Whatever their specific trades, many trade contracting businesses are stuck on the ‘low-bid treadmill’. They make their living fighting for contracts where only the lowest bidder wins. The result for the winner is a skinny profit margin – if it exists at all – that keeps their firm in a chronic state of financial crisis; one where expansion, decent wages, and a nice income seem like impossible dreams.
Fortunately, it is possible to revive your trade contracting business’ prospects and get it off the low-bid treadmill. With the right moves, you can advance onto higher margin projects that will pay you better while relieving your firm’s financial stress.
Here’s how firms get on the low-bid treadmill, and how they can get off.
The Low-Bid Treadmill Trap: How It Gets Sprung
As an experienced contractor business coach, George Hedley spends his time advising contractors on ways to make their businesses more profitable.
Hedley is the person who coined the phrase ‘low-bid treadmill’. It is a term he applies to contractors who live and die by low-bid contracts—and Hedley says they only have themselves to blame for being snared in this trap.
“A company ends up on the low-bid treadmill when they hope and wait for potential customers or general contractors to phone them and say, ‘bid my work’,” George Hedley explained. “These companies don’t do anything pro-active to find new jobs or customers themselves. They spend zero time and money on marketing their companies to potential new clients, and they don’t improve themselves to access better job opportunities and higher-paying markets: They go for whatever gets offered to them.”
By becoming reliant on low-bid jobs, such contractors turn themselves into easily-replaceable commodities. From a general contractor standpoint, the main thing that differentiates one low-bid qualified subcontractor from another is how low they’ll go on the price. Almost everything else is interchangeable.
To say the least, it can be demoralizing to be a low-bid contractor. There never seems to be enough money, and the pressure is always on to find the next paying job. Wages have to kept down to stay within low-bid contracts, depressing the tradespeople who stay with the firm, and motivating the better ones to move to higher-paying jobs whenever they can.
In such a situation, it is not surprising for any contractor to go downhill. To revive their business, they have to take steps to leave the treadmill. Hoping someone will call with a higher-margin contract just won’t happen.
Getting Off The Treadmill
The first step to getting off the low-bid treadmill is accepting that a change must be made. Specifically, “your business cannot be all about low price,” said Ronald Coleman; a contracting business consultant/solutions provider (www.ronaldcoleman.ca). “Instead, to command higher prices from general contractors, you need to stand out in one or more of four areas to make it worth their while.”
According to Coleman, these four areas are completing jobs on time, staying within the job’s budget, doing all work to the contractor’s standards (not higher/not lower), and maintaining the customer’s goodwill to get future work.
“You likely won’t hit all four of these outcomes but as you get better at it and get a reputation for meeting or getting close to these four outcomes you will raise the bar and get on more ‘invitation only’ bids.” he said. “Doing that and improving your firm’s certifications and skills to compete for highly demanding and more exclusive jobs will certainly take you to the next level and will also likely give you a better chance at doing design-build work and that’s where the money is.”
In addition to these points, it is important for trade contractors to become specialists in well-paying, highly-skilled areas of construction. At least, this is important to contractors who wish to win higher-margin contracts and better pay.
“There are lots of trade contractors who build schools, but not many who build hospitals because hospital projects have higher, more demanding standards and specifications,” said Hedley. “This is why general contractors who build hospitals seek out the small group of trade contractors who have the necessary skills and expertise to do the work, rather than looking for the lowest bidder.” Such specialized trade contractors get to charge more—raising their margins and leaving the low-bid treadmill.
Even for trade contractors who don’t specialize, there is yet another way to get off the treadmill, and that is by investing in marketing and personal relationships with their clients.
“When you spend money on quality marketing materials, and take the time to take your general contractor clients to lunch and hockey games, it pays off: People think of you first at contract time,” Hedley said. “In the same vein, looking for work when times are slow can lead your firm to better jobs with higher margins, rather than waiting for the phone to ring with low-bid requests.”
If there is a moral to this tale, it is that contractors have the choice of staying on the low-bid treadmill, or doing the work necessary to get off it; making more money and reviving their businesses in the process. The work involves:
• improving the overall quality of your firm;
• figuring out what makes it unique and selling that difference;
• upgrading skills and capabilities to go after more exclusive, higher-paying jobs; and
• getting serious about marketing your services to potential customers, including building and maintaining personal relationships with them.
“You can get off the low-bid treadmill,” concluded George Hedley. “Or not: It’s all up to you.”
