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Lowballing Will Destroy Your Business

How To Make $100,000 A Year

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.

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{ 7 comments… add one }
  • Tony Decko May 13, 2008, 11:45 pm

    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

  • Scott January 27, 2014, 8:06 pm

    Hey Tony,

    You seem like an interesting fellow. Thanks for the comment. As per your main question, if you are not confident in the business side of things but are very skilled in the trades then perhaps you could form a partnership with a friend or family member who IS good with business. You could combine your skills to form a solid company. It’s usually best to try to find a partner who you already know and trust. Then find a lawyer to write everything up for you as far as the legal and ownership structure. Best of luck and keep having fun out there!

    • Tony Decko July 29, 2014, 3:52 am

      Thank you Scott. Rereading your first note, I still lowball and believe I am still incorrect by doing so. Constantly searching for those who enjoy business while still working on mansions and other projects. My first slow day in years, so I search internet for superintendent jobs…oh hum. 🙂 Think my skills would better suit a catastrophe….in that I help those who are of need rather than want… Best wishes rich contractor. Thanks again. Toeknee

      • Tony Decko March 2, 2015, 10:46 pm

        Offered supt. Job, turned down respectively, removed job hunting links from computers, and accepted own business of many years must continue rather than working for another. Still search for business person…and may have to do that too. Darn it. Smile. Best wishes. Toe knee

        • Scott March 3, 2015, 6:17 am

          I know what you mean about wanting to work for yourself instead of for another, Tony. Some of us just have that running in our blood and always will. Have you had no luck partnering with a family member or friend who can guide you with regard to the business side of things?

          • Tony Decko December 14, 2015, 4:53 pm

            Hi Scott. Guidance from a family member or friend with regard to the business side of things is not sought. Rather, acceptance from a family member, friend or new acquaintance to perform such skills is sought. I figure to only need the knowledge of pertinent matters of business while others manage our business and I the construction. Thankful for ample work, homes and restaurants are simple and I seek more interesting projects that can help more. Else, will pursue building a fun place of music that gives me the privilege to work daily at giving joy.
            It’s all about the fun Scott. Thank you for your time.

  • Tony Decko December 19, 2016, 3:40 am

    Hi Rich Contractor Scott. You are like my, “Dear Abbey” every few years. haha.
    Still building and waking to enjoy the day early.
    Fortunate to build many at once from those who give me plans and say go build; like a child in a candy store I am. To help those of need rather than those of greed while each day I play hoping I may. All of the above holds true today.
    Thankful daily, I know more may be done.
    Rich Contractor at heart and in it for fun.
    Best to you, as always, Toe Knee
    iama.pro

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