If The Customer Beats You Up On Price, Will You Do A Worse Job?

JH
John Honovich
Aug 15, 2017
IPVM

This question prompted from a comment in the stolen DVR statistics report:

Sometimes the customer sees the quote and thinks, "I'll just demand for another $50 off. I know this installer won't walk away over $50 when I'm paying him a $1000. He won't let that hour he's spent here go to waste over just $50. Every little bit I can get off is less money I have to pay." Then the installer says to himself "Ok, you want to nickle and dime me down for $50 measly bucks more. That's fine, I just won't install that lock box for the DVR I normally include."

So what do you think? In such situations what do you do? Walk away? Eat the reduced profit? Cut corners?

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UI
Undisclosed Integrator #1
Aug 15, 2017

Get a price quote signed by the customer. If they want to play pricing games, weigh if it's worth it, and if it's not, just walk away.

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AM
Albert Matthes
Aug 15, 2017

happens all the time. I have now begun to add 10 percent to the price and usually end up knocking off 50 - 100, and they end up paying more than the original quote would have been. Go figure

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UI
Undisclosed Integrator #5
Aug 18, 2017

We used to do this for specific electrical contractors who were known to haggle.  Same exact results - they ended up paying more.

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U
Undisclosed #6
Aug 18, 2017
IPVMU Certified

I have now begun to add 10 percent to the price.

So you charge a haggling fee?  Nice :)

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JH
Jay Hobdy
Aug 16, 2017
IPVMU Certified

We will always do quality work, regardless of the bid. Nobody is going to come and say " Hey that is crappy work, but the contractor was low balled, so it is justified" Nope they are just going to see " ABC did crappy work"

 

Our projects are bid out in advance, so any negotiations are done well before we get onsite.

 

If the client wants a lower price, we ask what they want to drop. First items off are network racks, UPS, managed switches, etc

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RS
Robert Shih
Aug 16, 2017
Independent

Respectable, but I don't think many people are going to agree with that in practice. If the consequences aren't "you get what you pay for" then people will be more emboldened to pay less.

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U
Undisclosed #6
Aug 18, 2017
IPVMU Certified

If the consequences aren't "you get what you pay for" then people will be more emboldened to pay less.

Customers have little idea if they are "getting what they pay for", that's why they try to control on price; 

They'll "never know what they are missing".

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JH
Jay Hobdy
Aug 16, 2017
IPVMU Certified

Let me be clear.

 

If a customer wont pay for it, we wont do it. If a customer says hey we dont want conduit on the building, just zip tie the wire to the existing line voltage conduit, gutter etc, we are not going to do it. We will explain why  we wont etc.

 

Basically the customer is going to pay us to do the job right or we wont do it. If they decide to use lower cost equipment, we will work with that. We also may accept a lower margin.

 

But we will never do crap or unsafe work

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UM
Undisclosed Manufacturer #2
Aug 17, 2017

There will always be a "Craigslister" or "trunk slammer" to do the job. You decide either to compete with them, meaning the same *cough* quality of work and material, or you stick to your guns. If you're hoping for longevity built on your name and reputation, you'll do the latter. As a systems engineer, I have to fight with our own sales people sometimes about cutting some corner to save on cost and win the project. I tell them the same thing every time, "What gets saved now will cost us in the long run."

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UI
Undisclosed Integrator #3
Aug 17, 2017

In a few instances when dealing with alarm work, after I submit a quote, a customer will ask if I would do the work for less, which means I'll be discounting my labor because the parts I quote are close to my cost with very little mark-up. I never discount my labor, instead I suggest a device such as that second keypad or second motion detector can be taken off the quote.  Some people will opt for less equipment, but most go with the quote as priced. 

Not exactly on topic, but I'm refusing to offer camera systems for residential customers unless the home is quite large.  Most residential customers seem to be under the impression that a camera system for their home should cost much less than the alarm system, but in reality it usually exceeds that cost by a good margin.  I usually suggest they check out Best Buy or the internet for the DIY WiFi cameras and they seem to be receptive to that, especially after I explain that my cameras require wiring, possibly exterior conduit, substantial labor to install, and may be a challenge for the casual user to operate, which would exceed their idea of cost and expectation of simplicity. I've spent lots of time doing site surveys and quotes for camera systems for small residential with few responses, so I've learned to avoid that market.  Also, I do not install the DIY'er equipment or any camera equipment procured by the customer because I don't want to be on the hook to support it. 

