After bidding on a small job, a contractor is told by the prospective customer that he wants to get a second bid. Is that what he really means? And what’s the best way to respond?
Oak River Mike isn’t talking about a megabucks home remodel, but a job worth $1,000 or less.
“I know it’s good financial sense on their part,” he says in a post in the Breaktime Business forum, “but what do you say or how do you handle it?”
First, the gracious approach
The customer may simply be trying to knock the price down, but even so, more than a few posters suggested a polite response is the best way to handle the situation.
“Happens all the time,” says jimblodgett. “I usually say something like, ‘I think that’s smart. I don’t have all the answers. Maybe someone else will have a different approach and know a better way to do this job. All I know is, if we’re going to do this work the way we’ve planned, I have to charge what I’ve quoted.”
Jim would go on to suggest that the customer let him know if he wants to proceed with the job, and even if he doesn’t, Jim makes a point of thanking him for the call.
And he adds this: “We’re all different. Some customers WANT to negotiate. They ENJOY it. So do some contractors. I think it’s important to be yourself and eventually you’ll find enough people with similar values to deal with. They’ll appreciate you and vice versa. It’s dealing with the bad matches that drags me down and wears me out, so I try to avoid it.”
MikeSmith takes a similar tack. “Call me if you change your mind,” he’ll say.
“They will usually find someone with a cheaper price and I will not get the job,” he adds. “Sometimes they will be happy with the other bidder, sometimes not. If not, they will probably wish they had chosen me.
At the same time, he senses that something else is probably going on: “Most of the time they will never get a second price…and if they do…they will not be able to evaluate whether they are getting a better deal or just a cheaper price. I have never seen two contractors bidding on exactly the same job…the customers may think they are, but they are not.”
KFC agrees:
“Make sure they understand the specific work you’ll do for them, and also what you as a person or company represent in terms of reliability,” KFC says. “Then turn ’em loose. If they’re real low-ballers, you’re better off without them, and if not, they’re just saying what their uncle told them to, and will pick you anyway.
“Either way, your best move is to be gracious and say, ‘Of course.’ For a small job, it’s not worth the headache to argue. Maybe find out who referred them, and if that lead has refered a few chain-yankers, keep that in mind.”
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Then, the negotiated sell
JimAKAblue has an entirely different approach.
“We use a very specific response,” he writes. “And this is one you probably should practice.”
It goes something like this:
First, he asks Mrs. Smith (our hypothetical client) whether she’s comfortable with his company and, more to the point, whether she’d be willing to use him if the price were right. Then he explains that he’s been in business a long time, that he prides himself on his work, and that to stay in business he has to keep his prices competitive.
Here’s the clincher: “Okay, let me make you an offer here. If I will give you the ten percent off that you might find by shopping, will you be willing to sign tonight and save all the trouble?”
Jim pushes the pen and paper toward Mrs. Smith. “If she signs…good deal,” he says. “You’re still making your nut because you left yourself wiggle room in your original offer. If she doesn’t…we can go on to the next offer/explanation.”
The reaction to this statement is immediate, and observer has this to say: “When a salesman tries to lead me around by the nose like that and can suddenly come up with a ten percent reduction in price I’m inclined to show them the door just on general principle.”
Frontiercc2, a self-described consumer rather than a builder, doesn’t like it either:
“If you offer ten percent right away, I start to wonder how much more padding is in there. I don’t like to play games like that, and I refuse to. I understand you gotta eat and your kids need shoes, too. And I don’t mind paying a fair price. But I DON’T play sales games.
“I have to feel like I can trust you in order to do business with you. And by padding your estimate ten percent just to be able to try to ‘sell’ me a job, you lose that trust…If you pulled that on me, I would end negotiations on the spot and start talking to the next guy in line.”
Slim margin better than none
“Our way make sense,” jimAKAblue replies.
“Why would we do that? Because sales takes time and we’d rather work at a slimmer margin than walk away with nothing. We know that if they shop hard enough, they’ll find a quality contractor willing to work cheaper…but there is a limit. We are simply willing to go to that limit.
“We also offer the right to tear up the contract. It’s a win/win offer. Sign now and save us the time coming back. If you continue shopping and find someone better, tear up the contract. Our normal time for that is three days but we’ll extend that option up to two weeks. What do they have to lose?”
Jim notes that with normal pricing, he should be making a profit of between 15% and 20%, and by knocking down the price he’ll reduce the margin to only 2% or 3%. But at least it allows he and his partner to work and cover the overhead.
Still, observer isn’t buying it.
“I didn’t call profit evil or suggest that profit was padding,” he says, “but I’d suggest that if you are giving up your profit to get the job, the business model isn’t allowing you any profit and may need rethinking.
