I’m addressing this column to cut-rate contractors who try to quickly build market share for their portable sanitation businesses by submitting a constant barrage of low bids to construction companies and special event planners. You know who you are … And unfortunately, we don’t always know who you are. But more on that later.
As you call on prospective clients and offer to place and service restrooms for 20, 30, even 50 percent less than your established competitors, I’d like you to ponder this question: What do you hope to accomplish in the long term with this strategy?
So you land a bunch of new customers and service a few hundred restrooms at razor-thin profit margins — if indeed you are making a profit on them. The salesman in you jumps for joy, while the accountant in you cringes. On the positive side of the ledger, you’re keeping busy running service routes every day. The bad news is all it takes is a few late-payers, out-and-out deadbeats or a mechanical breakdown to bankrupt your fledgling operation.
ARE YOU BETTER OFF?
Let’s say you sidestep any of the disasters that could befall your operation. You work hard for a year, and make a modest living in the industry. Was your low-price gambit worth the meager rewards it generated? Your first reaction might be, “Yeah, I enjoy steering my own ship, shaping my own destiny as an entrepreneur.’’ Well that’s fine.
But examine the situation a little closer. Maybe you’re working 60-80 hours a week. You’ve been building the business, but are you putting any money in your pockets or saving for a future retirement? Is the business a legitimate, sustainable enterprise that would have value to a buyer when you want to get out of it someday?
Compare your lot in life with how you’d be doing if you punched a timecard on a 40-hour-per-week job working for someone else. Would an employer be paying for your health insurance, contributing to a 401(k) savings plan, giving you a few paid holiday, vacation and sick days?
If you’ve been charging far less than your competitors all these months, my guess is that you’ve not found the prosperity you envisioned when you started the company. So what can you do to get your business in the black, to start earning a decent living for you and your employees?
This is where we come back to long-term strategy. Your options are limited, and unlikely to work:
1. Raise your prices
By now you may understand that the established portable sanitation companies in your area had a rationale for their pricing structure. Over the years, they learned to base prices for restroom rental and service on establishing a fair profit and knowing what the market will bear. What will happen to your customer list if you raise prices to meet that same standard? Will customers stick with you or bolt to a competitor?
2. Expand your market
After a year, you’ve probably cherry-picked all the customers in your area who count low prices as the top priority in their buying decisions. Now you need to sell customers on the quality of your products and services. But operating on a shoestring budget, do your products or services compare favorably to competitors who charge more? Probably not.
3. Cut your costs
In order to offer lower prices in the first place, you had to keep an eagle eye on costs, looking for every efficiency possible to squeeze a profit out of a job. Maybe you ran your own service routes 10 hours a day. Maybe you bill every 28 days instead of monthly. Perhaps you serviced units every eight or 10 days instead of every week. So you have no room for cutting more.
DEGRADING THE INDUSTRY
After a year of seeking aggressive growth through a low-price strategy, you may come to the conclusion that quality usually trumps quantity in a service business, that customers won through good service are more valuable than those lured by a temporary discount. You may now know that sustainability is achievable only if you make a fair profit and invest some of that money in employees and the tools they need.
If your company is teetering on the brink of insolvency, you might look at yourself as the only loser in the failed business plan. But your price slashing is degrading an entire industry. Competitors attempting to meet your prices forfeit profits they won’t get back for a long time. Companies that hold firm on pricing lose revenue when customers leave.
The cycle of cut-rate contractors sets the industry back in many ways. Quality companies lose good workers to industries where the pay is better. Low prices depress wages, fringe benefits packages, and the ability of companies to upgrade equipment and technology. This has a negative impact on company owners, workers, even end users — construction workers and the general public — who want the best possible restroom experience.
WHO ARE THE PRICE-SLASHERS?
Back to what I said at the top of the column, that we at PRO don’t always know who these low-ball contractors are. Once in a great while, I hear from a restroom contractor who is disappointed that we featured one of his low-ball competitors in some way, shape or form. He explains that the company in question uses unrealistic pricing to disrupt the marketplace.
I’m disappointed when I hear a story like this, too. It’s difficult to know sometimes when a contractor is following unsustainable competitive practices that we wouldn’t endorse. Of course, these contractors like to tell us they’re growing, but they may omit details about how they’re doing it. I suspect they often know deep down what they’re doing is wrong for the industry.
Even though the cut-rate contractor can leave a lot of troubles in his wake, there is a silver lining to these stories. I firmly believe that a quality product and service at a fair price eventually does win out over the singular low-price strategy.
