To Lower or Not to Lower: Handling Pricing

Recently, I’ve been asking my clients why they started their projects. Some have had projects on hold for months or even years, and decided to move forward because they simply got tired of waiting. Others were forced to remodel due to relocation or retirement. And still others finally got that financing they were waiting for.

What seems to be the greatest response to this question, however, is, “We’ve heard there are some deals to be had in this soft construction market.” I cringe every time I hear this, wondering what they are expecting for free or at a discount. Our clients are more likely to push harder for concessions in pricing given our current economic environment and the stiff competition vying for the projects.

It seems like these days everyone is out shopping much harder for everything. Be it appliances, tile, lumber, cabinetry, countertops or anything else that goes into a project, clients are requesting multiple bids. As a result, we have to be creative in our designs and as competitive as possible with our pricing to ensure we have the opportunity to land the project.

At the same time, we need to plan for contingencies in our pricing (the art and science of planning for unforeseen events along the way that erode our profitability) that aren’t so high that they prohibit us from getting the job, or so low that we can’t do the job profitably once we get it.

Today’s clients are savvy, educated and they know what they want. Can they get from you what they can get from your competition? It’s your job to sell them on why they can’t. If your cost is higher than your competitor’s, it’s your job to explain why and sell prospects on why your products and services demand the premium. Clearly the goal is to maximize profit while still closing the sale.

Saying No

This leads me to what I call the yes/no dilemma. If you’ve presented your best (or lowest) possible number to potential clients, what do you do when they try to negotiate with you to lower the price even further?

Maybe they’ve gotten other bids, or are using one of your competitor’s bids to leverage your price down. Regardless, they have asked you a question, and you have to answer either “yes, I will lower the price,” or “no, I will not lower the price.”

Saying yes can sometimes be the easier answer. Do we then value engineer the product? Change design specification? Limit or change the level of services? Shave profit? Some of the above? All of the above? If you do lower the price, you must carefully weigh the alternatives to getting the client’s expectations met while still being protected and making money.

On the other hand, sometimes we just have to decline our client’s request and say no. Perhaps you already gave your best price and they are unwilling to change the design or specifications. Whether what they asked for is unreasonable or you are unable to give them what they want, how you decline the request is important in closing the deal with a potential client or maintaining a relationship with an existing client.

Here are some suggestions for handling this sometimes difficult process:

Repeat the request back to them in your own words. It’s helpful to establish that you are listening to what the clients are saying and that you heard them correctly with no misunderstandings. By repeating the request in your own words, the client now hears it slightly differently and may better understand your reaction. Assuming you are giving them your best price (without changing specifications or designs) and they still ask, “Could you sharpen your pencil?” your paraphrased response might be, “so you are asking for my best price possible, as designed and speced?”

Let them know what you can do for them. Make sure you do not overpromise and under deliver. Making a promise you can’t fulfill will surely damage your credibility and integrity and may damage the relationship. We also don’t want the client to feel belittled. Handle the request as an idea that you value, too. Try to do something reasonable that is related to the request. We know we can’t just arbitrarily drop the price. By planning in a little contingency in the pricing to start with, you can get creative and offer something small back. Perhaps pick up the cost of the appliance pulls on the refrigerator in the kitchen or offer an appliance panel at no charge. Your response might be: “I assure you our numbers are pretty tight on what we have designed and specified, but I can throw in those roll-out shelves we took out to save cost.” The clients want to feel like they are getting the best deal while getting the best value for their money. If we can cater to their need of being satisfied in “the negotiation,” we can ease our eventual response of “no” to their request for lower pricing.

Let them know what you wish you could do for them. You want to empathize with them and let them know it’s all right that they’ve made the request and that you care and are there to help them. Simply put, let them know you would like to give them more, but can’t, with good reason. “I understand and appreciate your need and want to save money, and I wish I could just lower the price and still give you the same level of quality in the products and services.”

Let them know what you can’t do. Now comes the no part. Directly, clearly and confidently let them know what you are unable to do. You’ve already let them know it was a request you’ve heard and appreciated and you’ve done your best to help. Spend as much time as the client needs to feel comfortable that you cannot do anything further. “Unfortunately, I have given you my best price and I am unable to come off anymore in cost.”

Let them know your reason. Finally, explain why you have to say no. Support your decision and let them know there is a clear reason why. Whenever possible, paint the picture of what benefits the client from your position. “The fact is, given the level of professionalism and detail in our drawings, the time I will spend on site coordinating with the architects/designers/construction professionals, and the superior quality of design, products and their installation, I would be doing you a disservice to lower our prices and compromise any of the services we provide that differentiates us from our competition.”

It is not an easy thing to say no. Be as positive as you can be and always be professional when having to tell a client no. Remember, the goal is to establish trust, maintain the relationship and close the sale. If handled properly, your clients will respect your position, reasoning and integrity.