THEY MIGHT BE SELLING TAP WATER

LOW-BALLERS, BOTTOM FEEDERS, AND PRICE WARS

Feel like I’ve talked this topic to death on this show, but I feel like there is another angle I want to exhaust before putting this one to bed for a season or so. The topic, as the title suggests, is around fees and pricing of your product and service. The reason I decided to record this episode is primarily due to the discussions I’ve seen lately on some industry forums around fees and pricing, and quite simply the horrible advice I see many giving to the masses. What is the advice they’re giving you ask? The horrible advice being given is to ‘never lower your fees, maintain your fees at all costs, don’t lower your fees lest the AMCs and bottom feeding companies win!’

On its face, this seems like reasonable advice to be giving people, but I’m going to spend some time in this episode telling you why this is horrible advice, why it’s based in fear and lack, why it’s selfish and self-defeating, and what better advice would sound like. 

‘Whaaaaaat?! Blaine Feyen is telling appraisers to lower their fees and bend the knee to the bottom feeding AMCs! Tell the world!!’ Nope, that’s not exactly what I’m saying, but there is most definitely something in there for us to talk about. 

You see, when you get upset because somebody else won the business you believed you were entitled to, and they did so with what you assume is a lower fee, you mistakenly believe that if every player in the market just kept their fees at least $1 more than your fees then you would’ve had a chance. ‘Why $1, Blaine?’ Simple! If there are 10 competitors in your market all charging exactly what you charge, what differentiates you from them in the minds of your customer? Maybe a slightly faster turn time? Maybe better communication? Maybe nothing! So, in theory, you would need all of your competitors to be at least $1 more than you for you to be the big winner. And, in that instance, you’re the lowball winner, even if you only lowballed by $1. In essence, the person screaming, ‘stop dropping your fees’ is doing so because they’ve likely done nothing else to warrant what they’re charging their market of customers beyond looking at what others in their market are, or were, charging and then charging something similar. 

Just to be clear on this $1 more idea, if everyone is charging exactly the same amount of money for what appears to be the same thing to the buyer of your services, then you would, in theory, have to be $1 less than everyone else to win, or deliver something equivalent to $5 more value than what you’re charging for the market to even consider paying for your service. There is no benefit to being the second lowest price in the market. Either you’re the lowest price or up near the top in pricing to play the game effectively. I’ve talked extensively on this topic in recent podcasts so I’ll just encourage you all to go back and listen to the Race to the Bottom podcast to better understand what your options are when it comes to pricing and running a business. The point of this episode is simply to make two primary points: whether or not dropping your price or fees is a good idea to meet market demand, and what everyone screaming about ‘bottom feeders’ seem to be missing.

First, is dropping your price or fee is a good idea to meet market demand? Well, there are some things to consider when it comes to answering this question. One thing to consider is your overhead and operational drag. Operational drag is a fancy term for all the things that might pull you away from the vital work that somebody in your position should be doing. Are you constantly in meetings? No? Are there people pulling you in all directions? No, you’re a one-person shop? Are you working at cross purposes because the boss wants you to do things the manager disagrees with? No, you are the boss? Ok, well then are you working as efficiently as you could given all the technology and advances available to you today? No? well whose fault is that? Is that the market’s fault or yours? It’s your fault! 

You don’t deserve to charge higher fees than what the market is willing to pay just because you have higher costs due to your unwillingness to become more cost effective and efficient. You also don’t deserve to charge a particular price or fee just because everyone else seems to be charging that much. You might get it for some period of time simply because the people paying look around and say, ‘well, it looks like this is the going rate based on supply and demand’, but eventually every market and every industry is infiltrated by those who are ready, willing, and able to do what you do, or at least make it look similar, and for less. Those screaming for everyone else to stop lowering their fees so that they don’t have to lower theirs to get that same business are playing a losing game. 