 

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UI
Undisclosed Integrator #8
Aug 18, 2017

On the note of offering cameras to residential customers, it's funny you mention that.  I even tell my family members the same.  I've recommended Nest and other home cameras rather than try to setup DVR's and run cable.

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UI
Undisclosed Integrator #3
Aug 18, 2017

I've had a lot of referrals from my existing residential security customer base for camera systems, even though I don't install cameras for residential customers.  They assume I do residential cameras as well as security systems.  Because of the issues cited in my original post, I avoid the residential camera market and have a routine response for them when they call. That response is to look at the DIY'er stuff such as Arlo, Nest, Link, Canary, etc., and to search further on the internet for others.  I don't endorse any of these systems and make it clear that I'm not endorsing them.  And, I make it clear that I won't install them should they buy one of those systems, as I do not want to be on the hook if there is an issue or questions about their equipment.

When dealing with family members, I have a similar experience. I gave $3k in ip camera equipment to my daughter and son-in-law hoping my son-in-law would run the wires and I would handle the rest.  They eventually gave it back to me, uninstalled, as they found the Arlo system easier to install and use.  So I, too, have found that family members should be shown the DIY'er stuff when it comes to cameras.  Also, family members would be casual users, and would have a challenge operating the equipment I install. A marketing strategy is important here so you don't waste time and money.

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UI
Undisclosed Integrator #4
Aug 17, 2017

I think the price beat up has really started to happen in the last few years with many more IT and electrical contractors moving into the security space due to the commoditization and demand of cameras. This crap didn't happen when cameras cost 750-1k each versus $100 bucks today. Now customers have the option of 20 customers all willing to throw in Chinese cameras for cheap so it has become a race to the bottom where the quality of install and labor isn't valued as much. It is sort of ironic that the cat5/cat6 cabling survey came out because we are a straight cat6 shop and have been for a while due to the reasons listed on the survey but are considering adding cat5e back to save money on projects and get more margin due to the trending downward margins.

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U
Undisclosed #7
Aug 18, 2017

Security & CCTV niche marketability are now procured on common markets where the manufacturers will value engineer anything to remain competitive, such as developing a B grade series product line. Statistically the manufacturer has to adjust his model. Right or wrong the model must have a response to the trending markets in order to forecast survivability and longevity. These decisions are all an act of war to remain alive.

Over on the integrator side, you are a reseller of a multitude of product lines that must be delivered as a complete solution and however you reach that conclusion with many different customers is your design team's challenge. If your business model has a deep epistemology and strong philosophy in security then your sales margin adjustment should not always be in the complex phase. Putting in the time to have a full understanding of your core values(your business sense, your business model) will yield a more simplified predictable net whether your profits are daily, weekly or quarterly. Keep in mind that the achiever is only going to achieve however he is usually not aware of the consequences that bind in the platonic fold.

Random:

-Do not spec Commscope Cat6 cable with EZ modular connectors, plugged into a Cisco Nexus series switch with an Everfocus NVR. If you do, might as well put Folgers coffee in a Starbuck's cup and serve that to your customers.

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U
Undisclosed #6
Aug 18, 2017
IPVMU Certified

If your business model has a deep epistemology...

I prefer a wide epistemology.  Go ahead, ask me anything :)

 

 

KJ
Ken Jenkins
Aug 18, 2017
IPVMU Certified

More often than not I would walk away, first of all assuming your value add is your expertise and quality of work this will save the customer unnecessary cost down the road.  Second, I believe more often than not if a relationship starts off with this mind set then it will most likely never change, no perceived value in what you bring to this particular customer.  That being said, should I accept the offer being made my quality of work would not change but I would think twice before I would continue to do business with this particular individual in the future.

UM
Undisclosed Manufacturer #2
Aug 18, 2017

Second, I believe more often than not if a relationship starts off with this mind set then it will most likely never change

I'll add to Ken's comment another common scenario along that same line, and this happens with slightly larger businesses than the mom and pops:

"If you can work with me and give me a good discount now on just this one starter deal, I'll have you do my other add-on's/upgrades/locations down the road." They make you feel like you're investing in future business. Until when next time comes around, they want that same discount, and the next time, and the next time... it will never end.

