Why is The Price is Right so Important?
We all know today’s market is extremely competitive. And, it certainly feels like PRICE is becoming a bigger factor in the customer’s decision-making process. When deciding on your price, there are many considerations to arrive at the Right Price. We will review these in our Price is Right workbook.
Here are the 2 Essential and Fundamental reasons you need to arrive at the Right Price:
1: To Make Money: Making a fair and reasonable profit
2: Being Competitive: Getting more work/sales when competing with similarly qualified competitors
When the Price is Right you will be able to achieve a sufficient gross margin to “cover the nut” or pay for your overhead expenses and then have enough left over to make a Fair Net Profit.
When the Price is Right you also will be within 10 to 15 percent of your best competitors’ pricing.
The Takeaway from this Lesson:
- Learn the Basics of Competitor Recon
Overview of Competitor Recon
The competition will always be looming out there – always. And that is just the way business operates. DO NOT get freaked out over what seems like an overabundance of LOW BALLERS in your market. Don’t get wrapped up with trying to always be the LOW price. Being the lowest price isn’t necessarily the Right Price. With that said, we still need to be competitive with the right competition. As a goal, we suggest targeting and positioning yourselves within 10 to 15 percent of the right competition. Know your good competition. Know them really well. Learn as much as you can about their pricing.
Here are some basics on developing Competitor Recon:
Know Thy Competition – the Right Competition: Determine who you are running within your market. Run with the best. Identify the Top 5 to 10 best companies that you compete with on a regular basis.
Learn their Pricing: Gather Recon: Here are 3 ways to learn your competitor’s prices in your market.
1. Review Public Work Bids Submitted: Review public work bids submitted by your competition. These are public record and you can gather this info when requested by the public agency. Check out what their pricing has been per sq. ft. if possible and look at their unit pricing submitted which will show what they charge per hour or by the unit of material installed.
2. Ask Friendly Customers: If your relationship is strong enough the customer will share this info with you. They may even use this info to negotiate on your pricing then your response may be “show me.” This can be a great source and believe me this is being used against you as well.
3. Perform Lost Job Debriefs: Sometimes when you lose a current existing job or you are not awarded a job the customer feels a bit more at ease with letting you know where you came in with your price. This requires some crafty questions and a sense of humility. The customers are usually more likely to share with you what position you came in, as in second or third. Often they will also tell you what percentage you were off of the awarded price, as in you were 30 percent high. Next, find out who was awarded the job and keep track of this information in your competitor file.
Summary: Being Competitive Do Competitor Recon
Getting the Right Price includes keeping track of your good and constant competition. You should always keep track of your better competitors and how they price their work. Build a recon file for your top five to 10 competitors and keep it up to date as you gather more recon. You will be glad you did! This will certainly play a key role setting the Right Price – and being competitive while you are at it. Remember, you don’t have to have the LOW price but you do need to have the Right Price.
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