What is the Competition Charging?

A recent thread on Paint Talk gravitated into a comment on figuring out what the competition is charging. In a small way—and a very small way at that—this might have some value. But in general, this is a meaningless exercise.

Let me first address the small way in which this might be helpful. If you need to charge $50 an hour to meet your financial goals, and respectable, quality contractors are charging $25, you might have a problem. This would be good to know, because perhaps you are in the wrong business (or at least the wrong market). But beyond this, which I suspect is rarely the case, there is little value in knowing what the competition charges.

Your pricing should not take your competition into consideration. What they charge has no bearing on what your price should be—your production rates, your costs, and your financial goals are all that matter. If you think it does, then I suggest that you start looking for a job, because you will need to do so sooner or later, and likely sooner.

If your competition is willing to work for $10 an hour net pay, does that mean that you should? If your competition is clueless when it comes to estimating and pricing, does that mean that you should follow their lead? If your competition is slowly going broke, do you really want to emulate them?

Certainly our competition has an impact on our business. If another company offers comparable service and quality for half the price, the consumer will likely go with the lower price. But it is very unlikely—if not impossible—for a company to offer quality work and service at cut-rate prices. Unless of course, they are going broke, which means they won’t be doing this for long.

I regularly bid against guys who are 30% to 50% lower than my price—and I don’t regard them as competition. They don’t offer what I offer. Certainly I lose some jobs to them, but just as often they disqualify themselves with their low price. My target customers are not looking for the low price, and I don’t regard the guys who compete on price as my competition.

The key is to identify who our true competitors are. Is it the cut-rate contractor, or is it the quality contractor? This is ultimately determined by our target market. If your target market is the price shopper, your competition will be the cut-rate contractors. If your target market is the value shopper, you will have much less competition and their prices will be higher than the cut-rate guys.

If you find yourself regularly complaining about cut-rate competition, it may be time to examine your marketing—you are likely attracting the wrong customers. As is often the case, the best place to start when we complain about the competition is to look in the mirror.