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Position  •  Price  •  Propose  •  Profit
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The P Process     

“Finally--assembly instructions for your contracting business!”

 

Welcome to a brand new day! Today you can begin to preview The P Process. This is the day you will begin to understand that there are predictable steps in the growth and evolution of your business. These steps are managed by basic processes. These basic processes are the foundation upon which you may develop a sustainable business. I call them the 4P’s; position, price, propose and profit.

 

These processes are complex activities and they are so inter-dependent that if one fails the others falter. When this happens you might actually begin going out of business, regardless of how big you are or how long you have been in business. Sad but true, too many contractors start going out of business the day they open their doors.

 

If you think about it, the 4P’s follow a natural sequence—let me describe it this way;

 

P 1—Position
We need have various ways to put ourselves in a position to be seen, heard or otherwise noticed by the kinds of prospects we are seeking. If we can’t be found by our prospects, they can’t ask us to work for them. This is the starting point. Sure, there are times when this seems to happen without any effort on our part but many contractors have learned that we can’t count on that always being the case. What’s important is to know how to control the process so that the flow never unintentionally dries up.

P 2—Price
We need to have the ability to quote our prospects a price on our first visit to the home the majority of the time. Being able to develop a price quickly and accurately helps avoid a bottleneck. The ability to price allows us to keep moving forward towards the next P.

 

P3—Propose
We need to be seen as a wizard on our first visit to the house and understand how to inform our prospects so that they make the right choice of contractor—we all know who that is!. Our goal should be to propose that the prospect sign a contract or a design/build agreement on the first visit. When we are able to accomplish this it will not be through high-pressure tactics, but rather by presenting information to them in such a way that it is easy for them to reach the right conclusion. Will our prospects say yes to our proposals? Some will! If not, we haven’t harmed your status in the prospect’s mind. As a matter of fact we may have set the bar of professionalism so high that our competition has a harder time measuring up.

 

P 4—Profit
When the processes of position, price and propose are working correctly, profits follow. After we’ve gotten used to profitability, we’ll likely find ourselves wondering where profits might be leaking out of our business. At this point it’s only natural that we may want to learn how to track and conserve profits through Job Cost Accounting and labor tracking.


It should be obvious by now that putting The P Process to work in your business could solve problems and create opportunity. The process has been proven in hundreds of businesses very much like yours, according to Gorman.

POSITION:
Slower times call for more intrusive and aggressive marketing



Last week another call came in. The story was the same; "Mike, I invested in a website and started showing some new bath remodeling products at a kiosk at the mall. Guess how many phone calls I've had from the kiosk at the mall? Exactly two in the last month. What am I doing wrong?" 

The sad truth is that this discouraged contractor isn't doing anything wrong, he's just not doing enough right! While the web page and the kiosk at the mall surely would have gotten appreciable responses during yesterday's hypermarket -- in today's market we need more aggressive, more intrusive marketing. If we added another activity on top of these two that we’ve just put into place we might make the web page and mall display pay off. Let me explain;

There are several levels of marketing based on.
1. how active our involvement needs to be, 
2. how intrusive we are in delivering our message, and finally 
3. how aggressive we are in our search for prospects. The ultimate level of aggression is reached when we start to look outside our normal sphere of influence to find prospects at large—strangers. 

The first level is “Basic,” so much so that most of us start here when we begin to think about marketing; letterhead, business cards, yellow pages ® ad, jobsite sign, vehicle signs (including jobsite trailers), telephone message, and bumper stickers. With today's computer tools and resources most all the necessary preparations for this level can be accomplished in a matter of hours. This level of activity and involvement is so basic that it is below the threshold we want to explore here. 

Next comes “Passive/Non-intrusive” which includes; calendars, company brochures, Wikipedia, wearables (shirts, jackets, caps for employees/past customers), a sign or label that is permanently attached to our finished product, press releases, company brochures inserted in all outgoing mail, and more. This activity is pretty passive (doesn’t require a lot of energy on our part) and we’re not really intruding into the space of the prospect. 

Further up the staircase comes “Active/Non-intrusive” including a website, past customer surveys which collect testimonials and referrals, keeping a ‘wish list’ for each customer, project cards (business cards specific to a project) showing before and after photos (including logo and contact info - delivered to the homeowner following completion), calendars with photos of past projects delivered to past customers, the website, the unmanned mall display, bus bench and/or bus signage, a YouTube movie linked to our website, social media postings of new jobs or special products/services, press releases, entering competitions (more content for press releases). Can you see the level of activity is higher here while and we are moving outside our comfortable circle of influence, but we’re still not intruding.

So far the marketing described has been targeted at what we commonly call repeat and referral business - people who might find us by their own search. The next step moves us beyond that relatively comfortable zone. We reach a level of aggression that is uncomfortable for many--we start looking for total strangers in addition to the more familiar repeat and referral customers. 

