Differentiation Part One: Know Your Value

If you’re like most people, you are tempted to compete on price. You sharpen your pencil to see how much money you can shave off your price and still make an acceptable profit. Or maybe you want the business so much you reduce your price to the point where you barely make money. But at least you won the bid and can keep your team busy. It seems like the right thing to do, doesn’t it?

Congratulations, you just took a big step toward going broke.

One of the keys to having a successful, sustainable business is to know your worth and to price your work accordingly. First, you have the right to be profitable. Profit is a good thing and the pursuit of profit should be part of your company’s DNA. I have met a lot of business owners who feel shy about making a profit. They feel as if their profits should be capped at some arbitrary percentage. That’s simply not true. You should walk away from any potential project that has little chance of being profitable or any prospect who seems to think you don’t deserve to make a healthy profit.

Second, while you need to consider costs when pricing a project, they should not be the main factor in determining price. Several factors, especially your value, should drive your price. If you provide premium services, don’t price your work as if you are a value-price company. In other words, if you provide Nordstrom-level work, don’t charge Walmart prices. There are plenty of low-price providers. If being a low-cost provider is your business model, great. (Well, great if you can do it profitably.) But if you provide premium services, your prices and customer base should reflect that.

The key to establishing value is to find and exploit your differences from other vendors. Don’t be a commodity. A commodity is a product that is so un-differentiated that consumers decide which brand to buy based on price. Gasoline is a commodity. One brand of gas is not really different from another brand. Your car will run just as well on BP as it will on Shell or Marathon. If you need gas and see three stations on the same block, which will you choose? Most likely you will choose based on who has the lowest price, even if it’s just a few cents lower than the others.

Competing on price is a horrible business model if you are in a construction-related field. What should you do instead? Create your differentiator and compete on it. Price your work on it.  Identify your ideal client and gear your business toward working exclusively for that kind of client and exclusively on the type of work that allows you to differentiate yourself.

There are several ways to differentiate yourself from your competition. This is the first article in a series that will help you understand (and benefit from) differentiation. If you want to have a successful, sustainable business, you must implement your differentiation strategy.