I don’t often talk about how to get your price down. I’m more of a ‘how to get more money out of your target customer’ kind of coach. However, some of my followers are cost leaders and sometimes they need to leverage that advantage.
Too often we conflate our cost with price. There is a correlation: If your costs are higher so must your price be. But never forget that…
The marketplace sets the price for most of us.
In other words, all things being equal, your price will roughly match your competitor’s. However, things are rarely equal.
Having a cost advantage means you are so good at managing resources, timelines, and supply chain that your overall costs of doing business are less than your competitor. It could also mean that you have inherently low costs because of geography (lower wages or rent), relationships (long-term contracts with suppliers), or availability of raw materials.
That does not mean that you should sell your services for less money – but if you needed to, you could. Instead, your cost advantage should make you more profitable – if you don’t give that advantage away.
Your low-cost basis is a strategic advantage. If you use it indiscriminately, it is no longer strategic or advantageous.
When to Leverage
We typically know when we are in a competitive bidding situation. Sometimes we suspect or know that price will be a deciding factor. This alone is not enough reason to ratchet down your margins.
I find there are four valid conditions required to submit a “best price”:
- You have excess capacity that will incur costs for not using; Plus you can calculate the cost for incremental usage
- You can present a competitive price without a long-term commitment or expectation to provide that price again
- You set conditions for immediate acceptance of the offer with correspondingly stringent terms and conditions
- The customer is also reputable and honest and isn’t setting you up for a bait and switch deal that holds you to standards associated with higher margins
How to Present
The key to presenting a super-deal (I struggle to not call this a low-ball bid because that has an insincere tone, but we are low-balling here) is make the quote as credible as possible. Generously detail the scope of work and avoid any implied promises.
I know I have taught you to bundle, use the phrase “up to”, and sell incredible outcomes – but today the goal is the best price. This is a different type of sale.
Services that you normally bundle must now be unbundled. Any “Value-add” services need to be itemized. For instance, a detailed set of room drawings that support all the trades and vendors might be limited to a “basic ground plan, one rigging layer, and one revision.”
As your scope of work tightens, the level of detail grows. Every decision has a cost and therefore a price associated with it. Line items are used to purposely limit your scope.
How to Close
Build a set of “If” conditions.
“If you can sign this agreement by COB Friday,”
“If you can submit payment by this date,”
“If you accept [these conditions], then we respectfully submit this limited scope solution at a non-negotiable price.”
This may not be your preferred way to do business, but if your goal is to leverage idle resources and capture added gross profit – this is how yo do it.
How to Manage
Clearly, a cost-based, price-busting quote has built-in limitations. The customer that is used to hearing “yes” to every request might now hear “Yes, but there is an additional charge for that.”
Both Sales and Project Management must actively monitor the project for change orders and scope creep. Before enforcing a change order, try to help the client avoid the additional cost. Suggest alternatives so that if they are rejected, you have documentation to back up the added charges.
Always get a signature.
Customers and sales folks cringe at this necessity, but that is the price for playing in the low price world.
Finally, low-price doesn’t have to mean low margin. You can still earn a good profit on the project, but you will need to put extra effort into monitoring charges on the sales side. Technically this cost of sales is already baked into your costs, so there is no incremental expense for the extra diligence.
Don’t trot out your cost advantage unless you need to. And if you do, establish the rules that will protect your one-time price offer from scope creep and margin shrink.