Stop Bidding, Estimating, And Quoting
Originally published: 08.01.07 by Tom Piscitelli
Take these steps to differentiate your company’s proposal.
“What do you think about these?” Mike said. “Here are the four other bids I was up against, and we lost because we were higher than two of them.” As I spread them out he said, “We’re always high, partly because we’re union and partly because my boss just doesn’t understand how competitive the replacement market is. Especially around here.”
Sure enough their “bid” was right in the middle. They were at $4,660 with the two lower at $3,940 and $4,440; and the two higher at $4,970 and $5,710. Mike went on to tell me the customer picked the second from the bottom “because of price.” When I asked why the customer didn’t pick the lowest one, he said he didn’t know.
If you sell, then you’ll say this is nothing new. You may agree with Mike, that his boss doesn’t understand what the market is really like, and customers won’t pay much over the lower price, if any at all.
The most successful, including the most profitable, hvac contractors don’t create success by being the lowest-priced job. How could they? Equipment, material, labor, and overhead costs are similar from one company to the next. The industry average net profitability ranges from the barely-making-it contractors at 2-3% to the best-in-class at over 20%. That huge difference doesn’t come from beating the supplier up for lower prices or paying low wages. It comes from being among the highest prices that the customer sees, not the lowest, and being able to show the customer why the extra money is worth the investment.
Let’s look at this again, in more detail, and see what can be done with “the bids” to improve Mike’s close rate, average job selling price, profit margin, and income.
First we need to reframe the idea of “bidding.” Think of reframing as putting a new frame around a window. Do that, and the window looks different, and looking through it gives you a different perspective. Why reframe around bidding? Consider the word “bid” from the consumer’s perspective. Say “bid” to most people, and they immediately think of an auction. At auctions, people give out lots of prices called bids. It’s plural. It is not in your interest to have people hear a word that essentially directs them to gather other prices. The same goes for “estimates” and “quotes” — all non-value added words. None of them help you. And please, don’t make it worse by calling anything you do “free.”
What should you call it then? For our purposes let’s call it a proposal. Reframe . . . and imagine you are on the phone, setting the appointment, and saying this to a customer, “Sure, I’ll be happy to meet with you, and anyone else you’d like to invite who may also have questions. We’ll survey your home and I’ll ask you some questions about what is important to you. Then I’ll be prepared to create a proposal for you to consider. Will Tuesday at 3 p.m. or Wednesday at 5 p.m. be better?”
O.K., now you see yourself differently, not as a free bidder-estimator-quoter but someone who will consult with a potential customer and provide a proposal. Much better. And the customer has a different idea about you, too.
I’m going to skip over the very-important next steps in the sales process— building rapport, establishing trust, and discovering customer needs. We’ll save that for future articles. For now let’s say the customer likes you and has willingly told you what they want in a new hvac system.
Let’s look at how the proposal-creation process and the form itself can help you make the sale. These are the critical steps in creating a proposal that will give the customer what they want, differentiate you from the bidder-estimator-quoters, and help you sell more jobs for more money.
• Be prepared to create the proposal at the kitchen table, with the customers present if they choose to be. It’s a family place, where family decisions are made. It’s informal, and you can sit fairly close to each other. By the way, accept an offer for a drink or snack — not doing so may seem a bit impolite.
• Use a pre-printed, color, company-logoed proposal form or a computer to generate a typed or mostly-typed proposal.
• Create a form that will look different than others. Think of this as a “sales tool” — not an installation checklist or legal contract. Those can be separate documents.
• Every other contractor will list their favorite equipment and all the components with brand, model, serial number, capacity, dimensions, and price. This, my friends, begs the customer to go shopping. This is what a bid looks like. Don’t do it.
• Few bids include any reference to enhancements. At best two or three “options” will be listed, and priced. Don’t do this either.
• Instead, pick three “system choices,” a best-better-good approach, to present and show them as complete packages with a total system price/investment amount. These system choices can be preprinted if you like, as long as you explain that they are examples, and you will happily create any customized solution the customer could want. Or you can use a computer to create highly-customized best-better-good choices.
• It is very important to include your company story on your proposal form. This is easily done with a checklist of all your good stuff that appears just under the system choices. Why bother? If you want to create value around your company, you’d better have some mention of it on your proposal. Saying it isn’t the same as showing it. Show it.
• When it comes to the bottom line, most contractors write out the total amount with a nice big dollar sign in front of it. When was the last time you saw a car ad that mentioned the total price? How many cars would be sold for $45,699? Not many. How many cars are sold for $299 a month? Millions. Let’s learn a lesson from the retailers around us and show the monthly investment first and then the total investment. While you are at it, include Visa/MasterCard and 12-months-same-as-cash.
• What about the legal stuff? Put it in faded print on the flip side of the form.
• What about the materials list and installer’s information? Use a different form.
Now let’s get back to the customers’ five bids, with all of them looking the same. They all have brand, model number, capacity, dimensions, and price. They all appear, to the consumer, pretty equal in content, except for…what? The price! With no other information (that they can remember anyway), they make a choice. Why did Mike’s customer pick the second from the bottom and not the lowest of the five? For the same reason you and I have made that same decision when buying something we didn’t know much about. Unless we can understand the reasons for spending more, most will spend just what they must to get what they need. In other words, unless there is some understood added value, something that turns the “need” into a “want,” then most will choose a lower price.
There is an experience-based psychological factor at work here, too. What have you learned about buying the cheapest product or service? All too often the lesson we’ve learned is that the cheapest doesn’t meet our expectations, and we have problems. So, without any information other than price, it is logical that Mike’s potential customer didn’t go with the lowest of five, but went with the next lowest. The customer assumed that it was a fair and reasonable price, and they’d be reducing the risk of getting something they’d have trouble with. Make sense?
Let’s wrap this all together with these five steps in preparing the proposal:
1. Be conscious of the importance of creating some difference between you and all other contractors at every opportunity you can.
2. Your initial job is to find out what’s important to the customer on the sales call. Only then can you create a proposal that gives them what they want.
3. Create a professional-looking proposal form with choices that will be different from any other contractor’s in appearance and content. Leave out the technical information; it confuses most people.
4. Include finance choices for each system.
5. Include a list of company value-added items on the proposal form.
Will these things double your close rate? Not likely. Will they contribute to increasing your close rate, at higher prices, at better margins, with increased customer satisfaction, producing more referrals, and increasing your income? Bet on it.
If you’d like me to look at your proposal form and provide some feedback, scan and e-mail it (email@example.com) or fax it to me at 1-425-642-8172 and I’ll be happy to do that. Good selling!
Articles by Tom Piscitelli
Stop Bidding, Estimating, And Quoting
The most successful and most profitable hvac contractors don’t create success by being the lowest-priced job. They are among the highest; but they can show the customer why the extra money is worth the investment.
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