People screaming for everyone else to stop lowering their fees so that you don’t continue to lose business are basically saying to the world, ‘I was only worth what I was charging because everybody else was charging that too!’ As soon as somebody, or at least enough people to make a difference to your bottom line, decide to lower their price, or, in the appraisal business, their fees, suddenly they’re considered bottom feeders. Do you know what a bottom feeder is? A bottom feeder is any species that typically lives off of what lives or falls to the bottom of a body of water. If you are upset about somebody taking what you believe you’re entitled to, ‘bottom feeder’ wouldn’t be the proper term for that since you too were happy to work for that company and sell your services to them, as long as they paid your desired fee. As soon as that company doesn’t have to, or doesn’t want to pay your fee, suddenly anybody willing to do that same work for less is the bad guy or girl and the bottom feeder. You too were the bottom feeder to somebody higher priced than you, your ‘bottom’ was just higher than what you’re getting beat at now.

It’s a convenient excuse for not wanting to lift a finger to differentiate and provide more value. Calling anybody who might be able to do the same work as you do but do it for less than what you charge a ‘bottom feeder’, is simply laziness. “Well Blaine, I don’t think those people are doing the same quality of work that I do! The only way they can charge what they do to win that business is by cutting corners and providing a crappy product and/or service!” 

This is often the follow-up argument we hear from these people when confronted by a counter argument for why you should be looking for ways to increase your value. The counter argument when confronted with logic is that those charging less than what you charge must automatically be delivering lower quality work than what you offer. So, let’s take this argument to its logical conclusion. If you truly feel that people who are ‘stealing’ the business away from you by charging less than what you charge, why would you be screaming at them to stop lowering their fees to win the business? Why should that appraiser, or whatever business you’re in, be charging what you charge to begin with? If you believe their quality to be inferior to yours, wouldn’t you want them to be charging less than you? I would! I look around at people in the businesses I’m in all the time and think, “we’re better than that person or company, we need to be charging more than them!” But then I follow that up with, “we need to make sure our clients and customers know we’re worth more!” We would never yell at our competitors to stop lowering their prices in order to allow me to keep winning the business we’re winning. If we start to lose at some point, we look around, assess what’s going on in our market and industry, and make decisions based on the direction things are headed. 

You’re not entitled to anything in life or business. Entitlement has no place in the world of business and free markets, friends! As soon as you believe you’re entitled to something, you become complacent and arrogant. Thinking you’re entitled to something just for existing is a recipe for massive disappointment. Screaming that you want all the so-called bottom feeders to charge what you charge so that you don’t have to do actual work on your business, your marketing, and your message is sheer arrogance. Why would you want that business to begin with? Why would you want clients that pit you against other lower cost options? Why would you want to work with clients who don’t value the kind of work you believe you do? It makes no sense whatsoever.

Do I think people should drop their fees to get business in today’s market and economy? It’s a great question and will always get follow up questions from me. “Show me your product, your service, your marketing, your communications, your client list, your leadership”, etc. There should never be a time when the advice is an automatic, ‘raise your fees’ or even ‘keep your fees where they are’. I’ve given appraisers advice over the years that amounted to, ‘you’re charging too much for what you’re providing’. The goal wasn’t necessarily to get them to drop their fees, although that is an optional strategy to initially win business as a new entrant, it was more to get them to increase the quality of their work and pile on insane amounts of service and follow up value to eventually be worth what they’re charging. You’re not automatically deserving of a single dollar simply because you have a license and a heartbeat. 

There are a ridiculously large amounts of people in a bunch of industries that aren’t deserving of what they’re currently charging and should not be encouraged by the masses to keep their fees up with yours. Many of them should be told to drop their fees significantly so that those with higher quality product and service appropriately stand out. 

Bottled water has been around since the mid 1700s, so it’s no surprise that today Americans drink some 50 billion gallons of bottled water every year, and that number is increasing each year. Is it because tap water has gotten considerably worse since 1767? No, its actually gotten considerably better since then. The reason so much bottled water is being consumed these days is due primarily to the changing needs and wants of the market, and good marketing. When I say good marketing its because several of the biggest bottled water brands are really just tap water from a municipal water source being marketing as something more than it is. I won’t mention any brands because I don’t want to upset some of you, but when you pay $2, $5, or upwards of $25 per bottle for bottled water, you’re doing so either because there are no other options, maybe it’s the most convenient option at the time, or because you think you’re getting something special. 

