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Why do some dealers bid at crazy low margins?

Why do some dealers still bid at ridiculously low margins?  It does not make any sense.

Look, there is nothing wrong with a low-cost high-volume strategy. Walmart, Amazon and others are good examples.

However, our opinion is crazy bidding has nothing to do with a well thought out low-cost high-volume strategy.

Our conclusion is there is lack of thought about their long-term strategy.  They are panicked and think all business is good business.  But it’s not

Craziness has its roots in one or more of the following reasons:

  • Lazy salespeople that are very comfortable with the quote and hope strategy
  • The dealer cannot articulate or offer true value and defaults to a barely acceptable job at a low price
  • Margin ignorance. The dealer does not understand the power of improved margins on cash and balance sheet efficiency.
  • The overhead recovery myth. This is the one we really don’t understand. Some dealers drop margins on bids early in the year so they can pretend to cover overhead costs. Problem is, it requires the same labor and resources to complete the project. Why would they not deploy those valuable resources to where they can make decent margins? If they did this their breakeven sales requirement would be reduced.

We believe good competition is very healthy. It keeps you sharp. It makes you want to continuously improve.

 

One of our clients acknowledged competition can be healthy:

“I love to compete with a good competitor.  It makes us better”.

I am sure many of you would have similar sentiments.

How wonderful would it be if all dealers compete on capability first and price second?

Crazy bidding has no value. In fact, it is a value destroyer for all that participate within this industry.

If you are in the crazy bidding space. Let us show you what your business could like with a slightly different perspective on how you manage your margins. It will be good for you and great for the industry as a whole.

If you are competing against a crazy bidder in your market, talk to us about how you can minimize their impact so you can sell, win and reap the benefits of high-margin work.