Pricing for profit –
You get what you negotiate

pricing work for profit
Contractors should educate consumers about total cost, establish a relationship and sell value if they want to maintain profitability.
Photo courtesy of Pexels on Pixabay

As Benjamin Franklin once said, “The bitterness of poor quality remains long after the sweetness of low price is forgotten.” This is very insightful and still holds true today, maybe more than ever.

A relentless search for lower cost is par for the course among owners and general contractors, and healthy competition among contractors is a hallmark of a free economy. But one common mistake buyers make is to equate low price with low total cost.

When installing a floor, one shouldn’t only consider the cost of construction but also cleaning and maintaining it over time. This is a valuable thing to remember when pricing work for profit. A vinyl composition tile (VCT) floor may be less costly to install, but it will wear out much more quickly. It also requires frequent buffing and deep cleaning to look acceptable to users. Worn or discolored floors in, say, a supermarket don’t exactly promote a good shopping experience!

Sell value and educate the customer

There are a few things contractors can do to maintain profitability when pricing work for profit. Among the most important is to sell value. This implies good knowledge and understanding of customers’ needs. Hence, selling can be consultative instead of the cut-throat shaving of pennies in competitive bids.

Carefully explaining trade-offs between price and quality can enable charging a premium for reliability, durability and longevity. An installed polished concrete floor ranges in price depending on the level of refinement. More passes with consecutively finer grits add both gloss and cost. High gloss might be very appropriate for a car dealership or in a department store, but overkill for a distribution center or factory floor.

It isn’t certain, however, that architects are fully up to speed on polished floors. They might specify something of lesser quality than what’s really required. So when the floor is done, there is disappointment, rework and maybe red faces. The remedy is to proactively sell architects and other prescriptive consultants in an educational fashion. You must explain what to expect from different levels of gloss and aggregate exposure.

Build long-term customer relationships

It’s a marketing fact that it’s better economically to keep existing customers than to continuously find new ones and get them onboard. Establishing good customer relationships is an ongoing activity. Although it takes time, it’s crucial for repeat business and the ability to extract a profitable price.

Building rapport starts with the basics: writing good proposals and being very clear how each of their elements directly benefits the customer. Being responsive to requests, answering questions in a timely manner and doing really good work are key. Communicate progress in the way the customer wants to hear it, whether that entails weekly reports, face-to-face meetings or daily updates.

To take the relationship to the next level, figure out the people who are involved and get to know them better. Besides the boss or owner, time is well spent with crew foremen, engineers, purchasing staff and other influencers. Showing genuine interest in people as individuals goes a long way.

A nice touch is to celebrate the finish of a project, inviting not only the crew but also the customer’s staff. It’s a good opportunity to not only thank people, show humility and gratitude but to also commemorate a job well done. Jointly writing up projects as case studies or articles for trade press can also help cement good relations with the customer.

It’s powerful to stay in touch between jobs, sharing links to relevant news or Concrete Decor articles, and calling occasionally to check in.

In every customer interaction, a good contractor listens carefully for pain points and thinks about how they can be alleviated. Sharing the customer’s pain will provide opportunity to show how problems can be solved in a better way.

Chunk the ask

In conversations with owners or architects, sometimes big interesting opportunities for decorative concrete can present themselves. Those at the helm of colleges, arenas and office buildings are eager for the facility to stand out and wow visitors. Unfortunately, many owners aren’t used to navigating this intersection between art and engineering. They’re unsure of what can be done, what the results will look like and if they will hold up over time.

To proactively sell in a large decorative project, contractors can help minimize customer objections by dividing a job into smaller projects or, what I call, chunking the ask. Starting with a small but visible project showcases the decorative possibilities. It generates oohs and aahs from users that can lead to selling more work in larger areas of the building.

Likewise, if a polished floor demo is needed, instead of doing it in a corner of a warehouse, polish a full, smaller floor in a conference room or office. This shows the customer what can be done. It also provides some added value toward closing the deal.

Pricing tactics

Besides working closely with customers and meeting their needs, there are also some pricing fundamentals to keep in mind.

There are basically three ways to price a product or service when pricing work for profit:

  1. Cost-plus pricing – Calculate the cost and mark up to get the desired margin.
  2. Competitive pricing – Look at market pricing and closely follow what competitors are bidding.
  3. Value pricing – Understand the value-in-use a customer derives from the product or service, and price to get a share of that.

Value pricing is the most desirable, but it’s difficult to do. It requires good working relationships with owners, engineers and architects to understand specific cost considerations. Even with good information, it’s still tricky to arrive at the true value.

In reality, most bids combine a cost-plus approach with an eye to what competitors are doing. It’s important to remember that price isn’t the only consideration. A bidder’s reputation and history can be just as important to get the business.

Inevitably, some bids will be lost when pricing work for profit. Taking time to do postmortems can reveal important information. Why was the bid lost? What were the deciding factors? Is there a big difference in cost? Is there a cheaper way of doing the work? Are there changes in the marketplace, perhaps new competitors or technologies? Look for patterns and decide if your pricing approach needs to be modified.

Pricing power

There is no foolproof method for how to always charge the best price. Rather, it’s the sum of many activities over time that puts a contractor in a better position.

Investing in building strong customer relationships, always selling value, chunking the ask and being intentional about pricing strategy will all contribute to pricing power.

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