Build a Value Culture
A Broken Marketplace
Most contractors feel like their profit margins are too tight. They work too hard and take too much risk to make so little money. The nature of competitive bid procurement norms is to drive down pricing to the lowest that a “qualified” contractor is willing to accept. I argue that the contractors themselves are proving that they’re okay with their low margins. The market has found you’re willing to accept this thin profit margin, and you certainly can’t blame the market for buying at the price you’re willing to sell at, right? Seems like the construction market is working as we’d expect any free market to work.
Upon further inspection, however, we’ll find that many construction buyers have miserable experiences with their contractors. Owners battle with “greedy” general contractors who constantly nickel-and-dime them with claims. General contractors have the same complaints about their subs, in addition to policing their efforts to avoid delivering what’s contractually due. This dysfunction makes it clear that the construction economy is not “working” as it stands today.
Drawing the Line
Buyers will continue to drive prices down as long as the sellers accept it. It can be downright scary, but drawing the line on price and telling your customers “no” to their attempts to squeeze more margin is necessary to determine how much they’re willing to pay. I’ve found that when a buyer is talking to you about your price, it’s often an indicator that you’re their preferred contractor. Instead of focusing the conversation on price, shift it instead to value.
“If everyone was the same price, who would you work with and why?”
I’ve watched this question work wonders in helping buyers discover that they sincerely value a particular company’s advantages over their competition. Once they articulate that the answer is “your company because you’re better in these ways...” they’ve made the case for you!
“The things that make us better also cost more money. Our price reflects that value. Can we agree to terms on our current proposal?”
Value is a Culture Choice
Of course, to be worth more than your competition, you must also be better than they are. How much effort are you putting into being a better company? Delivering superior value is a prerequisite to selling at a premium price. Your team must be bought into this philosophy from top to bottom, and you must also seek value from your vendors and subcontractors when you buy. If you buy the cheapest option, it makes it difficult to sell any other way.
Take the time to understand what your customers care most about when buying services from contractors like you and optimize for that. Be the value pick, not the low bid. You and your customers will be happier with you in this position.
The Spark Notes:
Contractors often accept thin profit margins due to competitive bidding, making it hard to blame the market for paying the low prices contractors themselves set.
The construction market's dysfunction, marked by strained relationships and poor experiences between buyers, general contractors, and subcontractors, highlights that the economy isn't truly "working."
Drawing the line on pricing and focusing conversations on value rather than cost can help contractors demonstrate their worth and secure better margins.
To sell at a premium, contractors must commit to delivering superior value, aligning their culture and practices to exceed customer expectations and stand apart from competitors.
