Strategies for competing with Fly-By-Nighters
Fly-By-Nighters, Trunk Slammers, Cash Guys, The Underground... whatever you call them, they are everywhere these days - trying to outbid you by 30 to 40 per cent. Here are some ways that established, above-board, legitimate contractors are competing with this hidden marketplace.
June 20, 2014 by Steve Payne
By Bruce MacKinnon
Hey, there’s a problem here!
Competing in the renovation business is hard enough without having to always beat the lowest bid.
We’re not talking about low-balling from above-board contractors, but the Trunk Slammers who do cash jobs or hack work. They undercut us by not having overhead items like insurance and compensation, or even quality tools.
“I warn them that they get what they pay for,”
So how do legitimate home renovators deal with Fly-By-Nighters?
Most renovators don’t even think about the issue because they deal only with high-end renovations.
But the early years of contracting can be difficult to compete, before a renovator can establish himself as a top-quality builder. And in smaller communities, trunk slammers are a constant plague on legit companies.
Mark Machtaler of Mark’s Renovation Solutions in Winnipeg, MB, had to explain the positives of hiring an above-board contractor before he had a body of work to lean on.
“What I offer is quality work at reasonable cost, but if the customer wants to go the low-ball route, I warn them that they get what they pay for,” Machtaler says. “They could get low-quality work and subpar materials. It’s always a possibility they won’t get customer service or even a warrantee.”
It’s a ‘buyer beware’ marketplace and so Machtaler is upfront with all his prospective customers.
“I just had this conversation with the owner of a new custom high-end bar. He wanted to know why my price was so much higher than the cash guy.
“I told him how it should be done and I went through the steps it takes to do a complete job. I said that, like him, I have to pay overhead costs, like transportation, tools, insurances, WCB and higher wages for skilled employees.
“So, ‘NO, I can’t compete with the cash guys, but, is the lowest cash price really worth it?’ I ask my customers.”
The written scope of work
The written scope of work can be a powerful tool in convincing the customer who is on the fence about cash or legit work. This is Neil Matthews’ approach. The owner of Trend Setter Renovations in St. John’s, NL will get the prospective client to compare his scope of work with that of the low bidder.
“I warn the client that without a paper trail and an agreement, they have no recourse if there’s a dispute,” Matthews says. “Besides, they are only saving the tax, but losing the warrantee, so it’s a false saving really.”
Even well informed clients want a deal when the economy is slow. The trunk slammers take advantage when it’s a cutthroat economy by lowballing everyone. But they’re opportunistic when the economy is booming, and legit contractors are hard to find, Matthews says. That is when they take advantage of a homeowner’s impatience.
“I would like to see a system in place where, when you apply for building permits, only a certified contractor with journeyman papers or with journeyman employees are able to get a permit,” Matthews says. “This is what I have been talking to my customers about for years.”
“Lunch and Learn” seminars
Ashton Service Group in the greater Vancouver area has developed its own unique way of educating property managers in its region.
They host “Lunch and Learn” seminars where they explain their philosophy. To ASG, planned maintenance is not a lost leader, but good business sense which saves money long term.
“We only use Red Seal certified journeymen, or those on an apprentice program who are working directly under a journeyman,” says Patti Allen, operations manager. “If the customer has to pay a higher price than your cash guys, they should be getting skilled tradesmen.”
Allen also acknowledges that there are still people who want to do cash jobs and it’s almost impossible to break them up that habit.
“We explain the true cost of doing business legitimately, with lettered vehicles, uniforms, IDs, and professional equipment.”
The Quebec Model
The construction process in Quebec is completely different from the rest of Canada. Every contractor in Quebec must be properly accredited after taking exams and tests from the RBQ (the Building Board of Quebec). It’s the only way contractors can even apply for commercial and government work in the province. However, in residential renovations, unlicensed contractors are still abundant, says Brian Newsam, of Newsam’s Construction in Montreal.
“In the residential market, customers are price sensitive and willing to take the risk on workers or contractors that are unlicensed,” Newsam says. “It really depends on what kind of experience the customer has had in the past. A lot of customers are comfortable using a jobber to save dollars, until they get burnt. Then they begin to see the advantages of using a licensed contractor.”
Newsam Construction is in the process of updating its website to educate clients about the dangers of using licensed contractors.
“It really depends on what kind of experience the customer has had in the past,” Newsam says. “A lot of customers are comfortable using a cash jobber to save dollars, until they get burnt. Then they are more open to using a licensed contractor.”
Newsam is updating his website to educate his customers and prospects about the dangers of using cash jobbers.
Competing with the Craigslist contractors
With the growing internet influence on construction, Jason Dumouchel of Top Handyman in Toronto’s east end is not only battling cash contractors on the ground, but on Kijiji and Craigslist as well.
Kijiji and Craigslist haven’t helped legitimate contractors at all. Instead they are ruining the trades in general by driving down labour pricing expectations, Dumouchel says.
His approach to education is to be accountable by having his prices online,
“I have decided to stick to my guns as far as my pricing goes,” Dumouchel says. “I believe in my pricing, so much so, that I even post my middle ground rates on my website (Tophandyman.ca) to be upfront with prospective customers.”
Dumouchel doesn’t just point the finger at low ballers. The culprit is also the customer who knowingly pays 30-40 per cent below rate. He tells them what a job should cost.
“We’re not yard workers, we have invested in tools and a truck, insurances and we pay taxes too. They don’t mind paying lawyers and doctors rates above working wages, but not us.’
Dumouchel’s main method of education with new customers who balk at $60 per hour is explaining he has fixed costs, including labour.
“However, I will tell some people who insist on paying only labour charges, that it’s that’s ok. The only condition is they will have to supply all my professional-quality tools, buy and transport the materials in their own vehicle and pay all the insurances.”
Timmins, ON=based Bruce MacKinnon, a frequent contributor to Canadian Contractor – and the former editor of our sister magazine, Pro Painter – was a painting contractor for more than 20 years