Surviving the Bidding Wars

A price squeeze hurts the competitor selling the low price more than the firm selling high quality at a reasonable price....

Building owners and managers continually look for ways to cut costs. If savings can be derived by putting the building services out for bid to receive competitive prices and possibly reduce building service costs, that is what some of them will do.

This puts the building service contractor holding the current contract in a vulnerable and precarious position. He is really the only one who knows how much time, labor and materials are required to do the job right, but may hesitate to come in with a lower bid than he is now charging out of regard for the integrity of his first price.

If the amount and quality of service offered in his new bid are equal to that of his current bid, how can he tell his customer that he overpriced his service the first time? The fact is that his price may not be overpriced at all. Not knowing the bid prices of the other companies competing for his customer’s account also puts the current contractor in an uneasy situation. However, therein lies the beauty of capitalism.

In some metropolitan areas, new building service contractors are taking away large accounts from the older, established contractors by offering these customers a much-reduced monthly service fee.

During a recession period, price is the single most important factor to many customers. A lower price along with a promise of a good job will frequently land a medium to large account, and surely will land a sizeable number of smaller accounts.

A negative effect is that the stability of your large accounts cannot be depended upon when other contractors are there to take them away by holding the irresistible low-price carrot in front of price-conscious customers, who themselves are racked with reduced company profits brought on by inflation and stiff competition in their industries.

To combat the fear of this happening to you, the best policy seems to be to provide a quality service at a reasonable price and maintain close communication with your customers, letting them know from time to time that you are also concerned with keeping their company costs down and that you are there as a consultant to assist them in whatever way you can. For example, you may show your sincere interest by suggesting a reduction in the frequency of window cleaning, telephone sanitizing, carpet cleaning, or some other area of service, if these services can be reduced, while maintaining the overall appearance of the building at a high level.

The alert contractor will work hard to hold onto current customers with quality service, helpful suggestions in ways that will reduce unnecessary expense for customers, complete adherence to their safety programs/procedures, and with good customer relations.

Building service contractors are reporting intensified “price-cutting” by some of their competitors, particularly newer ones entering the industry; although a few of the established firms have been observed to “low ball” a price now and then.

In some cases, prices are returning to the level of the 1970s. It appears the way these contractors earn a profit is to pay wages at the federal minimum wage, or less. Supplies, equipment, and fixed costs are still rising due to inflation. For that reason, it is difficult to reduce costs in these areas, so the only way a contractor can earn a profit by charging 1970s prices is to “skim” on the work, that is, to cut corners, which is cheating the customer. When a company resorts to skimming, its days are numbered.

A salesperson walks into a prospective customer’s office and offers to provide building services at a substantially reduced monthly service fee than what the buyer is currently paying. The salesperson says little or nothing about guaranteed quality service, and little or nothing about total supervision or training of employees and regular follow-up to ensure customer satisfaction. What the salesperson talks about and focuses upon is price, low price.

The salesperson thinks he or she needs the signed contract so much that he or she is willing to sacrifice a few dollars of the commission just to “get the business,” just to beat the competition. This sales approach often ends up with both the client and the service firm coming out on the short end; they both “get the business,” so to speak. They both come off the losers.

The managers of the service firm soon realize they cannot continue to provide the agreed upon service without earning an adequate profit. The work deteriorates as allotted work time is reduced to the point where vital cleaning and maintenance functions are all but eliminated.

The customer sees dust, grime, and dirt accumulating in his work environment. He says to himself: “They are all alike; custodial services are all alike. A salesperson comes in here and promises me he can provide a service for less money than I’m now paying, and look what I get!”

The fact is that building service contractors are not all alike in this respect. It is true; some may cheapen the monthly service fee to beat competition. However, successful firms have the courage to refuse to cut prices to beat their competition. They hold to their high standards and their prices, which usually range from average to high for the industry in their area.

Consistently high quality service and prioritized customer satisfaction are the criteria for successful selling. Firms that set a policy of providing only quality service and 100% customer satisfaction, even though their prices may be higher than their competitors’, will have no problem obtaining business. The choice accounts will gravitate to the service firm that maintains these high standards for itself. Its reputation will precede it.

Neophytes in the business may be tempted to accept invitations to bid on agencies or firms that accept only low bid. It is not unusual to see as many as 10 to 20 building service contractors invited to bid on these contracts. But about the only good that comes from participating in this kind of bidding process is finding out what the other contractors charge for their services when the bidding results are published for those participating. For example, contractors provided with exactly the same bidding specifications may submit quotations ranging anywhere from $1,500 to $6,000 for the same building. A realistic monthly fee would be somewhere in between, probably in the top 25% of the bid prices. The high and low bids are sometimes thrown out, as often neither reflects a reasonable amount of calculation and expertise, particularly if they are considerably higher or lower than the rest of the bids. Yet, the firm with the lowest bid usually gets the contract, and this is more often than not, too low to make enough profit, if any, to allow adequate cleaning and maintenance. Just going into these buildings to measure and inspect in preparation for a bid often reveals an abhorrent lack of maintenance. So, it’s wise to avoid getting into this competitive low-bid trap, unless you happen to like the exercise of doing so. There is plenty of business elsewhere.

A price squeeze hurts the competitor selling the low price more than the firm selling high quality at a reasonable price.

If someone offers the same service for 20% less, there is joker in the pile somewhere. There is something fishy. The customer doesn’t get something for nothing. If he receives quality, dependability, reliability, honesty, and professionalism, he will have to pay for it. This is not saying that a contractor should not seek to achieve higher productivity levels in order to keep the price as low a possible, because he should. However, if the price is outside the realm of good reason and professional bidding practices, something just isn’t right.

Most buyers will pay a higher price to get both quality and service. A sales interview should concentrate on the benefits your customer receives from your service, your company’s record of good service, quality of service, and company reputation, rather than price.

Another important factor in selling quality is for the sales representative to exude an air of quality about himself. His appearance, dress, and even his briefcase should reflect the quality of the firm he represents. He should view himself as an extension of his company and present an appearance of confidence and prosperity, rather than a down-in-the heels supplicant.

Having an overall quality attitude will greatly assist the sales representative to obtain plenty of business in the huge building service contracting industry.

-June Smallwood

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