Credit: Mark Robert Halper Photography
The bidding wars are back. And it’s getting a little ridiculous. One story we heard while writing up this year’s Cost vs. Value Report told of a $15,000 bid that lost to a $3,000 bid.
That just doesn’t make sense, even on a labor-only job. I’d chalk it up to urban legend if I hadn’t experienced craziness like that myself back in the day. One thing’s for sure: the homeowner and the low-bidder are about to learn new meanings for the words “winner” and “loser.”
I’ve seen this kind of price-obsessed frenzy before. It usually occurs after a recession, and it stands to reason that the deeper the recession is, the more extreme the obsession is. But like all obsessions, when it goes too far, it becomes absurd.
Curiously, in my case, the absurdity was not in how far apart the bids were but how close together. It was a $120,000 job, and the bid by the “apparent winner” — to quote the architect who was running the bid opening — was $100 lower than mine. The other odd thing about the project was that prices for all of the trade contractors were specified in the bid documents, either through actual quotes or in allowances. Like a game of Texas Hold ’Em, the window cards were the same for everybody. As it turned out, our hole cards were pretty close, too; two straight flushes separated by a single card.
I was furious, of course, but the experience pushed me to take the first step toward getting out of the poker game of competitive bidding. And it helped a lot when I learned, months later, that the client had busted the “apparent winner’s” chops for several weeks trying to get the price lower, then abruptly cancelled the project. I took that architect off my list.
As Yogi Berra once said, “A nickel ain’t worth a dime anymore.” That’s another way of saying that you can’t compete on price. It’s tempting, but a price cut is a wound that keeps on hurting. When you cut below your cost, you ante into a game you can’t possibly win. Why not just stay home — it’s cheaper.
If you cut margin, you lose again because you have no wiggle room. And when’s the last time a job went exactly as planned? And you lose a third time because, even if you survive the job and get the referral, you’ve been labeled as “affordable” or “reasonable” or one of a dozen other euphemisms used by the kind of people who will never pay you what you’re worth.
Yogi also said, “If you don’t know where you’re going, you might not get there.” Times like these put remodeling business owners at a crossroads. Three or four years ago, it was easy to pick and choose your projects and your customers. These days, it’s a lot harder, but no less critical.
All roads run in two directions. Which way are you headed?