Small businesses admit undercutting to win work

Small businesses are feeling the pinch of a tightening economy with nearly half admitting they are undercutting their competitors by as much as 30 per cent to win work.

A recent survey by services marketplace ServiceSeeking.com.au revealed that 42 per cent of business owners have dropped their profit margins to keep their business afloat.

“Starting a small business can be a tough gig,” said ServiceSeeking CEO, Jeremy Levitt. “All businesses will experience leaner times when they have less work on and during these periods they may need to decrease profit margins to win work. This is obviously great news for the customer.

“But as in any supply and demand industry, when the leads increase, so may well the pricing, and businesses can recoup some of their previous losses.”

Despite dropping their rates, Aussie tradies utilising the ServiceSeeking platform have an average hourly rate of $67.16 (data sourced from 52,000 quotes submitted through the site for FY18 Q2). That is nearly four times the minimum wage in Australia and nearly 600 per cent above what workers earn in the gig economy after it was revealed this week that Uber drivers in the US are earning as little as $11.24 an hour (US$8.77). Of course, tradies do need to take additional expenses out of their charge-out rate such as insurance, tools and training.

On the flip side, a quarter of a small-business operators say they aren’t swayed by what their competition is doing and don’t even bother to compare their prices to the broader market.

“This is a sign of a confident business which has established itself in its field. They probably have a good return client base with a healthy number of positive reviews to attract new customers, so they don’t feel the need to lower pricing to be viable,” Levitt aid.

And a further 24 per cent say they are in such demand they can warrant charging above the line.

“That’s the goal of any business,” Levitt added. “To provide an outstanding service that people are willing to pay more than average for. And it’s a common part of small business that many overlook – customer satisfaction and reviews are vitally important. There are many people who are willing to pay above average for a premium customer service; in fact, I’m one of them.”

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