Lowballing: How to Deal with Those "Low Price" Contractors

[PressurePros 249]

This was a psot made at another message board. I hope the person that posted it there doesn';t mind me reposting it here. This is a must read.

Lowballing: How to Deal with Those "Low Price" Contractors

You've probably lost a job to someone who has come in and undercut the price you presented on a bid. Their credentials were inferior. Their products were not as good. That's "lowballing."

Competitors who come in with prices that are substantially lower than yours (or many of your competitors', for that matter) are probably uninformed about the marketplace and will not survive in the long run. But, what they do in the short run is give clients a false impression of the value of service professionals. And that can have a negative effect on you.

Warn Customers They "Get What They Pay For"

To combat lowballers, you need to promote your own reputation and stability. Present yourself as the minimum standard by which a customer should deal, that using the services of anyone with a smaller degree of professionalism will not be in their best interests.

Let customers know that price should not be their sole concern. Advise them if they do take that approach they will probably "get what they pay for." Lowballers can't get their jobs on any other basis than by price. That means that they will probably run out of money if problems arise … and they often do.

In going up against lowballers, you can't afford to drop prices, you must remain true to the quality of your services - that is, ultimately, what you are all about.

Point Out Your Strengths and Advantages

Let your potential customers know what they should expect from a contractor. Demonstrate how you and your staff are certified, licensed professionals. Tell them about your association memberships, community involvement, notable past projects, and your years in the business. Point out your courteous and knowledgeable staff, your clean and modern fleet of vehicles, and your trustworthiness.

And then challenge them to find the same qualities in that guy who is coming after them with nothing to offer but a lowball price.

Explain How Pricing is Determined

Share your numbers with customers. In other words, tell them how many hours a job should take and what your labor costs are. Explain to them how those figures are arrived at. If you are not price gouging, it will be easy for them to see the true cost of doing a job and they will be able to see for themselves how a lowballer will need to cut corners in order to deliver the price he used as bait.

When a customer has this understanding of pricing, they will be more likely to choose a bid done to the right specifications. And, when another bidder steps in with a too-good-to-be-true price, they'll understand how the lowballer must either be underestimating labor hours or the amount that labor should cost.

If you are going to educate customers about how you arrive at your pricing, then by all means you need to know exactly what your costs are. That includes costs of both labor and materials, and you need to track your expenses very carefully.

And when you have a real handle on your numbers, it may well keep you from becoming a lowballer yourself. After all, it can be argued that many lowballers aren't even true lowballers; they simply don't comprehend the value of what they do. They are not lowballing intentionally, they simply don't understand financial or management issues.

Shouldn't You Lowball...Sometime?

All this said, if you know your true costs and have good estimating and tracking systems, you can provide services at a lower cost. And you wouldn't be lowballing…you'd just be running a more efficient operation.

There are instances when underpricing a job may make sense. If you are pricing at a loss to maintain cash flow or are worried about your competition, that's not the time. But if you are looking at the bigger picture - say to expand business in a neighborhood or area where you are already established, or to build a relationship with a customer that might provide more business down the line (where you can make up the costs in volume) - lowballing might actually be a good idea…if you can do so inexpensively.

If you want to lower your prices, however, be sure to budget for it. And then, treat that job as your loss leader. Don't give your work away, but price your services down to the lowest margin possible. Rule of thumb: if you back off to meet a price, you look like a fool for offering the higher price to begin with.

[PressurePros 249]

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