EPISODE 89 – Competing On Price Doesn’t Work For A Building Business
EPISODE 89 – Competing On Price Doesn’t Work For A Building Business |
Welcome to another episode of the Builders Business Success Podcast. In this episode, which is episode 89, I should look at that before I start. The focus, the purpose of this episode is to unpack another of the fateful eight.
So a couple of weeks ago, we talked about the eight mistakes that we've identified that builders make in an effort to get a solution for the problems that you experience in a building business.
I know that sounds a little bit weird, but when the business isn't going so well, or we're stressed out about something, or we're frustrated about something in our business, we generally are driven to find a solution.
And what we've found is on that pathway to creating a solution for many of the common problems that are experienced in a building business, some mistakes are made along that pathway. And we outlined them a couple of weeks ago, we called them the fateful eight.
And in this episode, we're talking about, I think number four, and number four is one of my pet peeves, so get ready. And it's all about competing on price. It sucks. And it's just a total lose-lose situation.
It's bad for you, the builder, it's bad for the client. In this episode, I wanna show you how by just changing your focus and some beliefs around this whole competing on price idea.
Everything, everything becomes easier, it becomes better. It becomes more enjoyable. I dunno whether any of this is resonating with you.
If you'd like things to be better, more enjoyable and easier in your business, well, here's the episode for you because this is simple. It's a little challenging, but it is simple. And by implementing this, like, as I said, it's easier, it's better, more enjoyable and obviously, obviously more profitable.
So, if any of those things are of interest to you, I think this is gonna be the episode for you. And obviously, we've got an idea of the week as well. And the simple idea that will increase your profit in a heartbeat.
So some very, very cool stuff we are going to be covering in this episode.
And if this is your first episode and you've never listened to this before, the Builders Business Success Podcast is a construction business podcast or a building business podcast. I'm Mick Hawes and I run the Builders Business Blackbelt and I'd love to be your construction business coach, or you could say builders coach.
Transcription of the show!
As I said, the focus of the podcast is on this belief that we've got to compete on price. And here's the thing. Look, I understand this is a longstanding belief. I understand why people are focused and motivated to do this with their business, but the bottom line is it's never been right.
And let's cut right to the chase that having this as part of your focus to gain work, to win jobs, and I'm using all of the language that builders tend to use, that isn't, I don't believe helpful or correct. When you are focused on price and you try to be price-competitive, what you're literally doing is taking potential money out of your own back pocket.
So everything, every dollar that you take out of a project in order to be price-competitive is basically being taken out of your back pocket. Here's the thing. The project costs are what the project costs are. And if you're doing a project for $300,000 and you get the pencil out, sharpen your pencil and take the knife to it.
And you put in your proposal for $5,000 less, $10,000 less, so you are price-competitive, maybe because you felt uncomfortable with that price, that 5,000 or $10,000 is coming directly out of your back pocket, because the costs of the cost.
And so every dollar you discount, every dollar you don't add to your proposal cost, or your quote, whatever you wanna call it, is coming out of your back pocket. And if that's not motivation enough to change this, I don't know what is. So what we need to understand is the psychology of your prospect and your client and yourself.
And that's what we're gonna unpack through this discussion here and understand that there is a time where your prospect, that hasn't become your client yet is making a decision between you and another builder based on price.
It does happen, but the only time that shows up is when there is no perceived, okay, and I'm pointing to my head and I'm doing air quotes, because the key with this is the perception from your prospects point of view, not yours. You don't count in this. It is all about the perception of your prospect.
And if there is an absence of value in the perception of your prospect, between what you are offering and between what another builder is offering, the default position for your prospect is price. We're gonna discuss this perceived value, whether it's real or just imagined, doesn't matter.
We're gonna discuss that a little bit later. But understand that decisions are made emotionally and people prioritize value over price. And if there is no perception of a difference of value between one offer and another offer, your default position will be to go to the lowest price.
As I mentioned, people prefer value. They prioritize value over price and statistically, and there's a bunch of statistics out there, but statistically, we understand that 80% of the population make decisions based on value. 20% of the population make decisions based on price.