Active/Intrusive activities include that periodic newsletter and/or blog to past customers and prospects, special events with a warm crowd (an office party for trade partners), arranging to take over the phone number of your failed competitors, mailing letters to past customers, following up on the ‘did not buy’ list, mailing seasonal cards to past customers, canvassing around existing jobs, refrigerator magnets mailed to past customers and new homebuyers, promoting the business through hobbies and/or social interests.

The Active/Intrusive/Aggressive level of marketing spreads to even more people with whom you may have no previous connection. Depending on our target this can be a real stretch of the comfort zone, it may be intimidating! For this reason you likely need a profile of the prospect to stay on track. Perhaps you might formulate this profile by looking back at past customers to see whom you have been selling to. For example; Dual income couple in their late 40’s jointly earning $200,000/yr who have lived in their home for 5 years and are located in zip codes beginning with ###.

Don’t discard the idea of coming up with a new target if the past customer profile doesn’t look promising in this market. For example;  Retired but active empty-nesters who belong to the City Country Club and are living in zip codes beginning with ###.

Notice that both of these profiles address annual income and geographic location. At times we may equate higher income with a greater ability to buy. Armed with this information about your target, you can choose the correct delivery tool among a broad range; newspaper, magazine, radio advertising, radio show, direct mail, canvassing of target neighborhoods. The manned mall display or trade show booth, networking groups, chamber of commerce, association membership (for your specific product/service as well as property managers, realtors, home builders, etc) can come next. Consider special events for a more challenging crowd—an office or jobsite party for the general public, prospects (always include past customers in the crowd as your cheerleaders) / home tours / seminars. Add to this list; speaking as a white knight or industry expert, radiated telemarketing (calling homes that radiate around your job site), radiated mailing around existing jobs, door hangers, canvassing, magnetic business cards mailed to new homebuyers.

The goal is to get a response. Monitor and measure your results in terms phone calls, emails or other inquiries. Also track sales results—don’t throw money away on activities that don’t work. If an activity doesn’t work, try something else or add a complementary activity. Study the outcome and compare each marketing activity to the others in terms of;
1. how many leads you generate for each dollar spent (cost/lead),
2. how much each lead sold produces in revenue (production/lead),
3. how many leads it takes to make a sale (leads/sale).

You will create name recognition among those people who don’t or can’t buy today. This is almost impossible to measure so consider name recognition to be a gift, not an objective. It may increase sales at some later date. 

Remember four things;
1. If done correctly, marketing is an investment that provides predictable, measurable results. 
2. Marketing should continue non-stop even though the specific activities in the marketing mix may vary depending on the market conditions.
3. Have realistic expectations. For example; understand that getting two or three return calls from every 100 postcards mailed is good. For this reason mail should usually be sent by the thousands, not the hundreds.
4. What works today may not work tomorrow. What worked last year may not be enough today.

Lets take the activities we started with at the top of the page (website and mall display) and add direct mail (a complimentary activity) to our target market. Be sure include a call to action; "call now." Perhaps we could build in some urgency by including a special offer (not a lower price, but an additional feature, choice, or upgrade with an expiration date), for example; “Replace 8 windows before the end of June and we’ll include low-e glazing at no charge.” Or, "Free replacement garbage disposal with kitchen remodel."

Think of the down market like this; in years gone by, there may have been three people on every city block who had the need and the ability to buy our product/service. Today, while there may be as many who need the product/service there may be only three people every square mile who have the ability to buy. The job of finding these few people gets more difficult when there are fewer around. 


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PRICE:
The Best Estimating and Pricing System



While there may be as many systems of estimating and determining pricing as there are contractors, if I wanted to identify two major groups of estimating systems I could divide all systems into; ‘sticks and bricks’ systems and ‘unit cost’ systems.

 

Pricing systems are more difficult to lump into such classifications, however. Each of the two estimating systems have good and bad points, none are perfect. My purpose here is not to promote any one system for estimating and determining pricing, but to promote another view of estimating and pricing that might be better for all contractors. I base my findings on the assumption that we are all need to make a profit in order to keep doing what we know and love.


Profits can be measured many different ways but for my exercise today I am going to share my preference for measuring profits on a per job basis. Whether or not job costs unfold as predicted is in reality the true test of the system used to estimate the cost. With that in mind, the best estimating system is that which tends to generate too much rather than too little money. Following that stream of thought, the best pricing system is that which increases the estimated direct costs by enough to make the necessary contribution to overhead and generate enough profit to motivate us to stay in business.


In the remodeling industry we customarily base our selling price on estimated cost. These costs are derived from whatever estimating system we use, thus estimating is pricing. We base our selling price on direct job costs and somehow add or include some amount to cover overhead and profit. I call this ‘logical pricing.’


