many people want to see things broken down. Maybe this is different for plumbing to technology, or other industries as well. But by far the majority of quotes that i have done are from people that want to see a breakdown of $X for this item $X for this part and $X for Labour. These are not retail customers either these are businesses and such.

The problem is you need to quote how the customer wants it quoted. You lose the deal if you dont quote how they want it. But then you quote how they want it and you can lose it based on how you price. it can be very much lose, lose from a quoting perspective all around. So it comes back to you do what you can do.

huggytree
07-16-2009, 09:53 AM
i always put Fixture Allowance: as a seperate catagory...I throw in #'s to get them a good starting allowance..then they go to a supply house to pick them out and that price changes.

the more i can break down a project the more customers like it...giving 1 bulk price at the bottom is a neg. from what my customer tell me...when if the customer changes the project and eliminates a task. With my bid the contractor just crosses out one line...with a bulk bid it has to go back for rebid...which costs time...

The majority of what i sell is not available at Home Depot, but some is....its all available on the internet...Home Depot may sell the same product, but its always a different version..some customers believe me, some dont....i explain how the same looking faucet has a different # on the side of the box...because it IS different...HD sells junk as far as plumbing goes....i still buy tools and 2x4's there

Spider
07-16-2009, 10:06 AM
Joel, I wonder how many of these insistant people (who "want to see a breakdown") really understand what the bid details tell. And, I wonder what they mean (and what you understand) by a "breakdown." Further, I wonder what they want the breakdown for and how you could better help them with that.

1. I have found that many people ask for a breakdown because they think that is how they can check the quote. If they don't know how to do the work, they won't necessarily understand a breakdown. I have also found that by telling such people that this is proprietory information and that I would be happy to answer any specific questions they have, usually solves their problem.

2. A breakdown can be done in many, many ways - per item breakdown, per section breakdown, per floor, per visit, per component, etc. etc. It all depends on what the breakdown will be used for. Even a per item breakdown does not have to reveal labor rate, item cost, contingency allowances, profit added, etc.

3. A client may need a breakdown to determine the individual cost of areas of a building, which will be rented to different tenants, for example. If one is quoting to supply components for further assembly, a breakdown by component may be needed so the client can price their manufactured items. A breakdown by time will help a client determine his cashflow needs. The clue here is to find out how the client will use the breakdown so you can provide it in a useful format.

I have no problem with providing breakdowns - in fact, most of my bidding was done providing extremely fine details, such as per CY of concrete in foundations, per CY of concrete in columns, per CY of concrete in floors, per CY of concrete in beams, per CY of concrete in staircase stringers, per CY of concrete in staircase steps, per CY of concrete in walls and so on ad nauseum. A bid for a simple 3-storey office building might include a breakdown of several thousand items. All supplied to an engineer or architect who understands such things (most clients would not want that much detail.) And all without revealing labor rates for various trades, costs of many different types of materials, allowances, contingencies, profit and so on.

Added: CY = cubic yard

huggytree
07-16-2009, 04:57 PM
got an e-mail today that i got the job.....ill make $ on it.

the good news is that its a quality remodeler with tons of potential.....could end up being one of my top 3 customers.

Spider
07-16-2009, 06:40 PM
Way to go, HT!

orion_joel
07-16-2009, 11:30 PM
Congratulations HT.

Frederick, I do see your point. For me in the Tech industry they want the breakdown to compare the product pricing. That is basically what the industry is. When a price is request for a single item it is hard to quote anything but the price that single item. When a customer comes and asks for a price on a dozen printers, 20 computers, a digital projector and a number of other things, again you really need to break it down, not always so they can compare pricing, but many companies i have dealt with, while they may have a budget for the year they only get $X at a time so they have to take the quote and work it in as the funds are available.

Spider
07-16-2009, 11:50 PM
It seems to me, Joel, that you are describing a retail situation.
It seems to me that "marking up" parts or fixtures is a topic for retail businesses. One buys items as $x each, mark them up y% and sell them for $z. The % mark-up is an addition for profit.... Or perhaps I should call it a straightforward supply situation. In such cases, you don't have to provide a breakdown of labor and material costs to build each printer or batch of printers, etc.

If, OTOH, you are pricing for the supply and installation of a dozen printers, 20 computers and a digital projector, a lump sum price for the whole contract can be broken down into a supply and install price for each printer, each computer and the projector - a breakdown of 33 items. Still there is no need to reveal labor rates, your wholesale cost of equipment, and so on.

Or you can break it down into two items - total labor and total equipment. Again, there is no need to reveal labor rates or your wholesale cost of the equipment.

orion_joel
07-19-2009, 12:36 AM
I never recall there being discussion about revealing wholesale cost of equipment. I think that it would be great to be able to live where you are, it seems quoting for you is so much easier, that you can quote how you like instead of how the customer often wants it.

The difference between retail and contract differs in just about every industry, and of course by everyone's own perception. What i describe was a quote for a contract i did once, for supply and installation. By no means a retail customer, however they wanted it price individually. I did not get the contract, based on price of some of the items, if i had priced the installation in the price of the item, no matter how much it was explained i would have had even less chance.

Spider
07-19-2009, 08:48 AM
...it seems quoting for you is so much easier, that you can quote how you like instead of how the customer often wants it....On the contrary, Joel, I was always under the constraints of bidding how the client wanted it - and that was in far greater detail than anyone here would imagine, I think. I am describing situations where one can quote in many different ways - that means how any customer wants it - with the exception that they cannot have proprietory or confidential information.


...The difference between retail and contract differs in just about every industry, and of course by everyone's own perception. What i describe was a quote for a contract i did once, for supply and installation. By no means a retail customer, however they wanted it price individually...And I have no problem with quoting for items individually.