The Price of Compromise: Why Subtrades Must Hold Firm Against Cost-Cutting Pressures

The Price of Compromise: Why Subtrades Must Hold Firm Against Cost-Cutting Pressures

I was speaking with a client last week and we were discussing that their biggest contractor keeps asking them to "do them a favour" and drop their price to meet their budget.

You see, the contractor gave the client a price without getting a quote from the subs first and as a result they under bid and are trying to get the subs " to work with them" to make it work... for them. Maybe this would be ok, if it were an exception, however, this is happening on a regular basis and the unfortunate thing is, this is just the latest conversation I've had about this. There seems to be more than a few contractors that operate this way and today I'm calling this out.

This industry is highly competitive and the relationship between general contractors and subcontractors is pivotal. Running a sustainable business model is essential for the success of everyone - and it is possible for everyone to be successful, you don't have to lose for me to win. This concerning trend however, acts counter to this approach and the subs are the ones to suffer. This practice not only undermines their profitability, it also sets a precarious precedent that can impact the entire industry.

The Consequences of Undervaluing Your Services

When you succumb to the pressure to reduce your prices, you might think you're just being flexible or accommodating to secure a contract. However, this sets a dangerous precedent. Lowering your prices can lead to a cascade of negative outcomes:

  1. Financial Underperformance: Accepting a lower price means your profit margins shrink, which can lead you to cut corners in an attempt to control costs. This can affect everything from the quality of materials used to the safety measures implemented on site.
  2. Quality Compromise: With diminished resources, the quality of work can suffer. This not only tarnishes your reputation, it can also lead to costly callbacks and repairs, eroding profits further and damaging long-term client relationships.
  3. Devalued Perception: Continually accepting lower payments for your work conveys that your services can be obtained cheaply, lowering your perceived value in the marketplace. This can make it difficult to command better rates in future negotiations, trapping you in a cycle of underpricing.
  4. Limited Growth Opportunities: Working for less limits your ability to invest in your business—be it in adopting new technologies, expanding your team, or enhancing skills through training. Growth becomes stunted, and staying competitive becomes increasingly challenging.

Competing on price from any position in the construction industry is never a good idea for building a sustainable business. There will always be someone willing to do the work for less and you will be racing to the bottom, never able to grow. Understanding and articulating your worth is not just about maintaining profit margins, it's about securing the future of your business.

Staying Firm on Pricing

Knowing your numbers is crucial. Understand the full cost of your involvement in a project—considering labor, materials, overhead, and the need for a reasonable profit margin. Set your prices based on a comprehensive assessment of these factors, ensuring they reflect the true value of your work and expertise.

Equally important to knowing your numbers is knowing your business's value proposition. What makes your service unique or superior? Is it the reliability, the speed, the quality of materials, or the innovative solutions? Emphasize the value of your services and find contractors to work with that value what you offer. Clearly articulating these points can justify your costs and differentiate you from competitors who may be willing to underbid at their own expense.

The Dangers of Underpricing

The pressure to drop prices usually comes from general contractors looking to enhance their margins or win bids by offering the lowest possible quotes to clients. While this might seem beneficial in the short term, it’s a destructive strategy for subcontractors. Lowering prices under pressure means not just reduced profits, it's also potentially compromising on safety and quality - two factors critical to success in business.

When subcontractors concede to such demands, they inadvertently signal that their services can be undervalued, which can lead to a cycle of continuous price cuts. This diminishes their authority and their viability as businesses. In addition, working for reduced rates often leaves no room for investing in better technologies, training, or hiring, which are vital for growth and maintaining high standards of service.

We teach people how to treat us, both personally and in business. When we continue to say yes to reducing our prices, we are telling contractors that we don't value ourselves or our service enough to have the confidence to say no and when you work with the wrong contractors, they will take advantage of that.

Choosing the Right Partners

The construction industry can be a win-win relationship between subs and general contractors. Subcontractors must select general contractors who recognize and value their contributions. Working with contractors who are willing to support fair pricing ensures a healthier working relationship and promotes mutual growth. Aligning with contractors whose operational philosophy and core values resonate with your own will lead to more sustainable and rewarding projects.

It’s vital for subcontractors to foster relationships with general contractors who see them as partners rather than merely vendors. These are contractors who understand that true value lies in delivering projects efficiently and to the highest standards as opposed to cutting corners and compromising quality.

Holding the Line

Subtrades should not feel compelled to work with contractors who persist in pushing them into financial corners. It is better to seek out and build relationships with other contractors who are willing to pay fairly for quality work. This approach not only supports the subcontractor's business health, it also upholds the industry's standards.

When you continue to hold onto these relationships out of fear that you won't find others to work with, you don't allow space to find the contractors that you want to work with - the ones that want to see you succeed, the ones that share your values. There is so much work available and approaching the situation with an abundance-of-work mindset, will help you find those you can grow and thrive with.

The Price of Compromise

So what is the price of compromise? Let me tell you, this is not something you can put a price tag on because it comes in the form of (a lot) more than just a decreased bottom line.

The price you pay is the drop in confidence you suffer when you agree to do it, again. It is the fretting of how you will make it work. It's hoping you didn't drop it by too much because the reality is, you don't really know if you can make those numbers work. It's the stress of the project dragging on longer than you hoped; it's the inability to take on more lucrative work because you are committed to someone that is not as committed to you; it is having to put off training, or development or growing your business because you are strapped for cash.

The ultimate price of compromising is suffering both personally and professionally. Not being present for those you love because you are always distracted by the stress and worry, not knowing how you will get through this month, putting off investing in your growth until your cashflow improves, only for it not to improve and you just can't do it anymore...

Conclusion

As a subcontractor, it's imperative to resist the pressures to lower your prices and instead focus on building partnerships with general contractors who respect and value what you bring to the table. Upholding your pricing will sustain your business and promote a healthier industry ecosystem where quality, safety, and integrity are prioritized. Remember, real value is built on the foundation of fair pricing, mutual respect and the win-win approach to delivering projects.

Dawn P.

First Female Ironworker in the south east

8mo

Question: is this happening with Union Contractors?

Christopher Ricker

Founder @ MyPaintBuckets.com | Helping High-Volume Painters and Suppliers | Tech for New Res Painters

8mo

Yessss!!! GC’s in Orlando are relentless with pressuring painters to lower their prices. My recommendation: #painters and trades need to tell a more compelling story to “why” their prices are at market value (or higher)

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