The size of the economic crisis is beginning to hit home. This week the Chancellor, Rishi Sunak, warned that there may well be no immediate bounce back for the UK economy and that we’ll be facing a severe recession the likes of which we haven’t seen before.
Stark words. But also a reminder that if any business, not just in fenestration, is to survive what is coming, then it has to be profitable. Our own industry has a tendency to sell based on price first, everything else afterwards. That has to change. A race to the bottom must be avoided.
Profit, profit, profit
It’s not a dirty word. Profits are made for the stability and reinvestment of a business. For too long our industry has failed to recognise the importance of profit-making and now, as we enter an enormous downturn, that failure to make good margins is coming back to bite hard.
The 2008 financial crisis and the Great Recession that followed was an opportunity for companies, especially installers, to learn from and refocus on making good money from their work. Instead, what ensued was the usual heavy discounting strategies, price-matching and lazy selling, all of which eats into the margins a company makes.
A crisis always exposes the companies built on weak foundations versus those that know how important good profit margins are. This crisis will be no different. Margin is always important, but when it comes to a downturn, it is the very fat on the business that helps to see it through the bad times. Some companies during this recession will go to the wall through no fault of their own. Who could have predicted a global pandemic sweeping the globe at such rapid pace at the start of the year? Some will go under however due to bad business models and failure to win business with healthy profit margins.
So as our industry goes back to work and starts its journey through the second part of this crisis, the economic one, it is absolutely imperative that any business won is profitable business. You only need to look at the economic data coming through, and the most recent comments by the Chancellor to know that what we’re facing is simply staggering, and not in the good way. Profit has never been as vital as it is right now. Even if revenues fall in the coming months, its the margin that is made that will see companies through this bad patch.
Can we avoid a race to the bottom?
During my period of the lockdown where I was working from home, I priced up two composite doors for a homeowner. Nothing special about the specification, but high quality products. After I emailed the quote we spoke on the phone and he told me that a competitor had given him a price for two of the same doors but for £600 less. After a few questions to ascertain as to whether there was a fair product comparison, I told him that to match their price I would have to take out our entire profit margin. Which if he wanted us to honour our ten year guarantee, wasn’t a good idea. He insisted that the doors from the other company were exactly the same. He didn’t go with us in the end.
I am perfectly OK with that outcome. We wouldn’t have made any money, so I’d rather let the other company waste their time breaking even and treading water. There is no point to any business, unless its a not-for-profit, breaking even. If the company we lost that order to encounters hard times, and they sell like that on a regular basis, they will wonder why they don’t have any cash in the bank to help them through the tough times.
So can we avoid the race to the bottom? From where I’m sitting, no. Our industry has always used price as a primary sales tool and even something as devastating as this crisis will not be enough to show them that a more profitable path is the better path long term. I am already seeing it with our customers who say they have found cheaper prices. I am already seeing it on social media from installers touting hefty discounts. With the money added on first of course!
Its a mix of historically embedded sales training, lazy selling and an inability to hold firm against pressure to offer discounts to win the business. To change the landscape, it’s going to require the biggest installation companies to change their ethos and business models. That’s unlikely to happen. Ultimately its all down to training and showing how business can still be won the right way and the profitable way. Selling based on the quality of the product and delivering a positive buying experience for the homeowner. It can be done, plenty of smaller installers do it, we do it. We have been in business at our place for 39 years selling based on quality and customer service. We don’t win every order, but we do make money and our margins are good.
As we enter this historic period, we will continue our way of doing business, albeit in different ways now, and demonstrate that good business can be done, at a price acceptable to the homeowner but whilst also remaining profitable.
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Silly fish that drank the pool…..
Could not agree more with this editorial piece , sacrificing standards and margins is not in the best interests of anyone too long has profit been seen as dirty word but we all need it to survive ! How many posts have I seen where they say we put customers before profit as if any competitor wanting to make a profit is the devil ! How ludricous , unfortunately I agree with the editorial the race to the bottom is inevitable , but I also suspect that those leading the race to the bottom ultimately may not be the winners… Read more »