By Douglas Freer, CSP
In the November/December issue, I discussed various competitors that we have encountered in our market, from lowball contractors who don’t know any better because they don’t know their costs to an even more dangerous competitor: one who makes a rational decision to price jobs at a loss, motivated not by making a profit, but by some other factor. For some, taking snow work at a relative loss is simply a way of mitigating their losses in another line of work. For example, a contractor that may have $20,000 in fixed carrying costs is willing to take a $30,000 job at 50% of the value, figuring they will only lose $5,000. The twisted logic, while rational, is not sustainable; but when fighting for survival, some are willing to take the risk.
No matter what type of competitor you are up against, your best defense against kamikaze pricing schemes is to take a multitiered approach. Here are 11 strategies to help you minimize the impact of your worst competition:
Know your numbers. How much does it cost you to operate your equipment per hour? What is your gross margin on a storm, or for a particular customer? What is the gross margin generated by various services? What is your break-even point for your snow business, and when do you anticipate reaching it? How will you know? You need to understand where and how you make money, and where you don’t. Having this information will allow you to bid more competitively or aggressively, if necessary. It also allows you to walk away from a project that does not fit your criteria. You may also choose to price a job at a loss because of extenuating circumstances. You will not know when to walk away from the job unless you know your numbers.
Know your competitors and how they price. Know who you’re bidding against, so you can adjust your proposal format, emphasize certain points and prepare answers to expected objections you may receive. Your competitors will have their own formats for setting their price and presenting it. Do they price to make a profit, or are they competitive, aggressive, lowballing or buying their work? Are you pricing against inexperience? Don’t just look at your competition. Look at the potential client. If your prospect is seeking a bid from a competitor who is overly aggressive or willing to buy the work to get it, consider whether you want to even spend time on the proposal.
Develop and improve your unique selling proposition. How will you stand out from your competitors, who all claim to have the very best service at the lowest cost? How will your customer recognize and remember your business over others? What is it about you that makes you the right choice?
Invest in customer service. Look at your business from the customer’s perspective. How can you improve his or her experience when interacting with your business? Let’s assume that you do a good job servicing the site(s) and they client is happy with your work. Can you still lose customers because your invoicing or contract process is burdensome? Do you invest the time to see your customers in person and talk about their needs? How responsive are you to requests for service or information? What can you do to make their experience better? The more satisfied your customers are, the less receptive they will be to your competitors’ offers. The adage that it costs less to keep a customer than to gain a new one is true. By investing in the invisible processes that contribute to a better overall customer experience, you will not only retain more customers, but you will also attract new ones thirsty for the experience you offer.
Recognize that selling is selecting, not convincing. In almost all cases, price is going to get customers’ attention and de-termine whether they are going to continue the conversation with you. While more rare, there are customers who are focused more on value than price. Depending on which markets you serve and the customers you are soliciting, you may find better or worse opportunities. Choose your customers and prospects wisely so you have the best opportunity to earn your margins. If a customer is a price buyer, you will not convince him or her to spend more money with you because the value of your service will be lost on them. Determine what your ideal customers look like, find them and invest your time building a relationship with them.
Improve your sales process. Al Granum, a legend in the financial services industry, developed and validated the professional sales concept of 10-3-1—10 warm prospects lead to three proposals and one close. If you have a good sales process, you should be able to close one new customer for every 10 qualified prospects. With better prospects and a better sales process, you can improve your close ratio, which reduces the amount of selling time needed to accomplish your goals, and increases the chances that your closed sales will be with your ideal customers.
Be patient. Recognize that the sales cycle may take years for some prospects. Not all property owners or managers go out to bid every year. And even if they do, not all proposals are equal. Sometimes property managers are price-checking their current provider and are not looking to make a change. But when they are looking to make a change, possibly years down the road from your first contact, will you know the opportunity exists to submit a proposal that they may be ready to accept? How do you manage your sales process to ensure you have the opportunity when they are ready to make a decision that could be in your favor?
Let your prospect experience service failure. You may know that the price your customer or prospect has received is too good to be true, and you may know that the contractor will fail to perform. Watch the site and keep in touch with the property owner or manager. Leave the door open for the customer to return if the other contractor fails. The customer may become frustrated with the other contractor if he or she can’t perform as expected, further justifying your price and putting you in a better position to negotiate.
Downsize your business. With a very competitive market, it takes more work to land the necessary sales to meet your budget expectations. Downsize your business by shedding overhead and production to a size that you know you can support with the sales volume that is present. Let go of your lowest-margin customers and concentrate on running the business with the cash that your best customers generate. Reducing the size of your business means you can be more selective about the customers you take, making it easier to maintain the margins. A bigger-is-better mindset encourages acquiring customers at any cost, which can be disastrous—particularly if you are using debt to support operations.
Play where you have the best chance to win. You don’t have to sell everywhere and to everyone. Find the customers that share your values. If you have identified customers, a market or geographic area where the rules of the game conflict with your values, then look for a venue where you can compete. There are some property owners or managers that are not worth your time. When prospecting for business, decide how and where you are going to spend your time. Improve your selling process so you can identify those prospects on which you do not want to waste more resources. Classify and group your customers so you can identify those who can contribute best to your company’s success.
Don’t trick your customers. Some contractors have been known to offer significantly reduced plowing and clearing prices to win the business, but then make up for the low pricing by over-servicing in other areas like ice-control applications. Your customers will see through this tactic and will not trust you. The universe of decision-makers is only so large … a reputation for dishonest dealings will cause your prospect pool to dry up quickly.
Douglas Freer, CSP, owns Blue Moose Co., Inc. in Cleveland. Contact him at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
