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Hello, it's Chris Verrone, welcome to Episode 8 of 'Contractor Truck Talk'.
This week we're going to talk about 'great marketing does not overcome bad economics.'
So in other words not making enough money on a project - or not making money at all,
in other words losing money. If you look back at some of my blog posts
- I believe it's in one of them in particular - I talk about great marketing overcomes all
business problems. I agree with that fully, barring bad economics. What I mean by that
is great marketing -- if you're doing marketing perfectly -- does not overcome if you're
bringing in tons of leads and converting those leads into sales on jobs that don't make
enough money or don't make money at all. The biggest problem that I see with bad economics
and frankly I've done this myself in my career where I did tremendous volume - tremendous
residential volume as an example, and at the same time commercial volume - and my profit
margins were not high enough. I thought that I could overcome low profit margins with volume.
And that's true to some extent if you're profit margins are high enough to make a larger
volume -- make it all make sense. But what I find most predominant in contracting is
folks -- first of all their view of what their profit margins are projected to be is
wrong because it's wishful thinking - and I've also been a victim of that myself.
So they price it at what they think it's going to make, but what they think it's
going to make is really a little skewed because they really want to get the job. I've done
that myself. Another one is they just don't know, they're guessing -- I've also done
that. All of those things just make for a job that's
going to have little to no profit margin. Which basically means at that point I'm
just turning money. It's kind of like if I take money and bring it in and just pay
it all out then I just spent a whole bunch of work getting that work done - my work administratively
and so forth - and all I did was turn money. So if I did a phenomenal job marketing, bringing
in tons of leads and then converting those leads into sales at profit margins that are
low to zero, it has absolutely no value. It's just turning money.
Here's where a lot of emotion comes in for folks -- and I've had it myself -- where
people will tell themselves that "Well it's a recession and these two guys are priced
low so I have to price low to get the job." The first thing I'll say is price resistance
is in the mind of the seller it's not in the mind of the buyer. So if I tell myself
that I have to price a job low it's in my mind, the buyer's not telling me that and
typically that's the case and I am wrong. It's my job as the entrepreneur and more
importantly as the marketer to position myself away from those two contractors - or five
contractors whatever it is. Position myself where truly an apples to apples comparison
cannot be made with me next to those other contractors. I have to position myself as
a different contractor. In the next blog post we're going to talk
about exactly how I do some of this positioning, and there are a whole bunch of different ways
it can be done and different levels that it can be done on. But all of them are effective
and it's all doable during a recession.