Due to economic conditions unlike any other in our history, even during the Great Depression, contractors have been forced into making changes and adjustments — many of which would not be considered positive. However, I have worked with several contractors who have taken a different approach to fighting through these uncertain times. When almost every contractor has seen his bid prices decrease due to an increased number of bidding competitors, these few brave contractors have raised their prices.
My first exposure to this was with a large organization not directly involved with construction. The company president made the executive decision last January to raise prices when every other competitor was lowering prices. As expected, his board of directors and his sales force thought he was losing his mind. They were wrong.
What this company found out was customers were interested in knowing why it was raising its prices when every other competitor was lowering prices. As the senior leader of this company told me, "It actually increased interest in our company. While customers asked our sales people about the cause for the price increases and what justified such a decision, it opened a door for our sales professionals to present our 'unique selling proposition.'"
So, in visiting with several of my construction clients, including a few concrete contractors, I suggested perhaps they might consider raising their prices. Not on all bids but on a few jobs. The results were amazing.
While these contractors didn't close 100 percent of the projects on which they raised their prices, they did land several jobs they didn't think they had a shot at. I asked each of these contractors, "How did the customers respond?" Here are their responses:
- "They called us before we could even follow-up with them. They wanted to know why we had such a higher price than our competitors."
- "This actually gave me and my other estimators an opportunity to spend more time explaining why we are a better company and why our quality was really advanced and more proven than our competitors."
- "I hate to say this but it actually made my selling pitch easier to make. I had their attention because they believed they were getting a better quality of material along with service and dependability from us."
- "Not only did it give us more time to explain things with the customers, it actually allowed us to tie some other services to our own contract. We actually picked up some work that we might normally not have gotten because the customer wanted a 'one-stop shopping' experience with one contractor."
Is raising prices right for you?
While these contractors had some positive results, they all stated they don't think this approach of raising prices is for every contractor because not all contractors can make a case for higher prices in a convincing way. As one contractor told me, "Brad, one reason I held off from doing this increasing is because I didn't think I could sell it confidently. You have to believe in your company and what it is capable of doing. I think a lot of contractors — and fortunately for me, most of my competitors — don't have this confidence."
Let me share a few thoughts about this entire strategy before you consider raising your prices.
- Do not raise prices across the board.
- Review your costs and profit potential in each project bid.
- Study and formalize your firm's strengths to back up your claims to do better work. Remember, everyone says they do quality work.
- Be prepared to take negative feedback from some customers. Have your winning reasons close by to share with them why your firm is "Worth it!"
- Do prepare to give away a few more services.
- Prepare to ask for additional services or types of work you might not normally perform. The customer might see the logic in giving more work to you. (Find some good subcontractors to do the work if you don't intend to perform it yourself.)
Raising prices can be a useful tool for a contractor to use in the right situation. With some customers you may wind up back at a lower price in the end, but you are sending a clear message that you stand behind your firm's quality, customer service and reputation.