How to Sell Your Value and Not Compete on Price
When it comes to choosing a residential contractor to remodel or custom-build a home, homeowners have plenty of options at various different price points.
As professional remodelers within the construction industry, we know that convincing homeowners not to base their selection on price is a tricky game because renovating or building a home is an expensive venture, and they will naturally want to save money on this project wherever they can.
But we also know that hiring a construction company based on price and not their expertise or quality of work is a disaster waiting to happen. So if a homeowner is bidding out a construction project to every contractor in the city, seemingly looking for what they think is the "right price," how do you convince them they don't want to choose a builder by price? What can you do to make your company stand out from the pack and sell your construction services in a way that makes a homeowner see that you're the better choice?
Competing on Price is a Race to the Bottom
Clients are conditioned to see general contractors as commodities whose rates fluctuate based on an ill-informed perceived market value. The problem with this type of thinking is that it doesn't address whether the builder is the right fit for the job - just whether the price tag is.
So when competitive bidding gives you the perception that you need to cut costs to get the bid, you're really joining a "race to the bottom." Because anywhere you land on that course, be it in the middle of the pack or at the bottom, you're devaluing your work and the profit you need to make to be successful long term.
Residential construction estimates are made up of four components:
Labor costs
Material costs
Trade partner costs
Contribution to overhead costs and profit
An old client of mine used to say, "If you're calling me, it's probably because the price is going up." And those words are true – the cost of a home project rarely decreases between the time you create the first version, and the time the job takes place. So, if you're trying to come up with a lower price to match a client's intended investment level or to beat the competition, you aren't able to do it by lowering the raw costs.
That means the only way to cut costs is by reducing the markup you charge, which will negatively affect your overhead and net profit margin contributions. And if you lower your profit margin consistently, you won't be in business for long.
For more on how markup and margin affect your business, click here.
How to Navigate Competing with Fixed Cost vs Cost Plus
It's not uncommon in today's market to find out that you're competing with a company that operates using the other type of contract method, i.e., fixed cost when you're cost plus and vice versa.
It's important to remember that potential customers will typically gravitate towards fixed-cost contracts as they give them a sense of the total cost and certainty. However, they will also see the broken-down costs in a cost-plus proposal and then ask the fixed-cost remodeler to do the same. That is not how a fixed-cost proposal works, and don't feel that you need to do this to win the job.
The best way to handle this objection when asked is to be very informed about the differences between each billing model and confidently explain the pros and cons of each pricing strategy instead of pivoting partially into the other mode.
For more on fixed cost vs cost-plus pricing, click here.
Keep it Apples-to-Apples
It's very easy for there to be many comparisons between bidders and for clients to ask questions about different aspects, such as specific materials or parts of the project. What's critical in this entire process is that we always keep the comparisons on an apples-to-apples basis.
It's also very important to recognize that when participating in competitive bidding, you must listen very closely to the questions clients ask because they provide insight into what the other builders are telling them. Remember, the clients don't know what they don't know, and they are often like parrots mimicking what others have said to them.
Sometimes, you might be utilizing the same vendors and trade partners as someone else, so very specific questions about allowances for materials can present themselves. If you are working in a cost-plus format, the client sees the raw cost of an item, so if you're a fixed-cost remodeler, I recommend using cash allowances to keep you on par. For more on using allowances in your construction business, click here.
How To Stand Out from the Crowd
When you start the builder-client relationship by dropping your price to win the bid, you're setting a precedent for the client to expect that throughout the project. What you should be doing is demonstrating to potential clients what you bring to the table besides price and why they want to work with you specifically.
Make a Human Connection
Think for a moment about what you would expect from someone you're hiring to perform an extensive and expensive job for you—like building a house. You'd want someone who makes you feel comfortable that they know what they are doing and are interested in fostering a relationship with you to help you achieve your vision.
That's the key element that needs to be prevalent when you meet with potential clients. Your focus should be on making a human connection with them and showing them that you understand their vision for this project and their challenges or concerns. Deep down, even if it seems like they are just focused on the bottom line, people really want to do business with someone they like, know, and trust.
