Leaving $ on the Table

June 7, 2004

Excerpted from the e-PHC Profit Report newsletter.
Jim Olsztynski, Editor-Publisher

One of the greatest frustrations in construction work is winning a competitive bid and later learning the next lowest bidder was way above you. That means you could have padded your bid quite a bit and still landed the job. Leaving all that money on the table feels like getting robbed.

Service businesses also leave money on the table, usually without knowing it. You may be quite content to know that Mrs. Jones has spent an average of $500 with your firm over the past several years, but how would you feel learning that she had spent a lot more with competitors?

You need to do a couple of things to prevent this from happening:

1. Determine what your customers spend in your category. This requires a little market research, probably by hiring a specialist to devise a mailed or telephone survey. It could also be the subject of focus group research. You want to find out if your customers are in the habit of using more than one PHC company, and why.

2. Determine what prevents them from giving you the additional business. It could be that you weren't available when service calls came in, or you didn't return calls in time. Maybe the person didn't know you do a certain kind of work. For instance, though it may sound strange, I've known people who didn't realize plumbers install water heaters. They would call an HVAC firm, or in the case of an electric water heater, an electrician, to install a water heater. Or perhaps people call certain companies for little jobs but don't trust them to handle anything major. You want to find out where you stand in this spectrum.

The objective is to understand the customer's point of view. It doesn't matter what you think about the service you deliver. It's what your customers think that matter.

When you increase business with existing customers, it adds more to your bottom line than a new customer does. That's because you've already paid the acquisition cost for the existing customer, while new customers typically cost a PHC firm between $200-300 in marketing expense to capture.

Excerpted from the e-PHC Profit Report newsletter
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Jim Olsztynski

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