lowballers...

Discussion in 'Business Operations' started by Up North, Sep 22, 2004.

  1. Up North

    Up North LawnSite Bronze Member
    from MN
    Posts: 1,063

    I've seen a few posts/threads talking about lowballers recently. In most cases doesn't the "lowballer" have to know what the customer is paying for their current LCO? Is that a standard practice in this field? And as an LCO, do you walk into a prospects business or home and ask them what they are currently paying for services?

    When starting out my business I knew of a couple guys/friends that had LCO's servicing their commercial properties and I asked them what they paid for mowing service so I could get an idea of where to start. But since then have never asked anyone else that question as I felt it really wasn't any of my business. My feeling was I needed to give the customer an estimate based on these things: make money for my company, priced within the market, affordable.

    So do you guys ask prospects/customers how much they currently pay, or what they have paid in the past?

    Buck
     
  2. lawnman_scott

    lawnman_scott LawnSite Fanatic
    Posts: 7,547

    I have never asked. Lowballers, like scrubs is a term overused by those who cannot run a business and someone else has to be the cause.
     
  3. HOOLIE

    HOOLIE LawnSite Gold Member
    Posts: 3,981

    I don't ask potential clients what they've been paying, but more than a few have come out and told me. Anyhow, I would define a lowballer as someone who intentionally works at a below market price, strictly as a means of getting the business. A scrub to me is basically an LCO who is somewhat clueless about how to run a business. He may lowball, but out of ignorance of the market rates, not to steal business.
     
  4. Up North

    Up North LawnSite Bronze Member
    from MN
    Posts: 1,063

    I probably shouldn't have titled this thread "lowballers" my main issue was finding out if it was common practice to ask a prospect/customer what they are/were paying for service. Personally I don't like doing it and haven't other then right at my starting point of the business.

    I agree that "lowballer" and "scrub" are pretty much one & the same. I guess I was thinking about the situation in which an LCO asks what a prospect is paying currently, then gives them a cost below that JUST to get the business.

    Anyway, it looks as if my thinking is pretty much in line with you two guys on not asking how much they pay for current LCO services.

    Thanks guys,
    Buck
     
  5. Soupy

    Soupy LawnSite Gold Member
    Posts: 3,125

    Ther is no reason to ask what they pay. You should just go in and bid it at your rate. If the customer says they were paying X amount of dollars and they are looking for someone to beat that price. Tell them that you know what you have to get to stay in business and you have allreay given them a reasonable price. Also, tell them that there are a lot of guys out cutting cheap because they have no clue, and they will never be able to offer the quality and reliable service that you offer.

    Most potential customers are looking for a new LCO because the old one quit or didn't do a good job. Their prices (if lower then yours) was probably why the customer got the service they got. If the customer wants to be cheap then they can go on getting crappy service.
     
  6. jerryrwm

    jerryrwm LawnSite Bronze Member
    Posts: 1,274

    Several thoughts on this subject.

    If you don't ask what the current pricing in your area is, are you sure you are pricing right? If you are bidding on the jobs armed with all the information that you have accumulated that tells you what your costs are, what your production rates are, what your BEP is, what your desired mark-up is to hit your net profit goal, and you bid accordingly. You are basing your bids on the factors that affect your particular company and you are making money. But are you in the right ball park when it comes to pricing? Let's say you determine that a particular type residential property in a targeted neighborhood should have a monthly charge of $160.00. You're happy with the net. But if you had asked several of the owners in the neighborhood, you might have found out that the going rate is actually $180.00. That's $20.00 a month you just left on the table, that would have gone directly to the bottom line of the P&L sheet. Just asking the right questions can be profitable.

    On the other side of the coin, it can be a great help to know what the competition was charging for the project. Then armed with that information and your factors for profitable pricing used in your business, you can then look at the project and see if bidding lower by as little as 0.5% can still be a profitable venture. You will be able to see what your costs are and what profit you are willing to give up to do the job. If you know what the opposing bid is, then estimating becomes a simple task.

    Knowing what the market will bear and what the competition is charging are valuable pieces of information in any business. Why do you think one grocery chain hires ghost shoppers to make purchases at the competition's stores?