Perfect Your Sales Process
It's your job to show potential clients the value and expertise you bring to a remodeling project as a knowledgeable and experienced partner and not just an hourly rate handyman.
You've spent years perfecting your craft and that experience allows you to properly investigate and detail the proper costs for a home renovation project. Ultimately, that ensures the client receives a better outcome than they would get from the contractor who lowered their price to match what the client thinks it should cost.
One of the best ways to achieve that is to start off with solid construction sales strategies that include a strong upfront sales process to explain the criteria for how you price your work:
The scope of the work
The approach to the work
The costs involved in operating your business
Your sales pitch should show homeowners that you're not just building their house but that you're building a relationship with them and that you will work to offer solutions that meet their specific needs and ensure customer satisfaction.
As you develop your sales process, ask yourself these questions:
Am I sharing information that will help them understand this process?
Am I meeting them at their point in the journey?
Am I solving their problem?
The better we understand our clients, the better we are able to provide effective results and an unparalleled experience instead of lowering our standards to match "what the other guy quoted."
Be Consistent Across All Touchpoints
What your clients see and read about you online or in your marketing materials should be the same experience as when they meet you—and all the way through the sales, preconstruction, and construction processes. This means your messaging needs to be genuine and consistent across all platforms.
What potential clients see when they scroll your Instagram feed late at night is often what hooks them and makes them interested in reaching out to you. So when they check out your online presence and then reach out in person, they're looking for that same persona they "met" online.
Read more about how to utilize social media to your advantage here.
Strategies for Building the "Know, Like, and Trust" in Clients
Someone who is really "cool" doesn't walk around telling everyone that they're cool. It's just known. So when someone tells you that you can trust them, that's usually an indication to go in a different direction.
Actions always speak louder than words, and it's what you do - not what you say, that will get clients to like you, feel comfortable with you, and build trust in you.
So how do you build that trust? Here are five strategies to help:
1. Create a clear, outlined sales process that outshines your competitors in its thoroughness and ability to answer your clients' most common questions. Know this process inside and out so that you can speak confidently about each step.
2. Use a Client Resource Guide that you can review with prospects and leave with them that exemplifies how structured and organized you are and answers the questions they will inevitably think of after you leave the initial meeting at their home.
3. Do EXACTLY what you say you'll do and never stray from this. State clear dates for every step of the process and stick to them, whether it's a meeting or a project deliverable. Hitting all those deadlines is critical to enforcing the trust your client has placed in you.
4. Avoid using "qualifiers" and "intensifiers" in your vocabulary, both written over email and in person, such as "You can trust us; we're the best; we're trustworthy." A qualifier or intensifier is a descriptive word or phrase used in the English language to enhance a statement, but it is often seen as weak or deceptive.
5. Know your numbers inside and out and be able to explain them to your client confidently. That includes being able to speak to how you price your work and why you won't erode your profit margin to price match "the other guy."
The Bottom Line on Selling Your Value
Competitive bidding is a common tactic homeowners use when selecting a residential contractor because, after all, they aren't experts, and hearing different opinions will help them make their decision. But the trick is that we don't want them choosing a contractor based solely on price, as it can mean it will be more expensive for them in the long run.
What they really need, and need to be convinced of, is hiring a remodeling contractor that has the depth and breadth of knowledge and experience to accurately assess and price their project so the client isn't disappointed with the results or surprised with exorbitant change orders every week during the project.
So when a client asks you to bid on a job that someone else has quoted before, remember that you're not a supermarket, and you don't price match.
Instead, focus on building a relationship with them to establish "Know, Like, and Trust," showing them how you're aligned in matching their scope of work to their intended investment level.
I created the BUILD AND PROFIT SYSTEM to help construction business owners navigate the competitive bidding conversation by implementing rock-solid sales and estimating processes that ensure they get paid for all their work.
Click below to join the BUILD AND PROFIT SYSTEM today.
