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Don’t race to the bottom

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  • SIMA
- Posted: June 22, 2018
By MikeVoories, CSP

If you win business because you were willing to do it cheaper than anyone else, did you really win? To me, bidding isn’t selling. The only strategy necessary to win a bid is to come in lower than your competition without leaving too much money on the table. If that works for your business, great; however, this strategy will eventually find most of us penniless. So, I propose an alternative: Be more expensive than your competition and still get the job.

Sound too good to be true? It’s not. There are buyers who are willing to pay a premium. It’s not easy, but it can be done. It requires being intentional in our prospecting efforts and very deliberate in our sales strategies.

Brand loyalty often tops price
The most impressive and successful brands in our economy are priced higher than their competition. Apple is probably the most predominant example. Its products are considerably more expensive than the competition’s, yet its customers consistently exhibit an unmatched level of unwavering loyalty. “Apple people” will walk past huge displays of less expensive alternatives, which arguably have newer technology, straight toward the small and less inviting display in the back of the store. Apple’s customers don’t weigh the options or price shop when it’s time to buy, and neither should yours.

Ford Motor Co. maintains its Ford and Lincoln brands for a reason. A vehicle purchase is an essential one for most; however, there’s not a product on the Lincoln lot that doesn’t have a similar sister product on the Ford lot that sells for a lot less money. Lincoln is successfully selling a product at a premium that can be bought down the street, sans some discretionary luxury and status, for considerably less money. Buyers who browse a Lincoln lot are not as concerned with getting the absolute best price as they are with status, comfort and luxury. 

More than price 
Can you market and sell your service based on low price? Absolutely. Do you have to? Absolutely not. Buyers often associate price with a certain level of quality, and that can be good for us. It’s that old ideology that you get what you pay for. Of course there are buyers who are primarily focused on price, and nothing you say or do will change that. But you don’t have to entertain those prospects unless you want to. Just because someone asks for a price or proposal, doesn’t mean you have to give one. This is where having a clear understanding of the type of client you’re aiming to serve comes in. If a buyer is shopping for a Ford and you’re selling a Lincoln, that’s OK. If a prospect can’t afford you, that’s their problem - not yours.

There’s a misconception that buyers are only focused on price. It’s our job as sales professionals to uncover what’s really important to them. What problem do they have that we can solve better than anyone else? Bidding isn’t selling. Competing on price is a slippery slope. Truth be told, it isn’t our prospects and clients who undervalue our service. We are the only ones who can commoditize our service. 
10 musts to craft a winning proposition

1. Understand your costs. It is imperative that we know exactly how much it costs us to perform the services we’re taking to market. We need to know direct costs, indirect costs and overhead. This must be step one; and our understanding has to be precise and crystal clear. Obvious, right? This isn’t always common practice in our industry. 

2. Apply cost-based margin pricing. There are countless methods to arrive at your price; however, I strongly suggest cost-based margin pricing. It’s simple, consistent, accurate and easy to implement in the snow and ice business. It also makes job costing a breeze. The formula is: Direct Costs + Overhead Recovery Rate + Desired Net Profit = Minimum Price. 

Example: A project’s estimated direct costs are $1,000. The company’s overhead recovery rate is 30%. Let’s say a 20% net profit is the goal. In this example, our gross margin needs to be at least 50%. The project’s minimum price would be $2,000 ($1000 + 30% + 20% = $2,000). 
 
I see too many service providers basing their pricing almost entirely on what they believe is the “going rate.” I won’t discount the importance of knowing your market. I can say with confidence though that pricing strategies based on the “going rate” without clear understanding of your costs is, quite frankly, reckless. 

3. Identify the prospects you want to work with. Be deliberate in your prospecting efforts. Know the type of clients that you’re well equipped to service. Know the type of projects that stand to be profitable. Be picky, and work with clients who support your vision, mission and strategic objectives. Sometimes, a bad sale is worse than no sale at all. Every prospect is not a good fit for us, and we are not a good fit for every prospect. It can be tough to turn down an apparent opportunity, but sometimes an opportunity is really a threat in disguise.

4. Have a value proposition other than price. How can you create value aside from being the lowest price? Remember that perceived value is in the eye of the prospect. Different buyers perceive value differently, and that’s OK. Still, if you’re not going to be the best price, you had better have another way to create value. You also need to be able to clearly communicate your value proposition. If your prospect can’t see it, it’s irrelevant.

5. Have a differentiator other than price. If you can’t quickly answer what makes you different from your competition, you’re going to fall back on low price or not win the business. This has to be something you bring to the table that’s actually different from your competition and that your prospects and clients recognize as your differentiator. This is usually a tougher question to answer than most think. Great service, unfortunately, isn’t typically a good enough differentiator for two reasons: everyone promises it, and your prospects already expect it.

6. Believe in what you’re selling. If you are not 100% sold on your service, you’ll never be able to sell it at a premium. You must believe, with every ounce of your being, that you possess the absolute best solution for your prospect. If you don’t, then don’t propose the project. If you don’t believe that your prospect would be making a detrimental mistake by going in a different direction, then you’ll never be able to sell your service at a premium. If you’re not totally sold on your product, you’ll sympathize with prospects that are buying primarily on price. Would you buy your service and pay a premium for it? 

7. Offer good and consistent service. Although good service isn’t a differentiator, it is a prerequisite. So is consistent service. It is impossible to create a brand that demands top dollar without consistent service. Word travels fast, and consistency is essential. Your market needs to know what they’re going to get if they choose you. Research, reviews and references need to speak a consistent word.

8. Be easy to work with. Our prospects and clients have enough on their plates doing their jobs and living their lives. They don’t want to put any more effort than necessary into procuring and then working with a service provider. If you’re going to be a premium priced provider, you have to be easy to do business with. Communication should be a breeze. The proposal process should be as easy as possible. Invoices must be easy to understand and issued on time. Make it easy for clients to pay their bills. The quickest way to make a client entertain other options is to be difficult to do business with. Our clients will never love our businesses as much as we do. They don’t want to spend excessive and unnecessary time jumping through hoops. Making one’s life a little easier brings significant value to the table. 

9. Be OK hearing “no.” If you have any fear whatsoever of rejection, lose it. Business is business, and you’re simply not a good fit for everyone. Maybe the timing is wrong. Maybe they can’t afford you. Maybe they have a provider they love. Maybe you botched the sales call. If you’re going to be a top-performing sales professional, get used to hearing no, and become OK with it. 

10. Be OK saying “no.” This is probably the toughest thing for sales professionals. We’re measured, and even sometimes compensated, based on closing deals. It can be very difficult to say no to potential business, but we must. Qualify every prospect, and say no when it’s not a good fit. When a prospect asks us to reduce our price, be comfortable saying no. They have every right to ask. We have every right to say no. 

Mike Voories, CSP, is chief operating officer at Brilar, a commercial landscape & snow maintenance firm with locations across the Midwest. He also is a consultant to the service industries. Contact him at mvoories@brilar.net.
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