Competing with low-price contractors

If you have been in business for any amount of time, you probably have had to contend with "low-ball" price competitors. If you are new in business, perhaps you are the "low-baller"-and maybe you don't even know it.

All of us work in an environment dictated by free-market forces-a fair price being one the buyer and seller agree to without coercion. Like it or not, many buyers will continue to choose strictly on the basis of low price.

Avoiding the commodity trap Many low-price buyers confuse buying a service with buying a commodity. For example, a Ford is a Ford. No matter where you buy it, it still is a Ford, so price becomes a critical factor. Thus, a Ford is, in a sense, a commodity. Unfortunately, most low-price buyers treat landscape contractors the same way. Their perception is that they all do pretty much the same thing. This is unfortunate because when buyers believe they are comparing like "commodities," the only basis for comparison is price.

Unless a buyer is knowledgeable, open-minded and discerning, it is difficult or impossible to compare contractors until services are actually performed. Service contractors really sell promises. We promise to perform certain functions in particular ways and at particular times. Service becomes a product only after the contractor delivers it, and they must deliver it again and again, consistently, for the client to measure it.

My advice is to avoid being viewed as a commodity. Position your company as a unique service provider, with exclusive characteristics and value-added services. If not, be prepared to run with the pack.

How can you accomplish this? First, understand that for low-price buyers to exist, there also must be low-price sellers. Some are legitimate, some are not. Know the "who," the "how" and the "why" of the low-price contractors, and plan your sales attack accordingly. Through proper planning, you not only can provide your clients and prospects with tools to be discerning buyers, but you also will be prepared to "push the right buttons" when making your pitch.

Who are the low-price sellers? * Newcomers. Industry newcomers are the most common of the low-price sellers. Most don't have a clue as to what the business of landscaping or landscape management is all about, and their chances for survival are not good. Unfortunately, low barriers to entry in the landscape industry ensure that, just like dandelions and other pests, another crop of contractors will sprout every year.

This happens for several reasons. Many technicians and practitioners know how to do a job, in many cases quite well, and think they can run their own businesses. Unfortunately, most schools do a poor job of teaching basic economics and business skills. Unless these newcomers have some of the necessary rudimentary business skills or are quick learners, they will not survive. A huge difference exists between running a business and having the technical skills necessary to complete a task. This group of low-price competitors often doesn't understand the true costs of doing business and, therefore, cannot price their jobs profitably. They often fail to account for such costs as taxes, benefits, down time, insurance, etc.

* One-size-fits-all contractors. Another class of low-price competition is the "cookie-cutter" or "one-size-fits-all" contractor. These contractors provide only certain basic services with minimal quality at minimal prices. In fact, a large, readily available market exists for them (small retail strip malls, gas stations, convenience stores and some low-end condominiums and apartments). Many contractors choose this niche and, if they're efficient, they can be quite successful and profitable.

But quality has different meanings to different people. I define it by what is right and appropriate for each customer and not necessarily by what is the best, most expensive or highest level of service. Therefore, I believe you need to listen and let the customer define what they mean by quality. Often, their definition is tempered by what they are willing to pay. Perhaps you see an opportunity in selling price. If you do, talk about it, but be honest enough not to promise a quality or level of service that is not commensurate with the price you charge. Some clients may accept it, most won't.

* Cheaters. A third class of low-price competitors are contractors who cheat. Let's be candid: There are many who do. These contractors know how to prey on unsuspecting customers. They promise a lot and deliver very little, all by design. They inevitably will lose customers, but they sell to new ones every year.

* FBCers. The least understood of the low-price competitors are those who can actually provide a high level of services. They are that handful of contractors who have successfully responded to the newest cry of clients: "FBC" (Faster! Better! Cheaper!). Can this be done? If so, how?

Labor is far and away the largest single cost in the service industry. FBCers are contractors whose processes are well-honed, who employ cutting-edge technology and who utilize the most efficient and productive equipment available. They keep their unproductive and unbillable labor and other costs to a minimum. They have well-trained, highly motivated employees and responsible and effective supervisors. Management is visionary, and the leadership is "out of the box." The synergy of all the above results in lower break-even costs and the ability to make fair profits with lower prices. They sell quality at the lowest possible prices. These are really tough competitors and are the kind that most of us would like to emulate.

Qualifications Having defined some categories of low-price sellers, you can begin a strategy to compete with them or eliminate them from the bid process. You can help your prospects and your clients become more educated and discerning buyers. They can discover discrepancies and evaluate contractors before accepting proposals by pre-qualifying all contractors.

For example, provide a pre-qualification statement to all prospective clients. If you can convince a client to directly or indirectly pre-qualify all contractors, then it is more likely that they will be comparing apples with apples, not apples with lemons.

A pre-qualification statement should include: 1. References. Try to provide references with projects similar in size and scope to that of the prospect, and who will attest to your dependability, ability and capacity. Emphasize these intangibles.

2. Memberships in professional associations. This demonstrates an interest in professional growth and a commitment to excellence.

3. Certification. Various organizations offer certification programs. For example, the Associated Landscape Contractors of America (ALCA) has a national certification program in which Certified Landscape Professionals (CLPs) must exhibit proficiency and experience in the business of landscape contracting. Numerous state associations in conjunction with ALCA offer certifications at the technician level. Other industry organizations offer certifications as well.

