When a young person first starts into business for themselves, their tendency is to underbid the jobs. This may be because of several reasons:
- They may feel somewhat inadequate, insecure.
- They may be afraid they will not get the job if they bid/price it higher.
- They may feel inferior to others that have been in that market for years.
Most people that continue this line of thinking, either go out of business or go to work for someone that knows how to bid.
The problem with pricing below the market to secure some work is that the customers you will get are the ones that are concerned only with price. Later on when you want to raise your prices, you will lose these customers to some other low bidder and have to replace them.
A friend of mine and I did some landscaping on our days off many years ago. One thing he shared that his grandfather taught him was to price out the entire job at the market price then add 10%. So if the job was $3,000, it came out to $3,300. I have practiced this with great success for many years since then, and it also has the benefit of helping to keep your prices up and pushing higher. This also helps to keep you from under bidding a job.
Many times you will have unexpected expenses or time in a job, and now you have already priced that in. Without the extra 10%, you will feel gypped when the unexpected arises. This technique just helps cover your a**. You walk away after completion feeling satisfied.
Pity the man that, when confronted by the buyer about the price, backed up on the bid to $2500.00 or lower to get the job and then complications arise. Been there, done that, and we don’t do that anymore. You walk away feeling slightly sick and disgruntled. Learn to walk away if they want a lower price. Many times they will call you back later. They were just testing your commitment to the price.
The only time I remember coming down on a bid was when the bid was $750.00. The client said that was too much and asked if I would do it for $650.00? God must have showed me it was OK because I never did this again. But this time I told him I could do $725.00, but that was it. He, his wife and I stood there for a second, then his wife burst into laughter! She said “You finally found someone that likes to haggle as much as you do!” He paused for a second and then laughed and said, “OK!” It was a great job.
All other times though I never back up on a bid. People may try to shame you, intimidate you, or get angry with you to get you to lower the price. But resist. If you give in, especially out of fear of losing the job, and do the job for a lower price, they will be on your case most times all the way through the job. This is not just my experience. I have talked to others that have experienced the exact same thing. Why? Because they see that you have no respect for yourself and then they don’t respect you either. But they will take the lower price.
I bid a job once, and the man said, “When contractors see a Nichols Hills address, they get dollars signs in their eyes. The last guy did it for half this much.” I said, “Get him to do it.” In the end I got the job after I told him to call the store and get some more bids. Our bid was right in line. His wife later told me that they did not like the quality of the previous workman. So they were trying to get a better contractor for the same price as the one that did the shoddy work. They will lie and be deceitful as well to get you to lower your price. I got the job at the original bid price and had no trouble with the job. Stick up for yourself. People can smell confidence, and it sells.
People can also smell insecurity or fear of loss like a dog smells fear. They don’t consciously think about it, but they know and they act on your lack of confidence and belief in yourself.
Backing up on a bid does several things:
- First, it damages your self-image, your self-confidence, and your sense of worthiness.
You have to protect your sense of self-worth, or you will allow people to walk on you all your life. You have to protect your self-image and your self-confidence. This is very important. Remember, there is a great difference between arrogance and confidence. We are quietly confident but not arrogant.
- Second, the customer/client realizes that you are not confident in yourself, your business, or your ability.
- They may feel that you were willing to accept a lower price because you needed the work. If you need the work, then how good are you really? The client/customer will think to themselves, “I better keep an eye on this one if they do the job because they are probably not very good if they need the work that bad.”
- Once you accept the idea of backing up on a bid/price, you will do it again and again. Then you will begin to bid your jobs or products lower still. This is where the practice of upping the bid by 10% is a good habit.
- They may constantly push you to do more than what was contracted for. When they pushed on the price, you caved, so they are hoping you will cave more.
Even if you are new in your field, you need to price yourself right at the market price; no exceptions.
Even if people have not heard of you before in your field, they will instantly recognize that you must be good, and that you have some confidence in your ability and in your products. That is the reputation that you want to instill from the very outset.
Now if the service or products normally sell for $20.00, you cannot price it at $50.00 or you will go broke. But pricing it at $10.00 is a great mistake.
Usually prices are set by the free market because that is the price where the vendor can sell his service or product and make a reasonable profit. And everyone knows what that price point is. So you stick out like a sore thumb when you come in low.
If you do not know what to price the job/product at, start with a reasonable price. If you get every job, you are priced too low. The way I see it is that if you lose 20% of the bids you make, you are probably right in line with what the market is willing to pay. If the calls are cold, in other words from the yellow pages or a website, I would expect to get only about 20% of those jobs anyway. Most of those people are just shopping prices, and there is always a low baller out there. You are not in competition with the low ballers.
I bid a job over the phone one night, and the lady said that another service said they would do the job for $150.00. That was $200.00 lower than my price. I told her I understood, but that the people that give bids like that are generally involved with apartments, do no prep work to make sure it is a good job, and that if the job fails, they charge another $150.00 to do it over. I told her we do not compete in that market. She said, “That is what I kind of thought. Come do my job.” Confidence sells.
If you will go with the market price from the beginning, you will be accepted as a viable source from the outset if you or product performs the way it should.
Finally, if you back up on a bid or bid the job less than the market, you will get a reputation that “If you push him, he will come down.” What does that say about you, your ability, your business, your workmanship, your confidence and your self image? Is that the reputation/self-image that you want? NO! Be confident. It will pay off well.
If you back up on a bid or bid the job less that the market, that is not fair to you. The laborer is worthy of his hire, and it is not fair to your family. You and your family deserve to be paid well for your work. You deserve to be paid just as well as the other guy. And you will find at times that some older businesses have not kept their pricing up to date. Do not let that discourage you from keeping your prices up.
One of the hard things to see and remember is that your price is not just for the labor. How much did it cost you to set your business up? How much time did you invest in yourself to learn to do what you do? Remember, that you are a business not just a day laborer. The plumbing company charges $125.00 per hour to cover their costs and to pay the plumber. They pay the plumber, the laborer, about $15.00 per hour. You are a business not a laborer. They are paying for your knowledge and your ability to solve problems.
I have had people ask, “How long will that take you, and what are your costs?” They want to know the price per hour they are paying, or to see if they can do the easy part and get you to lower your price on the harder stuff. No! You just respond with the quoted price. We do not break down the costs for anyone. We may take into account what we need to make per hour and our costs per job, but the quote is a flat price. Be firm but not mean. Remember, it is a business and with the right attitude about your business and yourself, it will build respect with your clients.
There are always exceptions to rule but very rarely. Maybe once in five years!
Sometimes you can set the market price yourself. One area I was involved in a few years ago, the job was currently priced at $350.00. I was told a couple of years later by someone who knew that the price had dropped to about $150.00. It was true as I asked people what the other bids were when there were some other bids. I decided to set the standard for the pricing and kept our price at $350.00. Within a couple of years, the price was back up and then went even higher. Have some respect for yourself and your ability.
I have at times given a cheaper price to an elderly person. Not often, but once in a while when “the spirit moves me.”
I remember a story told to me by a banker in a small town years ago that I was working for. She said that when the town finally put in a city sewer line all the residents were required to pay their share. But there was one elderly lady that lived in a tumble down house on the edge of town that sold vegetables from her garden on the street in the summer time. The town council voted to put her sewer in at no charge. The banker said that she could not tell them but that lady had several million dollars in the bank in CD’s. Things are not always as they seem!
Remember, price yourself at the market from the beginning. It may be a little scary, but you will see the benefits if you will do it. Then once you have given a price, stick with it.
Never back up on a bid. This is all part of living The Prosperous Life.