    Now, bidding a job lower just to get the business without taking all the cost factors into consideration is a sure sign of stupidity and a sure bet for eventual failure. Case in point: irrigation contractor in the area has been advertising in flyers "will beat any price by $400.00" and he does it. Well, one of the other contractors had enough and said he would "break him of suckin' eggs". He bid an installation job at $100.00 over BEP. That was going to be his net on the job. Old nimrod came in and beat the price, right on cue. Then he was pissin' and moanin' at the supply house about how low this job was. He even went back and asked the homeowner for more money! Well, he didn't learn, and is still suckin' eggs, but he is slowin' down on the flyer distribution.

    All I'm really trying to say is that being armed with all the information that you can get makes you better able to determine the profitability of the job when you bid it, and allows you to make as much profit as the market will allow.

    I never wanted to be the lowest priced business in town. I want to be right at or just under the highest priced successful business in town.

    Someone had a signature line that says, "I will not let my prices be set by the guy who is no longer in business." Amen, but I still want to know what his prices were.

    Jerry
     
  7. Soupy

    Soupy LawnSite Gold Member
    Posts: 3,125

    How do you know they are not fudging the numbers a little when you ask how much they paid the last guy. Shoot, I don't ask anything about the last guy, as for as know, none of my customers had previous LCO's.

    Sure it's good to ask around from neighbors, friends and family that have lawn service. But to trust a potential customer is nuts. Fudging the number by $5 is a big profit loss.

    Figure out what you think you need and keep raising your pricing structure until you hit a wall. Remember, you don't have to get every estimate you put in. It's good to lose 25% of them.
     
  8. jerryrwm

    jerryrwm LawnSite Bronze Member
    Posts: 1,274

    Soupy,

    I agree. A customer may fudge, and two may fudge, but several aren't going to be right on the same $5.00

    As I said before, if you know what your costs are and you know what it takes to make money on a given job, then you are better able to bid it properly. Then you have the power of the pen.

    Let's say you have looked at a property and after careful analysis and checking your numbers, it is determined that you can profitably service that property for $40.00 a trip. But in the course of conversation you are talking to the owner who was paying $50.00 a trip but fudges and tells you it was $45.00 a trip. What are you going to bid that property at? I sure hope you don't bid it at $40.00!! You might bid it at $50.00 and get it with a little haggling. But the prudent thing would be to bid it at $45.00. Now you have made $5.00 more profit than you had originally calculated. Makes me happy when I make more money!!

    Now if you know that you have to have that same $40.00 per trip, and the customer was paying $40.00 but fudges on $5.00 and tells you it was $35.00 a trip. What do you do? You can bid it at the price that you have to have which is $40.00. Or you can turn on your heel and walk away, shaking the dust from your feet as you leave the property. Tell them that for $35.00 they should have kept the other guy.

    I will try and ask the right questions every time when it comes to business. I have even learned to read upside down, and through the back of paper. Never know when the other contract might be laying on the desk. Don't pick it up, but if the number happens to jump into your eye, then use it. Yeah, if I see your proposal laying on a desk and I'm there to bid on that job also, you can bet your a$$ I'm going try to see what that number is before I bid. Because if your bid is higher than mine, i don't want to leave any money on the table. So all i have to do is be $5.00 under you and I get the job and at a higher profit than I had hoped for. Good for me again - I like making more money.

    Jerry
     
  9. jerryrwm

    jerryrwm LawnSite Bronze Member
    Posts: 1,274

    Why is it good to lose 25% of the estimates? If you are expecting to lose that many, why in the hell are you bidding in the first place? I expect to get every bid I put out. I have never bid with the hope that someone else gets the job.

    Have you ever stopped to figure out what it costs you to bid a project? If it is a commercial property, let's say a strip center. it takes you 15 minutes to drive there, it takes 15 minutes to talk to the manager/owner. Then it takes another 30 minutes to walk the property to gather needed information. Another 15 minutes to drive back to the office. Now you have another hour or more to come up with the bid price, and write the proposal. Another 15 minutes there and another 15 back. So at this point we are over 2 hrs into the process. Depending on what your costs are, you probably have nearly $100.00 invested in that bid, and you don't even have it signed up yet!!! To paraphrase you... "to bid anything with the expectation that you are going to lose 25% of the bids before you even put them in is just nuts"

    Now, I also understand that I am not going to get every bid that I put in. That's just a fact of business, and usually something that I can't control. And I understand that if I do start getting every bid I put out, then I better check something in my bidding before I really start losing money.

    Jerry
     
  10. Soupy

    Soupy LawnSite Gold Member
    Posts: 3,125

    You answered your question in your last paragraph. Plus I only do residential, I used to have comercial accounts, but have found loyalty and more money in residential. At least in my kneck of the woods.
     

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