4. Licensing. Contractors are required by law to be certified to apply pesticides. The contractor should also comply with any other federal, state or local regulations. Customers should realize that unlicensed applicators are operating illegally.

5. Insurance. Submit a certificate of insurance and indicate bonding capacity, if required. We also supply "Fit for Duty" statements (FFDs) to our clients, indicating our commitment to provide a drug-free work force.

6. Personnel and equipment. Submit a brief description of your workforce and short biographies of key personnel. Accentuate any training programs you have and assure your prospects that you are an equal-opportunity employer and you comply with Immigration and Naturalization Service requirements. Convince the prospect that you have the proper equipment to do the job, as well as sufficient back-up and support services.

7. Communications. Prove that you have the ability to communicate. This means more than listing your hardware (pagers, radios and cellular phones). It means you can listen to and understand the client's needs and priorities, and know how to meet them.

Qualifying clients Pre-qualifying contractors is only one side of the coin. The other is to pre-qualify clients. It is up to you to determine your compatibility with a prospective client. Do your skill levels fit? Does your ability, capacity and experience allow you to profitably pursue the contract? Start by defining and analyzing your total client "universe." Divide it into segments and choose those that make the best fit. You cannot be all things to all people-it is better to pursue those prospects that meet the criteria you establish for yourself.

Above all, pursue clients who are willing to invest in long-term relationships (multi-year contracts). Price shoppers rarely do; they look for lower prices every year.

Turning costs into assets Explain your costs and tell your client how they translate into more value. For instance, selling points that you could use to your advantage include: 1. Pre-employment drug testing.

2. Employee participation in a thorough orientation process to familiarize them with your standards and expectations.

3. Sending employees to regular training sessions; off-season education as well as company-paid participation at industry seminars and workshops.

4. Benefit programs (including profit sharing) that attract and retain good employees. This leads to a more experienced staff and a higher employee-retention rate-a distinct advantage in an industry plagued by high employee turnover.

5. Employees who are uniformed and observe a dress code. They are taught to be polite, courteous and responsive to clients' needs. They look and act like professionals.

6. Vehicles and equipment that are newer, clean, well-maintained and clearly identified. You would not be ashamed to have them park on your property.

7. More-than-sufficient back-up and in-house service. Thus, you won't have to give excuses that work will be a delayed until you fix broken equipment.

8. Specialists and specialized, more-productive equipment.

9. Insurance coverage beyond the minimum. Plus, ensure that all your employees have the necessary licenses and certifications.

Obviously, these and other factors will cost you money. However, instead of thinking in terms of cost, think of it as an investment. Employees who are motivated and well-trained, using reliable andproductive equipment, can do their jobs more effectively and economically. This results in a more profitable operation for you and more effective and economical results for your clients.

In addition to the value received, you should also tout "value-added" services, such as: * Guarantees * Product upgrades at no additional costs. * No premium charges for additional work after hours, or on weekends or holidays. * Long-range planning for site enhancements and budget preparation. * Other professional services, such as design, engineering, specification writing and sub-contractor pre-qualifications. * Documenting work processes that protect and extend the life of landscape assets. * Using best practices, purchasing leverage, innovation, technology and a single point of accountability to maintain or improve levels of service and control costs. * Being responsible for other necessary services such as lot sweeping, minor asphalt or concrete repairs, pond cleaning, lighting.

Become a competitor Practice integrity. Always be up-front. Realize what you can and cannot do. Admit what you don't know and aggressively pursue the knowledge you need.

Establish a corporate culture that empowers your employees. Create an environment that motivates employees to do their best and clients to want to do business with you. Share profits with your employees and share the benefits of your efficiency by continually improving your customer service. Never become complacent-strive for continuous improvement. It is always better to under-promise and over-deliver.

Concentrate on building relationships, not on making sales. Keeping existing customers is easier and less expensive than finding new ones. Building long-term relations is the key to sustaining growth and increasing your profits. Once you have found your niche, become indispensable to your customers. Take care of them, and remember to consistently communicate your value, not the price you charge.

Ron Kujawa is a green-industry consultant and president of Kujawa Enterprises Inc. (Cudahy, Wisc.).

Without exception, GM readers felt that two factors are to blame for low prices: customers who look only at price, not quality; and contractors who are willing to work for little profit. This is not exactly news, but what to do? Here's what some readers had to say.

* "I bid to make money. If a property manager accepts an outrageously low bid, that tells me, 'don't worry; [they] wouldn't appreciate the work we would have put in'.I don't want to work for penny-pinchers." To newcomers: "Never sell yourself only cheapens what we're all doing."-Tennessee

* "I try to charge what it takes to do the job right and make a profit, and fair and treat people right. In the long run, word-of-mouth advertising is far more effective than price cutting." To newcomers: "Your overhead will be more than you think.If you try to undercut everybody, you will soon be out of business." -Washington

* "We price competitively, service exceptionally and follow up for feedback. Relationships with building owners yield contracts that are win-win."-Indiana

This is all good advice, but there's no denying the frustration that low-bidders cause. As one Illinois reader noted, "If I had an answer, I'd be a wealthy man."

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