Lowballing Will Destroy Your Business

One common mistake that new business owners make is to price their service too low - also known as "lowballing" in the construction and home services industry.  Your motive in doing so might be to generate enough business to keep the business afloat in its early stages, but it's a flawed strategy that will almost certainly lead to your company's demise.  Learning how to become a contractor also means dedicating yourself to understanding business fundamentals, and a big part of this is learning to price appropriately.

For one thing, you'll find that most quality-minded, upper-class homeowners (whom you'd be wise to target most aggressively) view low bids as a warning sign that your company must be cutting corners somewhere in order to stay in business.  In their mind a super-low bid equals crap work and even crappier service.  I must admit that I, too, nearly fell into the lowballing trap in the early days of my business.  I was scrapping for business any way I could get it, and to assure a constant stream of cash my bids started to drift lower and lower.  The middle-class customers hired me consistently at the lower prices, but I was working harder and harder for less and less money per job. 

But soon arrived one particularly puzzling day when I gave a low bid for a large job at a huge home, and instead of getting the usual gleeful response of "when can you start?!", I got a marathon of questions about why my price was so low compared to the competition's, if I was going to do quality work, and what kinds of references I had to prove my abilities.  It threw me for a loop, and though my newly honed salesman skills eventually won me the job anyway, it opened my eyes to to the fact that I could actually be losing business because my prices were so low!  And I was losing it in the demographic that I most needed: wealthy, time-challenged, highly-networked homeowners.

It is true that many middle-class customers are more concerned with price than anything else, so you have to price competitively to them, but they do not represent the segment of the population that will give you your most profitable jobs.  Focus on targeting higher-end homes, charge what you're worth, and you'll wonder why you ever used to be one of the dreaded "lowballers" that works more but makes less.

Comments

[Tony Decko]

Hi. I typed richcontractor.com to see if there was a rich contractor at richcontractor.com. Stumbled upon your site. Good words.
I was raised with home and restaurant construction. (All trades.) Did my own contracting for seven years, all the while growing while not wanting anything to do with the business aspects. Finally I fired myself, built a couple of restaurants for a corporation, then built a couple of hi-end custom homes. Oh hum. Well, how does an existing contractor that builds for others, due to no want to also do business, find those who want to build something really cool that will help many? I dream to build a town named, "Fun", but that's just me. One who was smart with business might make a one-rate contractor service for millions, but hey, I just get the jobs done. I'm being a bit silly, yet I enjoy life and actually know how to build a town named, "Fun" while many get work, vocational training, and one heck of a place to live. As for the one-rate contractor service, awesome in that we have it already for many other things.....pool service, lawn service, et cetera. So, does anyone know someone smart with business so I can handle the construction aspects of what I believe every home in America needs? Well, I best go. Enjoy life, and thanks for the ramble session I gave. I enjoy practicing my typing. Thanks richcontractor.com.

Respectfully,

Tony Decko
theluckiest.com