The Garrison Report #2003-10

Three Marketing Tips for the Savvy Contractor

This month’s format of The Garrison Report is a little different. Instead of developing a single concept for the report, I have decided to offer a few shorter points. Hope you enjoy.

 

Don’t cheapen your services in a slow economy.

As I travel all over the country, I hear the constant complaint that business is tough today due to the economic slowdown. But sadly too many contractors attempt to compete in that environment by cutting back. For example, they cut back on overhead, such as job supervision. Or they go after subcontractors who are lower cost even though this might sacrifice quality.

This might appear to be the only choice because bid prices are dropping. But this is like shooting yourself in the foot! You will lose a step and wonder why you can’t compete after the slowdown is over. After 9/11, the airlines tried the same thing. They cut back on services to save money, and people decided to drive instead of fly because of the hassle. Of course, if you are going a long distance, you might still fly, but the distance that most people are willing to drive has increased. It’s no different in construction. If you make the experience unpleasant, customers might put off building until they are forced to build, which won’t happen until after the slowdown is over, and that just makes the slowdown worse.

Instead, increase services. Find ways to add value for the client. For example, increase your warranty from one year to five years. Learn what extra services you can provide the prospect that no one else is providing. Keep in mind, the prospect may have cut back its staff, so they can’t do things they used to be able to do in-house. In other words, get creative. Stop complaining about the economy!

Also, when you cut back people, you shoot yourself in the other foot. Once the economy picks up, you will not have the people to man the projects. Statistics indicate that companies that lay off people during a recession trail those companies that didn’t in the recovery. You will lose market share. Besides, the real savings from force reduction is never as great as people think.

Last month The Garrison Report talked about differentiation. One of the best times to differentiate your company is when everyone else is cutting back. It is actually a great opportunity to increase market share and profitability. Don’t blow it!

 

Know what kind of prospect you are chasing.

There are basically four types of prospects: Knowledgeable-OK, Unknowledgeable-OK, Knowledgeable–Not OK and Unknowledgeable–Not OK. Knowledgeable prospects understand the construction process. They know how to negotiate, and they understand what they are buying from you. The Unknowledgeable buyer doesn’t understand the construction process and, therefore, needs to be coached—a great opportunity for the consultative selling process.

The OK and Not OK are more important. The OK customers pay their bills, value your services, have good managers, understand value and are growing. The Not-OK customers are difficult to deal with. They are often rude, can’t make decisions, argue over every cost and change order and tend to never be satisfied.

So whom do you want to deal with? Forget the Unknowledgeable–Not-OK prospect because the cost is too great to deal with this customer, and besides, they will never be loyal. And you probably will end up in litigation. Send these prospects directly to your competition. While they are going crazy with these prospects, you can seek out the better customers.

The Knowledgeable–Not-OK customer is not much better. They are a little easier to deal with because they understand the process, but they hammer you to get the lowest possible price. And their service demands will be extensive. The process will be arduous, resulting in employee burnout and low profit margins for the firm. But this client will probably never be loyal—except to low price—so why invest in this type of client?

But there is hope!

The Knowledgeable-OK customers begin to show signs of opportunity. While they usually demand very competitive prices (notice I didn’t say lowest) they are relatively easy to deal with if you accept the fact that margins will be lower. However, they do offer volume. A prospect that falls into this category might be a developer. If you build a really strong relationship, you will get most of their work. Thus, the cost of acquiring work goes down, so some reduction in fees might be justified. The line here is tough but fair. If the pendulum swings too far to low price, you might want to reconsider. The real opportunity here is to find ways to add value, something this client respects.

Last but certainly not least is the Unknowledgeable-OK client. This customer relies on the contractor for advice and other support and is willing to pay for it. This situation provides the greatest opportunity for the true consultative selling process. To take advantage of this outstanding opportunity, you must really understand their business. IBM was able to sell computers to the banks at very high markups because it understood the banking business better than banks and, more important, knew how to solve the bank’s problems. If you do this with your clients, your fee will not the primary consideration. This type of prospect offers the greatest opportunity because it offers you the opportunity to deliver the greatest value! But to thrive in this area, you really need to wow your customer by exceeding expectations.

 

Develop a net return on every client.

You must know what it really costs to service a client. You might have projects that look great when you examine the project cost statement. However, that project might have consumed a disproportionate amount of corporate time and actually lost money. What’s worse than the executives spending all their time on the project? The lost opportunity costs because they are doing that. Charge corporate overhead whenever possible to a particular project. This includes CEO meetings with the customer. The only costs that should be corporate overhead are costs that can’t be applied to a particular project.

This process might reveal some lemons within a great a niche, maybe because that client is a Not-OK customer. If you track all your projects, you might learn that certain niches just aren’t very profitable. It’s critical to focus on your most profitable niches; this is at the heart of the 80-20 rule, in which 20 percent of your clients generate 80 percent of your profits. Focus on those kinds of customers.

 

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