That is a statistic. I personally don't believe it. I think my belief is 100% of people make decisions emotionally, like even the biggest pi R squared, nerd who with a pocket protector and all of that sort of stuff that just does the numbers and had spreadsheets coming out the ying yang, they still make an emotional decision.
Once it all makes sense on their criteria, they go with what feels best for them based on the way that they process things. But at the end of the day, it is an emotional decision. Now, most of our prospects and clients aren't that person, they're just normal average people.
So let's forget about what I think. And I think 100% of people make decisions or want value and make decisions based on value and those decisions are made emotionally. But let's just go back to the statistic 80/20. So let's just assume that statistics' right and I'm wrong. It's still saying that 80% of your prospects are searching for value. They're not searching for cheap. They're not searching for the lowest price.
They are searching for value. Even the ones that tell you, price is my priority. That's bullshit. They are using that as a little bit of a smoke screen to make sure that they don't get ripped off. And that's why this it's bad for them and it's bad for you.
We need to be open and honest and transparent and work together as a team to get the best outcome for anybody in your business. But let's go back to the statistics, 80/20. Most builders are focused on price, which means that they are setting up the premise of their business on an objective that only 20% of the population want.
Okay, most businesses, most building businesses are set up to be price-competitive, but only 20% of the people are looking for price competitiveness. 80% of the people are looking for value, but almost all building businesses are set up with a focus on price.
So if you are one of those, you're setting up your business to number one, attract the minority. And number two, when you do attract people from the majority, people who are looking for value, it is you that is focusing them on price.
You are starting the conversation and bringing the focus back around to price. So all you need to do is change this perception, change this belief, change the focus, change your approach.
The mistake, as I'd just mentioned, that I think that most people, most builders make is starting the conversation and focusing people in on price, fundamentally because that the belief is if I'm not price-competitive, I won't get the gig. So we are leading the focus to price. What you need to do is start to tell stories.
Like one of the things we talk about all the time in Blackbelt, and we drill it and we rehearse it and until people are comfortable about it, is that facts don't sell, facts and benefits don't sell. They don't get people across the line. They don't make you attractive, facts and benefits.
What creates a buying decision, an emotional decision is when people see themselves in a scenario, see themselves in a story, so what you need to do is become a storyteller and tell stories while why price focus leads to less value. There's a ton of experiences in your own business as to how that has shown up.
All you need to do is start to pass on those stories and have your prospect understand that you are constantly learning from your experiences with your clients.
Your commitment is to give your clients the best value possible by using your experience and you're constantly refining that and all your processes and procedures and systems are designed to give your client the best value possible, as well as the most enjoyable experience.
I mean, it's one of the biggest undertakings that anyone takes on in their life, whether it's building a new home or a big extension or renovation or something like that, it's a big deal. It shouldn't be frustrating and aggravating and stressful. It should be really exciting and really enjoyable and fun and memorable for all of the right reasons.
And if the focus is on price from the get go, guess how it's gonna show up, it's gonna be all stress and pressure and aggravation and frustration because we're constantly looking at the price.
So you need to become a storyteller to help them understand that that's not your focus. Your focus is on value and delivering maximum value. Part of that focus needs to be working together as a team to create the value.
And again, give examples and tell stories that when we work together in a trusting, transparent, team relationship, that everything works out much better. And for their financial investment, for their budget, they will end up getting more.
It's always the case when the price is the focus, the customer ends up getting less. When the price is not the focus, when the value, when the communication is the front and center, the customer always ends up getting more and it's much more enjoyable for everybody involved. As I said at the start, it's an 80/20 thing.
And the default position is if there is no perceivable difference in the value that's being offered will default to the cheapest price. But understand that it's all about the perception of value.
And I've spoken about this before, I'm gonna drag it out again, but there have been so many studies done on this to find out how people make decisions.
And the classic is where they will put product side by side with it seems to be the identical product, and it might be a crate of apples or some vegetable or whatever it might be.
It could be even some other product, but the classic ones are just grocery items. And there's a big box here and another big box of exactly the same thing beside them.
The only difference is the price, one is more expensive than the other. And you ask the question, which is the one that sells out first and every single time, believe it or not, the more expensive one sells out first.