“Bottom line for me is that I look at your type of company and see a couple of extra cost layers and a hard sell approach dependent on volume of prospects rather than relationships and perception of quality to cover those costs… Indeed, I’d suggest you are dependent on gullible customers who will accept what you tell them without skepticism. Don’t get me wrong, I’ve nothing against anyone who wants to give it a go with your approach, but having seen the model in operation up close, I won’t hire them.”
Stick to your guns
JimAKAblue gets an earful from posters who disagree with his technique. And then there was this from Jercarp:
“I just went through this with a customer…and they happen to be friends,” he writes. “I gave a bid which I allowed room in, they gasped at the cost and said (very nicely), ‘We want to work with you, but it’s a huge number and we have to get a few other quotes.’ I said absolutely and in fact that they are smart to do that just to have a good feeling about going ahead with the job.
“The doubter in me thought that I had lost the job. I almost called them up to let them know I could cut it down by a bit…but I didn’t, though I did need the work. Yesterday I came home to a phone message saying, ‘You’re our man…when can we start?’. I’m glad I stuck to my price, but after reading this thread (and I know this), I could have done more to sell the job. I think what sold it was my experience and expertise in what the job entailed. There is a lot of unseen troubleshooting involved.”
Our expert’s opinion
We asked GBA advisor Michael Strong for his take. Here’s what he had to say:
“Ideally, and I say that word intentionally because I know it is not always possible, but ideally you would already have pre-qualified the client up front and discussed their budget and what you think it will cost before you submit your written proposal. Most professionals, regardless of their expertise (home repair/small jobs, remodeler/whole house remodels, custom builder/new home) can give a remarkably accurate ballpark price range to the client at the first meeting.
“Something along the lines of painting your home and replacing the rotten siding is going to be in the $4,000 to $5,000 range,” you might say. “If after reviewing our credentials, insurance, and references you decide this is within your budget then I would be pleased to submit a formal written proposal with a fixed price guarantee.” That allows the client to gracefully end the relationship if the price range shocks them and it will save you a lot of wasted time.
“Unfortunately what typically happens is the contractor does not discuss price, then he/she spends a lot of time estimating and writing a proposal and in return they get the dreaded ‘I want to get another estimate!’ I have found time and again that once the client says that, the vast majority of the time I have already lost the job and nothing will get it back.
“Offers to discount the price, I don’t like and never have. If they want to go to a flea market to negotiate, fine, let them. But you need to know your costs and the profit you need to support the work you are doing. You need to explain to them the value of your work and the security they have in working with a company that has a reputation as strong as yours, and then stick to your guns on the pricing.
“The law of averages says we get what we pay for and with 20+ years in the industry I believe in this law as immovable and irrefutable!”
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View Comments
I don't think they are always just looking for a cheaper price. We've won many projects over the years because the customers simply were not impressed with the other builders. We try to knock their socks off with the detail and scope within our proposals so they really can't compare. The only thing we can change is our approach. There's always another low-ball guy out there and always will be.
Good thouhghts. I too am adverse to discounting. I am thourough and have a very small profit taarget; 8%. A ten percent discount means that I'm paying to play. Like KGroninger I do a detailed estimate and clearly layout the scope of work. I'll suggest a reduction in scope as a way to reduce cost, never a discount.
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I figure I am in the minority but I get quite offended when I am asked to discount my price estimate. I put a lot of effort into estimating the EXACT cost of a project and I usually come within one to three hundred bucks (plus or minus). Besides, how would they like it if I walked into their office and asked them to work for 10% less? For a perfect stranger no less?!?!
My general response when a prospective client asks me if I can come down on my price is usually something like this:
"Some builders spitball a price then pack on extra to negotiate with; I haven't done that. I have worked hard and derived a firm and committed price for your project down to the penny. I didn't add negotiation room, I simply estimated the amount of time and materials it would take for me to properly complete your project. Other builders may give you a low price but then perform less work than you expect or hold you hostage later asking for more money to proceed. Sometimes they may just disappear in the middle of the job when they figure out they are losing money; I won't do that. I am giving you what I consider to be fair price that assures you the highest possible quality and guaranteed satisfaction for the course of your project. If you would like for me to reduce the cost of your project then all I can do is adjust the scope of the project."
Unfortunately this response has NEVER worked in my favor; unless to say that the client who complained about my price would most likely be a PITA the entire project and possibly lead to a worse outcome than just lowering my price.
If they are not willing to decrease the project scope then in essence, asking your builder if they gave you the best price they could breaks the trust right from the get go. The client may as well be saying, "I don't believe that is how much this will really cost. I think you trying to screw me."
That said, I have had more than a few projects where I have given a discount AFTER the project if things went smoother than expected.
DC