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Jon Dillabaugh
Aug 19, 2017
Pro Focus LLC

No, I won't cut corners. I may cut my profit to keep a good client happy, but I play the long game. If I don't want to do business with a given prospect, I will let them know that. I have fired quite a few clients in the past. Most of whom demanded constant discounts, or worse yet, shorted payments.

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Brian Karas
Aug 21, 2017
IPVM

Sometimes your "best" customers are the ones you never do business with.

Let them go to your competition.

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SD
Shannon Davis
Aug 21, 2017
IPVMU Certified

You are right Brian. Let them go and many times a year or two down the road you get the call back and when you visit with them they repeatedly tell how they wish they had gone with the system you proposed. Yes it may have been say 10% higher but they spent another 40%-50% in change orders and service calls because it wasn't installed right the first time. Sometimes you even go out later and rip the system they bought out because all it does is cause them headaches and money. We always sell on quality not quantity. Quantity just causes too many service nightmares.

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UI
Undisclosed Integrator #12
Aug 21, 2017

We learned this the hard way recently.  Designed a solid IP system, customer went "cheap" on us and pushed for a much lower option so we redesigned around lower end HD system.  Got it down to $29k (they needed it under $30k) and it ended up a nightmare that cost us $20k to fix!  Never again.  If they can't afford us we'll give them the phone number to our competitors and wish them well!

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UM
Undisclosed Manufacturer #2
Aug 21, 2017

Sounds like you forgot to give them a warranty commensurate with the quality of the equipment sold- none.

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JH
John Honovich
Aug 21, 2017
IPVM

Got it down to $29k (they needed it under $30k) and it ended up a nightmare that cost us $20k to fix!

#12, to help others avoid this, can you elaborate on what the key problem / issues was with the lower end HD system? 

UI
Undisclosed Integrator #9
Aug 21, 2017

Maybe not exactly "a worse job", but I've learned that (assuming your price is in line with the market), hagglers are the least profitable customers, no matter what industry you're in.  They don't give referrals, they don't give you positive reviews, they pay late, and they dispute legitimate service bills.  

So no, they don't get bad quality, but we know not to waste any above-and-beyond extra effort on them.  They do not reciprocate.

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UI
Undisclosed Integrator #10
Aug 21, 2017

If a customer beats us up on the price, they most likely will not get the same treatment. It's simple math.

In a standard-margin job, if our installers see an area where we could/should easily run a spare wire here or there bc it looks like a good spot to add a camera, we typically just add it and don't necessarily bill them for it. We let them know it's there, then when they want to add that camera several months later, we remind them how awesome we are.

If they chop us down on price, then they pay for the wire and labor when we come back to run it later. Most of the time you can't even suggest the extra wire during install because the "hagglers" think you're just trying to get the profit back.

It's simple, if the goodwill is there and we have a little wiggle room, we are happy to maintain a win/win situation. If they want to back out every dollar of profit, then they get what the proposal says and nothing more.

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DL
David Leinenbach
Aug 21, 2017

One would think that any corporate purchaser entrusted with a major purchasing decision would also posses the requisite professional skills not to sit down at a final meeting and flip right to the back page. And yet......plenty of them do. And that's usually not the first sign of trouble.  It never ceases to amaze me that there are still corporate purchasers who concern themselves almost exclusively with a driven effort to get their providers to provide something for little or no profit, without any concept of how that impacts them.

Our proposals are very technically driven. An educated customer wont drive you down on price if they have a comprehensive knowledge of what the technology actually entails and what value they achieve from those dollars.  The customers that are most problematic for us are the ones who lack the intellectual capacity or curiosity, the attention span, the communication skills, the professional courtesy, or even the time investment to make the right decision.  Some customers are so poor at communicating that it can frequently be mistaken for outright ambivalence.  This can often be overcome with diligent effort and tact, but not always.   These are the typical "Back Pagers".

So when challenged at that level, I do not hesitate to inform the customer of the following:

  • Yes, I can make that price be lower.
  • Doing so will not reduce my profit, it will reduce your value.
  • Which hardware or software capability or feature will you be willing to do without in order to bring the price down?
  • If you do that, you will lose the ability to do the following things.... 

Its imperative at that point to make sure they understand that the "Loss" will be on their side.  If the customer lacks the ability or even maturity to manage the entire communication process effectively, and invest the requisite time and effort to be inquisitive and to articulate their specific needs, everyone involved will ultimately wind up on the back page either way.

