The biggest misconception in construction
Most contractors believe that winning jobs and high pricing are two phrases that can’t ever belong in the same sentence, but this is actually far from the truth…
In my previous articles, I’ve often referenced my experience at Caroni, a Miami-based drywall subcontractor that, in just two years, became a $7 million business. One of the most important ways we achieved that was by taking advantage of perceived value.
What is perceived value? Perceived value is a customer’s willingness to pay for a product, aside from the product’s price or quality. Perceived value is what makes people willing to pay $1,000+ for brands like Gucci, but only a fraction of that for brands like Old Navy…
Perceived value is the real way clients select the winning bidder.
There are three components to what makes up your perceived value:
These three things are the main criteria that customers consider when buying any product, so in this post, we’ll focus on the steps that you can take to increase your perceived value and start winning more high-quality jobs.
Step #1: Increasing your perceived value
So why increase your perceived value? If it was not clear enough in the previous section, increased value is your most important asset in sales.
This is because there is a general principle in sales that customers are only willing to buy when a product or service’s perceived value is higher than the actual price.
Don’t miss this: it doesn’t matter if your actual price is higher than your competitors, it’s all about if your perceived value is higher.
If a contractor has a good character, a reputation for good craftsmanship, and a good relationship with the client already, the client is naturally disposed to choose him over a cheaper, but less familiar contractor.
Here’s the lesson: if you’re dealing with a new client, you have to quickly build yourself up as a trustworthy, friendly contractor. In the next section, we’ll discuss the exact method you should use.
The Break-Even Method: Getting a Foot in the Door
The road to building good relationships with new clients is not an easy one.
The reason for this is because, when dealing with a new client, all they have to judge you by is your price, so you naturally increase your odds of winning the most by charging at cost or “breaking even”.
Although this inconvenience may seem counterintuitive, being the low bidder is most important only when dealing with new clients. The job you do win may seem small and unprofitable, but it gives you an opportunity to start meeting with the job’s management.
Following up with clients is one of the most important things a contractor can do to grow their business. There are four “touch points” a contractor can target: 1.) Email, 2.) Text, 3.) Phone, and 4.) Face-to-face Visit. The more you touch these points, the more familiar you become, increasing your chances of winning
This is the most important part of the break-even method because it’s here where you prove yourself.
By putting in the work of visiting the developer or architect as well as providing high-quality work, you set yourself apart from future competitors and establish a foundation for getting more jobs.
When you put in the work in the beginning, the pay-off is that you now have clients who will prefer you and be more lenient with higher pricing in the future, ultimately bringing you more high-quality jobs.
Step #2: Bidding higher than your competition
In the last section we covered briefly how the next step after increasing your perceived value involves higher pricing.
Of course, the goal of construction bidding is to be able to bid lots of jobs at high prices, so this step is especially important if you want to grow your construction business.
Once you’ve built a good relationship with a client and have a high perceived value to them, it’s time to slowly increase your pricing.
How slowly? A good rule of thumb is to increase your price each job until you get a pushback, that is, once a client asks you to lower your price.
When it comes negotiation time, the friendship you cultivated with your client goes a long way. Usually, if an owner is familiar with a contractor, they will give them the final offer on the job, which, as we have covered in previous articles, is an incredible tool in construction bid negotiation.
In bid negotiation, a lot of contractors will miss out on winning as a high bidder because they aren’t willing to go a bit lower. The point to remember is that: don’t forget about change orders. Every job usually yields 10-30% in change orders, so be ready to bid high and negotiate down.
The Secret to 10X your Construction Business
If you are interested in growing your construction business, I’ve prepared a short training video for you that you can watch for FREE: