Rates and Pricing 


Name Message
Shelly.Cox
Posts: 51
Location: Frederick, USA

Joined: 7/8/2008
Topic  Rates and Pricing       Flag »  Reply »
Below is PSM editor TJ's recent Field Notes editorial:

Previously I've asked you about rates and pricing. David Williams (Oregon) responded that his firm is charging roughly 25% less than their 2007 rates as a result of supply and demand.

With some larger firms laying off staff, many licensed persons go into business for themselves. Working out of their homes with low overhead, they're able to charge lower rates. There are many advantages to licensed surveyors personally performing all phases of a project, and I'd much rather set my own rates than be told what I can charge. But David reports losing jobs to bids as low as 10% of his. That is drastic and may be rare, but I've seen my firm lose jobs to bids 1/3 of ours. Is this actually fair price competition?

One explanation I've heard is that people do what they must to keep food on the table, and that is understandable, to some degree. But do we really have to cannibalize our profession to do that? And what about other professions and industries? Surveyors certainly aren't  the only ones suffering from the economy. What about your lawyer; has he or she lowered rates? How about your CPA? Have insurance and other overhead costs gone down?

I talked to a friend who owns a small landscaping company and he assures me he sees the same thing in his business, so we're apparently not the only ones doing this. Not to knock the landscapers—the ones I know work their rears off—but is that what we've become? And where does it all end?  Please respond below.
  Friday, August 26, 2011 at 12:56:35 PM
Shelly.Cox
Posts: 51
Location: Frederick, USA

Joined: 7/8/2008
Reply  Re: Rates and Pricing Flag »  Reply »
As much as we like to think of ourselves as “professionals” on par with doctors, lawyers, etc., the fact is if you act like a contractor you will be treated like one.  The key word in your forum article was “bid”.  In my area of northern California not only are surveyors cutting their “bids” to the bone, perspective clients are playing the game.  The few development projects that are put out to “bid” are being negotiated for a lower cost after the bid process is over.  Most of we small companies are between the “devil and the deep blue sea”.  If you don’t want to work for expenses (no profit) you don’t get anything.  Some of the larger firms are working at a loss to keep their staff in the hope the economy will improve soon.
 
It will all end when the real estate market turns around.  Land surveyors in general are connected to the commercial and residential real estate market with an umbilical cord.  There are a very limited number of municipal projects and a lot of surveyors vying for the opportunity to place “bids” to do the work.  As long as the housing market is depressed surveyors will be short of work.
 
Michael E. Ford, PLS
Santa Rosa, CA
  Friday, August 26, 2011 at 12:57:21 PM
Shelly.Cox
Posts: 51
Location: Frederick, USA

Joined: 7/8/2008
Reply  Re: Rates and Pricing Flag »  Reply »
TJ,
 
I found your Editor’s Forum editorial very interesting.

I understand the griping among people being undercut price-wise but the bottom line is that those who choose (for whatever reasons) to work from home have that right under our capitalist system.  The name of the game is to do quality work less expensively than the other guy.  For example, the solo surveyors have no crews to pay – is this unfair?  I think not.

Thank god we don’t live in a communist society where all must conform to the dictates of the despots.

Have a great day,
 
C.R. Vaughan, PLS
  Friday, August 26, 2011 at 12:57:57 PM
Shelly.Cox
Posts: 51
Location: Frederick, USA

Joined: 7/8/2008
Reply  Re: Rates and Pricing Flag »  Reply »
Your comments on the Editors Forum are timely. It raises the economic principle of supply-demand-price in an example we can all relate to; Given a certain supply of surveyors as the demand for the surveyors services decrease, this will lead to a decrease in price. It is a natural response for a business owner to consider lowering prices when the firm’s sales decrease. However in taking this course of action, the owner is often exchanging one type of problem for another. It also points to an important difference between commodities and a professional service. Surveyors need to reflect on what they are selling and how its value is determined.   
 
It is worth noting…most surveying companies employ 2 to 4 people. These are typically low overhead business operations to begin with. Other business conditions may be more important. For example the client base, a reliable cash flow and a flexible operating cost structure influence what a business can do when an economic downturn happens. The person operating from their house still has operating expenses, albeit they may be less than the business with a store front. So while the person operating from a house may have lower operating costs, they have other issues to contend with. They can only commit to so much work at a given time. That means they must enter and leave the marketplace. And while they are out, they cannot pursue the opportunities as they arise. Further, all firms cannot be all things to all clients. There is constraint to the opportunities a given firm can pursue.   
 
Also it is important to distinguish between an established business and a startup. Each year a certain number of surveyor’s start a business. They generally begin by competing on price in order to acquire clients. The low pricing leads to poor cash flow and since the typical startup is undercapitalized, the poor cash flow leads to an empty bank account and business failure. We only need to look at the yellow pages to see this phenomenon happens in good times and bad….there will always be startup companies that will initially compete on price and this causes some turmoil in the marketplace.
 