Why is that the case? Because there is a perception of superior value, particularly when it's apples or some sort of vegetable or fruit or what have you, the perception is these ones are better. These ones are higher quality because they're of a higher price.
And so part of the whole psychology of pricing is when you have a focus on value, when you have a focus on the quality of the experience, and that is what you bring your prospects around to focus on, they appreciate it significantly more.
It's a little bit like, the people who wear the big, expensive Rolex watches or what have you, they are proud that they paid 25 grand for their watch. And many of the will make sure that you're aware that this watch was 25 grand.
Those sort of people, they don't buy the knockoff because it's not about, "I've got a knockoff Rolex." It's more about that, "I have the wherewithal to be able to afford something like that."
People's experience of the quality of what they receive is commensurate to how much they pay. If they get something really high quality and get it very cheap, it actually takes away from the experience. I know that's a little bit difficult to take on board, but it is how it works.
And so if you are talking about pricing, an architecturally designed renovation extension on new home and people are investing in quality, they will be happy and they will have a better experience when they pay a premium for this high quality outcome. You can jump on, what is it, grand design, as any country, pretty much any episode.
And you'll see that people will have a budget at the start. And more often than not, they will go over budget because they just didn't want to compromise on the quality of their kitchen, or they didn't want to not have the pool, or they did not want to have these particular type of fittings or design cues or whatever it might be. And so they, at the end, when they're being interviewed, how much did you go over budget?
More often than not, it's quite considerable, but they then rationalize that, they've convinced themselves it was worth it. And so you need to be the person that's focusing them in on the value and keeping their focus away from penny pinching and the price.
The whole competing on price is simply a race to the bottom, and if you wanna be better at competing at price, it just means that gonna reach the bottom faster than everybody else.
And the question you might have is what really represents value? And again, this is a focus we have in Blackbelt, we're rehearsing and drilling it and refining our skills and doing this all the time.
And that is having your prospects and that eventually your client really feeling like they are understood, they are supported, they are protected and they are being guided. And no one is Googling that in a search for a builder, trying to find the builder that will protect them and guide them and support them and understand them.
It is subconscious need that humans want, particularly when they aren't able to understand clearly the process themselves, that's why they are employing you. That's why are they reaching out to you is because they can't do it themselves.
So they are relying on you to support them, to protect them, to guide them and to have a feeling of being understood by you. And that is a subconscious need.
Consciously, what they're trying to do is protect themselves by getting all the information they can from you and making the decisions themselves. What you need to do is up your ability to present yourself as value. And so, that comes in understanding the ideas, sort of presented here today, and then upping your skills of communication, rapport building, building trust, so you can guide them and they can drop down their barriers.
And then everyone has a much, much better experience. If this is something that makes sense to you, and you want some help with it, you want some guidance with it, we've got a ton of tools and a ton of resources, and more than happy to help you. All you need to do is reach out.
So you can go to the get personal help in the nav, in the ToolShed. So over in the navigation area, you can go to that or you can just simply reach out to me in the chat and ask your question and reach out for help.
That's what we're here to do. In fact, part of being a member of the ToolShed is all about your engagement and reaching out and us knowing that you're there and you are genuine about changing and improving your business, because that's our mission.
Like we are on a mission to change the building industry and get rid of the destructive, unproductive, frustrating producing, stress producing, norms, and so we're here to help. All you need to do is reach out.
You need to be active. You need to ask questions. You need to get engaged in these podcasts, in the posts, make comments. Let us know what your thoughts are when we put a poll out there, but mostly reach out for help because the whole idea of this is to get you changing faster, not learning by your mistakes, but learning by everybody else's mistakes.
And we are absolute masters and experts in understanding the mistakes that are made. Everybody in Blackbelt has made more mistakes than they'd care to mention, and because they've made them and we talk about them everyday, we've come up with solutions for them. So they don't need to be a part of your business.
You can sidestep the negativity and the cost that comes with making those mistakes by simply standing on the shoulders of giants and learning from OPE or other people's experience. So reach out for help, we'd love to help you.
Idea of the Week
Idea of the week, and as I said at the start, there is something that can cause you to make yourself more profitable in a heartbeat. And it's called the gap.
