The Lowest Bidder

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By Michael Stone of Markup and Profit

In this economy, homeowners are often looking for a bargain. Unfortunately, this kind of deal-hunting also seeps into the home improvement category, where the cheapest price should not be the only deciding factor.

It is often difficult to respond to a potential client or persuade them to use your service if your bid does not come in on the low end of the totem pole. Here are a few successful strategies to use when you are speaking to customers that may only focus on the bottom line.

The reality is that there are many shade tree mechanics (also known as flakes, con artists, fly-by-niters, irresponsible hacks, etc.) who are willing to throw out a lower price than yours, and most often their price is lower because they are quoting either a smaller job or a different job. The homeowner just doesn’t know that (but they likely invited that type of quote because they are focusing only on price).

These low-ballers underprice their jobs to make the sale. They are often smooth talkers, promising heaven and earth to get the job. The greedy homeowner (looking for something for nothing) misses the sure signs or clues that the contractor is setting them up to be taken. The contractor leaves out things that they know that the potential customer may want or need, or sets unrealistic allowance amounts to keep the overall price of the job low.

Low allowance amounts are often set for supplies, such as shingles or flashing. These allowance amounts might appear reasonable to the homeowner when they sign a contract, but when they start shopping they realize they can’t get decent, efficient, or long lasting materials for the allowance in the contract. And that’s when their low price contract starts getting more expensive.

The lowball contractors know that at some point in the job, they can come back to the owner and dangle some really nice extras or “needed / necessary changes” in front of the owner and the owner will want them. The extras are marked up two or three times the cost and it isn’t long before the overall price of the job is more than what the legitimate contractor quoted in the beginning.

When you are dealing with a homeowner and you get a sense that they are heading down this path, what can you do?

Here is a typical situation of an owner looking for a cheap price. I have had a similar situation happen several times over the years and will share some things you might say on how to handle these types of interactions.

Owner: “I’m looking for the cheapest price I can get”, or “Joe quoted me a much lower price”.

Your response: “May I ask a couple of questions about your approach here?”

“Are you aware that virtually all the companies you are talking to buy their materials from the same suppliers? That means if (and that is a big IF) everyone is building the same job, the cost of materials for your job should be the same regardless of whom you select to do the job, correct? Can I also assume that you don’t want the cheapest materials that we could find used on your job would you?”

“Labor rates are going to be about the same – if one of those companies is paying their help enough less per hour that it makes a difference in the overall price of their work, that might not be the quality of labor you want working on your home.”

“If we are building about the same job, we will come up with about the same price. Common sense tells us that if a company comes in with a very low price, then they have willingly cut their profits just to get your job or they have done a bad job of estimating their costs. If they expect to build this job at breakeven, which is the same as no profit, what do you suppose is going to happen when they find out they have made an estimating mistake or there is another problem on the job and it is going to take more money to finish the job? They will come back to you asking for money to pay for the mistake. We see this all the time.”

“There is also a chance they are deliberately leaving things out of the job, knowing you will have to agree to them down the road and you will be asked to pay a premium price for that change. That’s when the lower-price contractor will get his profits back for your job and then some.”

“We offer you a guaranteed price Mr. Owner. Unless you change the job, our price to you for the job will be the price on the contract.”

If you are going to guarantee your estimate, you’d better have a good one. If you don’t know how to estimate, learn how. Information can be found at : http://www.markupandprofit.com/estimating-training.html.

You’d better be using allowances that are reasonable and are well-explained to the homeowner. Sometimes this approach will work, sometimes it won’t. It requires your client to be willing to walk through the logic with you, and if they are hell-bent on low price, they probably won’t listen.

But if you don’t try, it won’t work, and if you do try, you at least are letting them know the position they are putting themselves in when they focus on cheap price. When it comes back to bite them, they’ll remember you and may use you for another job. I’m sure you’ve heard the phrase “A fool and his money are soon parted”. That quote is credited to Thomas Tusser who lived from 1524 – 1580. Fools have been around for hundreds of years – as have those willing to help them part with their money.

Let’s recap.
If the contractor’s estimate is bad (too low), they will be back asking for more money because there is not enough to finish the job. If the owner doesn’t pony up the difference, the contractor will simply start delaying tactics and not finish the job for whatever excuse they can come up with. Or, they will walk away leaving the owner stranded with the job incomplete. Keep in mind that only 30 states have licensing laws that allow owners to force contractors to do what they contracted to do, but even the states with those laws are often reluctant to pursue these problems. Your best statement remark is telling the owners you guarantee your price. If they don’t make any changes, the price does not change.

Take what I have given you here, put it in your own words and use it. Experiment; find new ways of saying it until you find what works. You won’t be able to convert them all but you will get some to stop and think about how they are selecting their contractor.

Michael Stone, author of Markup and Profit; A Contractor’s Guide to Profitable Sales, has more than five decades of experience in the building and remodeling industry. He can be found on the web at www.markupandprofit.com.