Logical pricing isn’t used as widely in other industries as in remodeling. For example, in the shoe industry, Timberland ® was struggling some years ago. The company had a good boat-type shoe and priced it below the leader, Topsiders®. They offered a great product for the price—but this wasn’t necessarily good business. Then Timberland® did something fairly simple; it increased its price to be well above Topsiders®. Sales boomed, that is, people willingly paid more for a shoe that originally was priced lower. I think it safe to assume that in this example raising the price above that of the competition wasn’t based on some newly discovered cost of bringing the shoe to the market, it was purely a pricing strategy. The lesson here; don’t assume that logical pricing is smart pricing, maybe your price actually makes you look second-rate.


In another example, Coca Cola® some time ago tested vending machines in Brazil that raise the price of soft drinks as the temperature goes up. Coke’s chairman was quoted as saying the new pricing strategy was; “designed to reconcile supply and demand by raising the price as the demand increased.” This is another way of saying that need or demand drives price to some degree.


In my neighborhood, a 12 oz. can of Coke from a machine costs $1.00, a little more that 8 cents an ounce. I am willing to buy from the machine when I have an immediate need. However, if my need isn’t so great, I wait and buy a liter of Coke at the grocery for around $1.25, about 4 cents per oz. When I dine in a restaurant I may pay 10 or 12 cents an ounce for the same Coke served in a glass with ice. In the restaurant I am demonstrating my willingness to pay a premium price in order to satisfy my need to have a beverage along with my dinner.


Perhaps, rather than just the cost of sticks and bricks as the foundation for determining price, we should consider ‘need’ as a component in pricing our products and services. This may not mean we charge some people more than others. It may mean that we raise prices across the board and start looking for prospects with higher levels of need. This practice alone could cause an increase in profitability. In a world where everyone seems to be trying to get all the business they can get, regardless of profitability, we might determine that we are more interested in profit than revenue.


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PROPOSE:
How the Sale Happens



Ever wonder why some salespeople are more effective than others? In his book Emotional Intelligence: Why It Can Matter More Than IQ, (Bantam Books), Daniel Goleman tells a story illustrating how simply and subtly emotions and feelings pass from one person to another. I’ll put his story in my own words: Two people, one highly expressive and the other somewhat deadpan, were placed in a room together at separate desks. Each was given a mood checklist and asked to complete the questionnaire about their moods at the moment. They were left alone for a period of time, several minutes longer than needed to complete the test, but were observed to be silent during and after the test. The tests were retrieved and then each was immediately given the same test again. The results of the second test showed that the mood of the person most highly expressive of emotion had been adapted to some degree by the other, more passive participant.


A sale is a transfer of feelings. The salesperson successfully transfers certain feelings to the prospect, who is converted into a client when the transfer is completed. It is difficult for most of us to transfer feelings we don’t own. Feelings transferred in the sale process include: Professionalism, Value, Enthusiasm, Confidence.

PROFIT:
Winning a Profitable Job



Marketing (position), sales (propose) and estimating (pricing) are the three most important components of our business for generating cash flow, but they are often the components most ignored by contractors. The words marketing and sales are not synonymous, marketing is what gets the phone to ring, sales happen next. An estimating system for determining price and generating specifications either streamlines the path to the sale or creates a bottleneck.  When these three systems perform well, we are often faced with the challenge of managing a steady flow of profitable business. When these systems don't perform well, we may get stuck with jobs that suck all of our energy away and leave us with no time and no money.


Without marketing a terrible thing happens;

no sales, or a higher percentage of sales at lower prices.


The contractor who finds himself with no leads may become desperate, perhaps taking work at prices lower than necessary to support his business or following some other path inconsistent with developing a sustainable company. Marketing should be an ongoing system, continuously putting our name in front of the prospect. A marketing system doesn't function well when tied to an on-off switch. Like an air-conditioning system that can maintain comfort when the thermostat is not being fiddled with continuously (but has problems reaching the comfort level when the system has been shut down for some time) the marketing system typically doesn't have a rapid or predictable response time.


Without sales a terrible thing happens; nothing.


A salesperson should spend the most time working on sales with the easiest-to-close, most promising leads. If you knew in advance that there were always three elements present when the contract is signed, you could screen your leads through phone conversations to determine which leads brings to you the most of these three elements. The more: Need, Ability, and Trust there is around the table when you present your proposal, the more likely that a signature will seemingly drop from the ceiling onto your contract. Screening leads for these ingredients is the first part of a sales system, a linear process that will guide you most efficiently to your objective, the sale. Naturally, the more productive your marketing system is in producing leads, the more important your screening system is. Only after you have screened the leads do you proceed down the process of; setting the appointment, enhancing trust, educating the prospect, defining and refining the solution to the prospect's needs, and finally presenting the proposal in exchange for a signature and a check.


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Contact; TechKnowledge Systems

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