Most contractors devote a lot of energy to trying to convince potential customers to buy their construction services. They should instead be focusing on selling a process that produces an experience that the potential customer wants.
We understand that usual priorities and ways of working have been upended by recent events. But we also know that when we return to more normal circumstances time will once again become a valuable asset for every construction business owner.
If you price a project to complete in 12 months and it takes you 14 months to complete, then you will be losing money. You’ll lose money because you didn’t price the value of your time correctly—or you didn’t execute the project in the time allotted.
Time matters. Selling matters. Working for the right customer matters. You need a system that focuses your time on selling your work for the right price to the right customers.
When you develop a system for selling your value, then you don’t have to compete on your price.
Here are three things every builder can do to increase profit and efficiency in 2020. I call it the Three P’s of Efficient Profits.
Let me break these down.
Prioritize your time
Most people approach each week with a list of things to do, and then they attempt to prioritize the tasks on their schedules.
The problem with this approach of time management is that a random list of to-dos does not manage time well. A to-do list might not show the priority of each task or the time needed to complete the task. Our brains are wired to conserve energy, so without the context of priority and duration, we focus on the quick, easy tasks first. We like quick, easy tasks because we are dopamine addicts. We like the quick hit of satisfaction we get when we check off the boxes on our to-do lists.
But quick, easy tasks never lead to long-term growth of a business, and reacting to these urgent tasks keeps business owners stuck doing the same thing year after year. Completing important, nonurgent tasks leads to profitable growth for your construction business.
Instead of trying to prioritize your schedule, you should schedule your priorities. The former means you are reacting to the day-to-day tasks—keeping you trapped in an inefficient, profitless cycle. The latter means you block out the important things on your calendar first and focus on the things that grow your construction business.
That is why you must define, prioritize, and schedule your most important tasks each week. What’s important gets scheduled, and what’s scheduled gets done.
The most important task for most construction business owners is sales. Without sales you have no business. But many construction business owners rely on word-of-mouth marketing to direct their sales efforts. Word-of-mouth marketing sucks if you don’t control the words people use to describe your business. And the best way to control those words is to develop a system for the second P on our list: pitch.
Pitch the value formula
Warren Buffett said, “Price is what you pay. Value is what you get.”
Competing on price is a race to the bottom because there will always be someone cheaper than you. In fact, if you are like most construction business owners, you are probably charging more for your work now than you did three years ago.
Why are you charging more now? Sure, material and labor prices have gone up. Sure, you’ve obtained some specialized training or found ways to increase your quality. If you’re like most construction business owners, then you realize the pricing mistakes you made in years past. You charge more now because you know how much things cost. When you attempt to compete on price, you may be competing against you—three years ago.
When you develop a system to pitch your potential customers on the value they get instead of price they pay, then you will have the confidence to walk away from the wrong customers and the wrong projects.
Here’s how the value formula works:
Value = Outcome/Sacrifice
The value of something is a ratio of the results the customer receives vs. what the customer has to give up to get there. Every time we pitch our services to a potential customer, we are asking the customer to give up, or sacrifice, something. “Give me some money (sacrifice), and I’ll give you this result (outcomes).” The fewer sacrifices our customers have to make, and the more outcomes we deliver, then the higher the value of the project.
Here are some examples of the sacrifices your potential customers face and the corresponding outcomes you can pitch to them:
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The sacrifices are the problems your customers may face and the combined outcomes are the value you provide. Focus your pitch on asking your customers about their problems, their fears, and their pain points. Every time they state one of these sacrifices, describe the outcome your company provides and how your process benefits them.
Pitching your potential customers in this way will shift the conversation away from the price and toward the value only you can provide. Pitching your potential customers in this way, with a focus on value, is the beginning of the third and final P: prequalify.
Prequalify the suspect
I once heard a contractor say, “I think of every potential customer as a suspect before they become a prospect.” That statement resonated with me because it describes the prequalification process to a tee.
The first step in the prequalification process is to determine if the project is the right fit: “Is this the type of work we do?” Next you must determine if the potential customer is the right fit for your company and your process: “Is this potential customer someone we want to work with, and does this customer buy into our process?” Finally, you must determine if the potential customer is willing or able to pay for the project described.
Your prequalification process must also include a discussion about the budget. There’s no point in starting to design or plan a project for a potential customer if that customer is not able or willing to pay for the value you provide. “Is the customer willing and able to pay for the project described?”
If the answer is no to any of these questions, then you should walk away. The process of pitching and prequalifying is the only way you can move someone from suspect to prospect to customer.