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Brian Karas
Aug 21, 2017
IPVM

One would think that any corporate purchaser entrusted with a major purchasing decision would also posses the requisite professional skills not to sit down at a final meeting and flip right to the back page. 

In my experience, very few of these purchasers, even in very specialized roles (such as those working in purchasing for large integrators) truly understand what they are buying, and ultimately, haggling over. Their incentive is to get a lower price, and to play a game of "chicken" with you, are you willing to walk away from the business over 5% or 10%?

 

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Jonathan Lawry
Aug 21, 2017
Trecerdo, LLC

Recently I heard some pricing wisdom from a vendor:

"People get addicted to discounts...they do not get addicted to free."

This is similar to UD3's philosophy.  People do not expect to get free stuff over and over, but will expect discounts in perpetuity.  By giving your "discount" in the form of "free", you maintain more of your pricing power and don't create future expectations.

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DL
David Leinenbach
Aug 21, 2017

The short answer is Yes, but no always.....

The decision to walk away over 5% or 10% is a dynamic one which would involve a mental analysis of my overall experience with that particular customer since day one and would include a number of different factors, only one of which would be a willingness on their part to articulate a valid reason WHY they are pursuing a lower price.

I've had some customers come to me, and honestly state that they appreciate the hard work and effort assisting them with the process, followed by a declarative statement of desire to do business with us.   I've been told that they budgeted money for the project during the prior year without having any idea what something like that costs. 

Ive had others who ask for time to re-evaluate whether or not they truly need some of the features we had spent alot of time discussing.  Either way, they are trying to work with us and based on a sincere judgment of that effort, I can be persuaded. They in turn must be prepared to offer a firm closing commitment and DATE.

In any event, if the customer is "just playing "chicken" with me, then:

1 - They picked the wrong guy with whom to play chicken

2 - They better be prepared to turn the wheel first.....cause Im busy texting paying and profitable customers.....

3 - The entire industry would be better served by not reducing their professional game down to "chicken" in the first place, which does nothing but drag everyone into the commodity gutter.  This impacts the industry at large, including the salesman or woman succumbing to it.

While I'm on topic three, and I wouldn't mind starting another thread on this.....

I find Item 3 is more the fault of VP's and Sales Managers developing impossible targets for professional salespeople to hit, and/or constant moving of goalposts,  which forces irrational behavior during closing meetings, and further drives our industry towards the bottom.  This, in turn, forces otherwise competent, capable sales professionals doing their own "reset" by utilizing what has become a revolving door to go to the next employer just to catch a breath.

And everytime one of these salespeople moves to another company or competitor, they take with them valuable knowledge and experience, and in some cases proprietary knowledge.

With the IP advances of the last 5-10 years, our industry has been afforded a unique opportunity to "reset the clock" on commodification and gutterballing and bring what we do back up to the professional level it was at back in the day.  But here we all go again - we cant help ourselves - lets give up another 5 or another 10 to close a deal so my Sales Manager can add another 5 or  10 percent to my target next year. Stop and think where that takes us as an industry.

I dont know.  No wait, I DO KNOW.  Everyone would benefit by not doing that. It is actually possible to Metrics your way right into a hole.  Sales Metrics (or metrics in general) are important and should be used as a tool.  Practicing them as a religion carries its own trouble on the day of our fiscal redemption.  

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Daniel S-T
Aug 31, 2017
I've always been a technician, and only had a taste of the office life as a Project Manager for a small company, but I've never understood the constant changing of the goal posts. We had a record year one year, kind of a fluke really. Vivint and Protectron, and all those little door to door companies had really flown through our province, we picked up a lot of work that way, and I think our province did "10 digit dialing" that year, where you now had to dial the area code when calling some one, this forced a lot of clients to have to upgrade. We had acquired another company a year or so before this, and alot of panels we just couldn't get into. Some systems were too old, so on and so forth. Now these were heavily discounted upgrades, it was not the clients fault, nor was it really our fault, but it counted as sales. The next year all the sales and service targets sky rocketed. They of course, wanted to beat the record year. This lead to us almost being on target for sales numbers, but for profit going way down. Margins were cut very often just to win jobs. And in some ways lead to lower quality work. To do more jobs means you need to do the other jobs quicker, or hire cheap contractors, or cut what you pay your contractors. It really didn't work out, but this seems to be what happens, in my own personal opinion, when you have people in charge who don't really know the industry, and just focus on profits. I mean I guess I understand, gotta please the bosses, and the shareholders and shit, but if you're making a profit, why does it always have to be more? Or forced? Why can't your profit grow organically, or by increasing the markets you serve. At a certain point, staying in one market can only get you so much profit.
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Sean Nelson
Aug 21, 2017
Nelly's Security

I cant imagine intentionally doing a worse job because I agreed to a price cut that the customer requested. That seems unethical.

