Right now, we have a thread going (The Scandalous California Contractors' Board) that is drifting into "so guy is cheaper than me."
I submit that "cheap" is not a business plan; it's a bankruptcy plan. "Cheap" can only have value when one is comparing bushels of apples; that is, when you are no different than another guy.
Sure, you can take steps to minimize overhead .... to a point. You can live in a tent, flout laws, take shortcuts ... only so far.
The 'key' is to differentiate yourself from the rest of the pack. Here are some ways I've seen it done: - How you present yourself matters. A professional appearance will, in many cases, eliminate any desires a customer might have to hire some guy who looks like a bum; - Niche marketing. Doing something someone else might not do very often, or have to hire a sub to do for him. (Do you have asbestos certification?); - A single outstanding characteristic the customer identifies with your firm. For example, being 'fast,' or causing minimal business disruption, or sticking with a job until it works- or no charge; and, - Scheduling flexibility.
You have to communicate your strengths to the customer. A name like "911 Sparky", for example, will suggest that you are available at odd hours for critical work. Or, a simple claim that hits home with the customer, like "The only guys with their own brooms."
What you want to do is limit the customers' tendency to consider alternatives to hiring you. You want him to think "sure, I can hire XYZ, but then I'll have to wait six months ... while YOU are ready now."
This is not idle chat. I have one customer ... a governmental body ... that sometimes has to hire someone other than me. I manage to keep 90% of their business, though, because the other guy always manages to look poor when compared to me. I "shine" by knowing the building, and fixing the stuff the other guy either flubs, or gets wrong. While he's arguing over the punch list and change orders, I'm setting things right. By the time the dust settles, the customer is thinking 'I really wish we had Reno do the job.'
I call it the Wal-Mart factor, it’s the same principle that has made Wal-Mart the giant it is while gutting Mom and Pop shops all over the country. Who would you rather deal with for buying a fishing license or a new shotgun? The mom and pop gun shop on Main Street, who by the standards you rightfully promote in your post are a very valuable commodity, or is saving $20 more important even if you have to deal with that booger eating moron in the blue vest?
Sure if you are courting a client then marketing is a powerful tool, but I have somehow cornered myself in a market that only cares about price, manpower and performance, and by performance I mean can you get a performance bond.
Sure, Dink ... though a basic mastery of the English language ought to have made my meanings clear .... I can think of at least one Rhodes scholar who had trouble with the meaning of the word "is" .
"Cheap" is the business model of simply having a lower price than the other guy. The focus is on price alone.
John Ruskin cautioned that there was no product, no service that could not be done a little worse, a little cheaper ... and that the customer who considered price alone was that man's lawful prey.
If you allow yourself to become a commodity, no different from anyone else, then price alone will separate you from them.
You don't sell 'price.' You sell 'value.' It is your job to make sure the customer knows he will get the most value from you. Often the 'value' you add is an intangible, something not found on the balance sheet.
There are various franchise operations around; a look at their web sites will show this focus on value. Quite often, these operations are among the most expensive operations in town ... and the most successful.
For every "Wal-mart" story, there are dozens of "7-11" success stories. Indeed, merchants whose focus was on value have continued to prosper .... Macy's has no fears!
There is a reason this site has so many pictures of the failed attempts of incompetent electrical work. The reason is: we get called after all the 'cheap' guys have tried, and failed. This is our chance to shine, to prove that we are worth more than the handy-hack on the street corner.
Or, look at it this way: When have you ever heard someone brag about how cheap their doctor or lawyer was?
I value respect and loyalty. If someone calls looking for a cheap electrician, I get insulted and give them to the competition. If they're looking for someone they can trust, I'm interested in doing business with them.
One of my favorite clients is someone who's had a previous experience with a bad contractor.
They may have no fears, but I know from experience that when you bid one of their stores if you aren’t “cheap” you won’t do the work.
Try selling value to Wal-mart, Petsmart, Homedepot, Lowes, HEB, Frys, Best Buy, Bed Bath and Beyond, or any other big box retailer and see how far that gets you. Been there done them, and the only thing they want is “cheap”. Sure they want high end gear and fixtures, they see value in that, but they don’t want high end labor.
We all value loyalty and on bid jobs your quality and ability to complete may keep you on the bidders list, but that's about all the loyalty I see in this end of the business.
There is more than one market here, and yes there is a market you can sell value but it’s not the hard bid market. We are not doctors or lawyers, and people do brag about how “cheap” they can get their construction services.
80% of my jobs are hard bid, so I mostly get judged by my number, which seems to define the perceived value when its juxtaposed against everyone else’s number. When work is good and labor is short the price goes up, but when there is not much work and guys like me get hungry the price goes down. I am not really getting around the perceived value, I am just aware that it fluctuates and there is a sweet spot between the floor and the ceiling that I constantly try to work and hit.
The problem with playing the market like this is new contractors, and hacks who come along and lowball. Granted if a contractor comes along and does the work for less money then he redefines the perceived value, but what happens when he does this and in the process puts himself out of business?
Remember going belly up does not always happen on one job, it may take an inexperienced contractor several bad jobs to exhaust his resources or he may be able to cash flow his way into trouble over a 6 month period, then go out of business. So what does all that mean to the first client who got his project done for less than cost? Not a damn thing, he only remembers that he got it wired for $5 a square foot, and damn was that a great electrician.
Keep in mind I am not taking about bidding service calls, I am taking about hard bid commercial jobs $5k and up. I do not work the residential or service market.