Thoughts on Pricing

A lady had a big problem and got a big plumbing company to give her a bid on fixing it. They told her $6,200. She called me and I went by and took a look. It looked more like $4,500 to me, and she was greatly relieved. She wanted me to do the work, but felt that she had to honor her invitations to two other contractors who were yet to come by. I encouraged her to do just that, confident that the others couldn’t beat my price. I thought that I had the job in the bag, but she called this week and said that company XYZ had made her an offer so low she couldn’t pass it up, so she was getting them to do the work.

I don’t know XYZ’s price, but it must have been close to $3,500-$4,000. How does this happen? How can contractors have such disparate pricing?

1. GREED. The $6,200 quote was largely greed. The one making that offer was fishing for whales. A big company has many opportunities to make offers on jobs and occasionally some sucker will accept the bid. The men then make $1,000/day. You have to admit, it sure beats driving all over town tinkering with rotten pipes in slummy shacks for a few bucks per job.

2. OVERHEAD. A big company simply cannot work as cheaply as a small one can. The $6,200 company has layers of management all the way up to the home office “up north,” as well as stockholders who “deserve a return on their investment.” (The corporate bigwigs are the biggest stockholders.) Massive levels of insurance coverage, big equipment, lawsuits, office staff and computers, recruiting and training, buildings, etc. all drive their costs through the roof.

3. UNCERTAINTY. On a big job, you never really know just what you might run into. This particular job required sawing 100 feet of concrete, opening a couple of walls, and digging through a yard to an as-yet-unknown depth. Various mishaps could add a day or two to the job. A contractor needs to split the difference between “covering himself” in case of miscalculations and “fishing for whales” with no regard for the customer’s right to a fair price.

4. HUNGER. When a plumber doesn’t have enough business to pay his bills, he become a lot less picky. He’s willing to work at nearly any price. A company that has men sitting around with no work to do is a company that’s willing to cut the price to rock bottom.

5. SKULDUGGERY. I sure hope there’s no skulduggery in this lady’s job. Those who underbid me are certainly a larger company than I am (since I’m a one-man band), so they have greater overhead. I’m not sure how they beat me. Either they are much more confident in their work and figured the price with no elbow room, or they plan to do it in a cheaper way and haven’t revealed that to her. Or maybe they plan to come back in the middle of the job and claim that things are different than what they originally bid on, and now they need to add $X to the price.

It’s a common practice for a contractor to use sly methods of squeezing more profit from a job. He quotes it low in order to get the business, then he makes his money by cutting corners or by manipulating the situation. Hey, if your driveway was unusable and your yard was torn up and your plumbing wouldn’t work, how willing would you be to send a company packing so that you could return to the Yellow Pages and start trying to find a replacement? Many a customer just pays the higher price in order to be done with the skunks and to get them off the property.

I’m not at all certain that there will be anything wrong with the work this company will do. Maybe they just did a better job at estimating and they outbid me fair and square. I sure hope so.

What do you think? Leave a reply.