Now, if you explain to the customer that you will do the job but will need to take out some of the premium features that were the original quote to meet the price demand, then thats a different story, everyone is on the same page as to what they are getting into. That is simple negotiating.

If you cant agree to the price cut without giving quality work, then just move on. Similar to what Jon D. said, you have to be prepared to fire clients or turn down work.

I cant stand constant hagglers either. I will help some people if they are either on a real competitive bid or if they are quoting a real large job but if I see a trend in which a customer is constantly asking for price cuts, i just stand my ground and am prepared to lose them if needed.

 

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Brian Karas
Aug 21, 2017
IPVM

On the topic of proposal negotiations, does anyone ever "add a duck" to their proposals to allow for easier cost reduction/negotiation?

UI
Undisclosed Integrator #13
Aug 21, 2017

I know one Integrator that adds BS to his original quote just so that he can take it out for the customer and give them the impression that they are "getting a steal".

That being said he only does it for this one customer and when I asked him about it he said it was "social engineering". 

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UE
Undisclosed End User #11
Aug 21, 2017

I'm an end user -- a regional corporate security manager at a large global company. Here are my thoughts:

I want my vendors to make money. I want them to survive so I can continue using them. I want them to want my business.

I do not want to pay more for a job than is necessary. I do not want to be taken advantage of.

So, I do scrutinize quotes and often ask for a reduction. In most cases, the vendor has done so but has lowered the quality or omits crucial components without telling us. I need the vendor to tell me when he's cutting something that is necessary, rather than simply agreeing to it to get the job, and letting us find out the hard way later.

I will ALWAYS go with a vendor who will partner with me.

As a large, global company, we are often viewed by vendors as "deep pockets". Quotes include the full boat of extras on a "Rolls Royce" system and it is then incumbent upon me to start weeding through each line to strike what's not needed.

For one example, we replaced the access system at one of our sites on the east coast. The initial quote included only a single grand total, which I rejected in favor of an itemized quote which revealed how inflated the quote was. There was an extra $40,000+ for recabling the facility (2 people for three weeks) when it wasn't necessary -- it was not a new system but a replacement. When questioned, they said they included it "in case they found something wrong any of the cable". They included top line computers that far exceeded the required and recommended hardware. But they initially expected me to simply sign off on the grand total. (We didn't use that vendor.)

Another vendor gave us a bloated $200,000+ quote for a video system, which I rejected. It included top line cameras that were the most expensive items on the "menu". After several iterations of progressively lower pricing, they presented a $72,000 quote for a system that has been perfect for us.

For this reason (and others) I require quotes with parts broken out and priced by individual line, as well as for labor, shipping, and tax. This gives me the opportunity to understand what is being bid, provide guidance to vendor, and cut what's not necessary.

Again, I want my vendors to make money, but I'm looking for a fair quote and want to be viewed as a valued customer, not a money tree.

 

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UM
Undisclosed Manufacturer #2
Aug 21, 2017

Worth its weight in gold!

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JH
John Honovich
Aug 21, 2017
IPVM

#1 great points.

For this reason (and others) I require quotes with parts broken out and priced by individual line, as well as for labor, shipping, and tax. This gives me the opportunity to understand what is being bid, provide guidance to vendor, and cut what's not necessary.

Related for others: Hide or Show Models on Quotes - Integrator Statistics

Also, started a new discussion on this theme: How Does A Customer Know You Are Not Screwing Him?

DL
David Lieberman
Aug 21, 2017
IPVMU Certified

It is clear that there are two sides to this coin. Vendors who will pad the quote and use shady tactics to get the job, and then cut corners necessitating the caveat emptor cautionary advice for customers; and the customer who is always looking for high quality with a low ball price and feels the vendor is not entitled to profit from their labor.

Both customer and vendor must substantiate that they are trustworthy and working in harmony toward the same goal of good quality products and services at a reasonable price.

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