What I'm talking about is there is a gap between the discomfort of you charging a higher price and the discomfort that your prospect feels paying a higher price. There's actually a gap there, folks. You don't know it's there because you reach your limit as a builder.
You come up to your limit and that's as far as you go, but you will find that when you step past your limit and you start to become uncomfortable with the price that you are paying, very few, if any, of your prospects will say, no, that's too expensive. Here's something that's really, really exciting.
We're just now, like there's a bit of a pattern emerging with the feedback that we're getting from our Builders Business Blackbelt members is that they are now starting to get feedback from their prospects in relation to paying for a quote, paying for proposal or paying for a site visit fee if it's just a smaller job.
The feedback that we are getting now is I much prefer this, in fact, I wouldn't trust a builder that doesn't charge for this. Basically because they don't feel that they are professional.
So folks, the tide is turning. And so you need to be on this train. You need to be on the bus to be the builder that is presenting themselves as professional and has a fee for a site visit.
You can show the prospect how your site visit process adds value to the experience or how your fee for your proposal adds value to the project and the prospect/client.
Because it is starting that the people out there are starting now to distrust the builders that are still doing things for free. So what you need to do is step into this gap.
If you wanna get more profit immediately, you put your prices up. You start to feel uncomfortable, but they don't yet still start to feel uncomfortable. Good quality clients don't start to feel uncomfortable way after you start to feel uncomfortable.
And the cool thing about you feeling uncomfortable about the price you are offering is you should use that discomfort to motivate you, to figure out how to add more value to your process 'cause that's what this whole conversation today has been about, is people are looking, searching, they desire value over and above price.
So get into that space where you feel uncomfortable and use that discomfort to drive you to figure out how to present yourself and your business and your experience for your clients as far, far more valuable.
Wrapping up, as I said, what I'd love you to do, what I am encouraging you to do, and we've got some ideas that we're about to implement in the builders ToolShed to ensure that you do start to engage, post, answer the polls, ask questions, share your wins, and share your lessons, share your blinding flashes of the obvious, whether it might have been something you've gotten from a podcast or a post, in the ToolShed, you've been implemented, it it's worked, or it didn't work, that's just feedback, it's not failure, right? It's not a loss.
Putting that in the ToolShed is kind of like asking the question, how do I make this work?
So I just want you to share your experiences in the ToolShed, because that's what starts the conversations off and you start to engage and we can start to engage with you and point you towards what you need to solve these issues and these problems.
Also, I'd love you to make suggestions. What would you like to see in the ToolShed that's not already here? There's a suggestion box, you can just go up to the search bar and type in, suggestion box, it'll appear, jump in there and give us your suggestions.
And of course in the comments right now live, there's a share link, but also in-- if you're watching this on the replay, in the description, there will be a link that would love you to share, invite other builders in here. The more builders that we've got that are understanding these principles, that are implementing these principles, it's gonna start to influence the industry.
And the problem right now is all of these destructive practices are making it difficult for everybody. Even if you are not involved in the destructive practices, the people who are involved still in these destructive practices are making it hard for you.
So we wanna start recruiting people into this way of thinking, start to implement the ideas that we talk about here in the ToolShed, because then that starts to make it better and easier, more enjoyable, and obviously more profitable for everybody if we start to become far more professional, have better systems, procedures, communication, and skills.
So I hope that makes sense. Please reach out for help. If there's anything that you want help with, that we've covered in this podcast or any other podcast for that matter. In the nav, as I said, there's a little button over there or a section that says, get person to help.
If you just click on it, fill out a form, we'll be in touch with you in two shakes of a lamb's tale. I bet you haven't heard that one for a long, long time, or you can just simply reach out in the chat and say, Hey, can you help me with this? Or how does this work? What do I need to do here? Or I'm stuck or whatever it is, just reach out and let us give you some support and some guidance, love to do it.
That's what we're here for. So that is it for this episode of the Builders Business Success, put my teeth back in, podcast. We'll be back again next Tuesday, 10:00 AM, Sydney time with another episode of the Builders Business Success Podcast. I'm Mick Hawes from Builders Business Blackbelt. That is it, I hope you enjoyed it. Bye for now.