How to Love the Deal You Cut
Contractors often resent the deal they agree to when they receive a project award and I understand their sentiments. It’s tempting to complain about multiple rounds of rebids and BAFOs, or best and final offers, that shave your profit margins down to a nub.
The average net profit margins of contractors lag behind many other industries, and the battle for every penny can be very real. What these contractors must realize, however, is that the resentment they feel toward their customers is not helping them to prosper. Instead, the sour feelings they carry into the project translate into avoidable conflict and reputation damage.
To avoid this fate, embrace a new rule within your construction business: Love the deal you cut. You don’t get to complain about accepting a deal you could have turned down.
Don’t give money away
Even as I encourage construction pros to get over their negative feelings after they’ve given up profit to win a deal, I empathize with them. Building contractors take great risks and work long hours to meet their obligations, and when there’s no profit to show for the effort, it can be terribly disheartening.
I’ve watched thousands of construction negotiations over 15-plus years as an industry consultant, and I’m convinced that an incredible amount of money is needlessly given away every year as a result of poor negotiations in the sales process.
Lowering prices from your ideal is often required to win the business, and that is always a business decision about how much you want/need a given project and the pricing that the market will bear. Other times, lowering your price is only lining your customer’s pockets.
As much as I can appreciate the degree to which a contractor may need to get aggressive to win a project, giving your profit to your customer so they can enjoy it doesn’t make business sense.
It’s about more than price
In the competitive-bid environment that permeates the building industry, your clients will likely act like the only thing they care about is price. These are shrewd negotiators who have a responsibility to their stakeholders to at least try to save/make money.
With that reality in mind, when you follow your sales process and your clients still tell you you’re high, don’t panic. Of course they want a discount, and they’ve learned that telling you about your high price position translates into one. Hold firm.
Giving you pricing feedback is a strong buying signal. Rather than assuming you’ll lose if you can’t drop your price, trust in your value and consider the following negotiation tactics:
Say no first and see how that goes. Many people will bail out of their negotiation attempt quickly following a swift, confident no.
Confirm that if you were at their target number, you would be the contractor of choice. Then ask why you’re the preferred contractor and make them tell you out loud how much better you are than your competition. With those value points on the table, it becomes much harder to claim they’re comparing apples to apples.
Ask what price they have in mind and refuse to negotiate against yourself. Don’t start giving away money. They’re the one asking for it, so find out what they want. Make people work for a discount or they won’t appreciate it.
Sell like a professional. This means having a sales process and sticking to it. Train your people how to execute the sales process with confidence and get comfortable with saying no.
I cannot even count how many deals I’ve been a part of winning after telling the buyer we can’t accommodate their discount requests.
Also, do a ton of new business development to provide your company with a full pipeline. If you aren’t desperate for work, you will be able to stick to your guns.
This article has been previously featured in Construction Dive.
The Spark Notes:
Contractors often resent the deals they agree to, particularly after multiple rounds of rebids and BAFOs that reduce their profit margins.
Resentment towards customers harms contractors' prosperity, leading to conflict and reputation damage, and should be replaced with a mindset of loving the deal they cut.
Contractors frequently give away money due to poor negotiation tactics and need to hold firm on pricing to avoid unnecessary profit loss.
Effective negotiation involves saying no confidently, making customers articulate your value, and maintaining a robust pipeline to avoid desperation for projects.