Competing on price cannot be considered unfair unless it is accompanied by a monopoly. It may be risky for the business owner and their clients to follow this course of action. Most people tend to intuitively understand….if it sounds too good to be true, then it probably is. But is price really the important issue?    

(continued in next post) 


  Friday, August 26, 2011 at 1:03:10 PM
Shelly.Cox
Posts: 51
Location: Frederick, USA

Joined: 7/8/2008
Reply  Re: Rates and Pricing Flag »  Reply »
(continued from previous post)

What this brief Editor’s comment does not address is value. All business is based on the notion of an exchange for value. If every business offers the same level of value, then buyers tend to look for the lowest price. So, can the surveyor who is working out of his house for a low price provide the same value as a surveying business that operates from a store front? Maybe, if the service is fairly generic. This is why it is important to understand the concept of value. Is there value in:
  • Being able to respond to the client in a timely manner
  • Having the financial resources to deal with problems should they arise…in other words what are the risks in doing business
  • Finding the professional in the future
  • Offering reasonable payment terms
Different types of clients value different things. The private landowner seeking to build a fence is probably only concerned about price and schedule. A commercial enterprise that is buying a surveying service for some business objective is probably concerned about a host of issues. Many of these issues are business related. This may come as a surprise to the professional who thinks most of the value is in their technical/professional skill. While these skills are important, the business client is, well, just doing business. For them value may exist in social and business factors as well as the technical/professional:
  • Are the people sensitive to my concerns
  • Are the people easy to work with
  • Will the people look out for my interests
  • What is the exposure to risk
When the professional seeks to understand the client’s business and their objectives, they can better address the notion of value. Essentially, it takes effective social skills to start and continue the discussion - it takes effective business skills to recognize and define value - and it takes effective technical/professional skills to deliver the service. And each of these factors creates some amount of value for the client. 

(Continued in next post)

  Friday, August 26, 2011 at 1:07:47 PM
Shelly.Cox
Posts: 51
Location: Frederick, USA

Joined: 7/8/2008
Reply  Re: Rates and Pricing Flag »  Reply »
(continued from previous post)

The one-surveyor firm has to do all of this by themselves, and some can, but they are rare. A firm with just a few employees can take advantage of skill specialization and often achieve better results. So there are advantages and disadvantages in the size of a company. No firm can be all things to all clients. The key is to understand the value that can be created in a given situation…..and then become very good at producing it. A business that focuses on creating value for its stakeholders (employees, vendors, clients, shareholders) will thrive in an economic expansion and endure the economic downturns.

The concept of evolution is applicable in life and business - Adaptation is the process that makes organisms better suited to their habitat. For people and businesses, their adaptive capacity can be enhanced by:
  • learning to live with change and uncertainty
  • creating additional knowledge and skill - becoming more diverse
The first situation produces discomfort and the later represent hard work. This is why people often delay actions until the discomfort of the status quo become unbearable. Then change takes place.

The evolution analogy explains how competition typically operates in market economy. The current recession was caused when a financial bubble burst. And people responded to the changes in the economic order by engaging in entrepreneurship and innovation. This type of activity forces existing business to do the same or risk losing their place in marketplace. This can be unsettling experience, but it is the inherent in the nature of business.

Consider this - Down the road, when the economy improves - How will you convince a client they should pay a higher price for the same type of service?    

Lee Lovell, PLS
Parker, CO
  Friday, August 26, 2011 at 1:08:21 PM
Nome Surveyor
Posts: 1

Joined: 9/1/2011
Reply  Re: Rates and Pricing Flag »  Reply »
I have to chime in on this subject. I have operated a small (three employee) firm for over thirty years and I never have felt compelled to reduce my fees. (not that I haven't been pressed to do so) I agree that we do not sell a comodity, we sell a PROFESSIONAL SERVICE. You don't see the lawyers, doctors, ect. lowering their prices....do you? Why should we? The years before this economic resession started, the surveying profession was at an apex. There was a call for young folks to to become members of the surveying profession to replace us "aging professionals". I see that trend now in decline and why is this a mystery? It's this degradation of our profession, lowering ourselves to that of "contractors". I have always and will contine to refuse to offer my services as a "bid". I always provide my potential and returning clients with a "proposal for services" based on estimates of what the project will incurr cost wise. Not a set fee. This strategy has been successful for my company. Often my estimate is more than actual costs and those savings are passed back to my (now happier) client.
Quit it you guys.......you're selling us ALL short when you do this and reduce us ALL to something less than professionals.
RSM 
  Thursday, September 01, 2011 at 2:00:57 PM
DanRansom
Posts: 1

Joined: 5/26/2013
Reply  Re: Rates and Pricing Flag »  Reply »
Amen 
  Monday, May 27, 2013 at 8:33:27 AM


 
» Reply to Rates and Pricing Topic

In order to post a new message, you must first be logged into an account.

Website design and hosting provided by 270net Technologies in Frederick, Maryland.