By the way, if you think paying $20+ dollars for a bottle of water isn’t a real thing, it is. We stayed at the Bellagio Hotel in Las Vegas last year and there were 4 bottles of Fiji brand water conveniently placed on the dresser, along with assorted liquors and treats. They are sitting in a pressure sensitive device connected to a phone line that delivers data to the hotel computer system about those items in that room. If you even pick up the bottle to look at it, the pressure sensitive data is sent to the computer system that you just bought that bottle of water at $22 per bottle. That’s right, friends, $22! Why is it $22? Several reasons: the demographic that typically stays at the Bellagio does not want to be seen as or feel cheap, so they’ll drink it to feel like a high roller (maybe they actually are wealthy and don’t care); there are zero drinking fountains in the hotel or casino, so bottled water is your only option (except at a restaurant); its convenient and you’re thirsty, so you just grab it and drink; and maybe you’re just ignorant about it and won’t challenge the fee when you see it on the checkout statement. 

Whatever the reason, its similar to movie theater candy in that they can charge double, triple, or more due primarily to convenience, even though it’s the same stuff you can buy at the dollar store and smuggle in down your pants. The theatre doesn’t even have to have fancy marketing to pull off their prices. You just pay it because you’re there and its part of the experience. Which is part of my point about pricing. People pay more for bottled water primarily because they perceive it to be a better option than drinking from the water fountain, the tap, or a garden hose, even though many bottled waters are really from the tap. Put it in a bottle, throw some marketing dollars behind it, give it a fancy name, and all of the sudden its worth something more than what it really is, just plain old tap water. 

Now, I know that some of them are distilled and purified and have essential minerals added to them, which gives the perception that they’re worth more. However, it all starts from the tap. The more expensive the bottle of water, usually the higher perceived quality, the addition of some minerals, maybe its ionized and a higher PH, or something special has been done to it to make you believe it’s better than the tap water you can get from the fountain. And maybe, in some ways it is better, but the question is whether or not it’s worth what you’re paying for it. As this analogy relates to the appraisal industry, the real estate industry, and a bunch of other service industries, the question is whether or not you’re just plain old tap water masquerading as Fiji water or some mineral added special water with a cool logo? Or are you really deserving of the price tag on your fancy bottle? I can tell you from having been a part of the appraisal industry for 20+ years now, the real estate and mortgage industries for years, and several other industries, sometimes the lower priced option is the more honest of all of them! Sometimes the tap water is exclaiming just that to a thirsty crowd, “Hey, most of us are really just tap water trying to be Fiji water, so stop paying for the Fiji if you just want to quench your thirst!”

Am I saying telling you to drop your fees? No, I’m not. I don’t know you, what you do, how you do it, how much you charge, who your clients are, what they’re willing to pay, what your systems and processes look like, who your competitors are, and so on. What I can tell you is that, unless you’re the absolute worst appraiser in your market, there is likely somebody worse than you that is charging the same fee as you’re charging. They’re tap water telling the world they’re the same as you. Would you yell at them to keep their fees the same as you? Or should you yell at them and tell them to lower their fees to match their quality? Do whatever you believe serves you, just don’t ever fall for the ol’ ‘stop dropping your fees’ trope as the antidote to whatever your issues are. 

The final thing I’ll say on this topic, which always goes unspoken, is that when it comes to the AMC business, which is typically where most of this misunderstanding and angst comes from amongst appraisers, you’ll never win against a business that uses you as part of their profit strategy. Remember, we refer to them as the ‘middleman’, which is essentially what they are. They’re not all evil and they’re not all bottom feeders looking for the lowest fee. They’ve been around much longer than people know, and some of them have actually been good for appraisers and the appraisal business. However, any time a company is using you as part of their own pricing and profit strategy, their needs and business strategy will almost always trump yours. The one in the middle is using your pricing, your efficiency, your wisdom and knowledge, and your experience to create profit for themselves, so they’re the ones having to sell their value to the end buyer of your services, which is typically the lender that has hired them. They take your fee, typically add on to that, and then sell that to the lender. Or, they send out an order for bid to get the lowest, or close to the lowest offer so that they can make the most money in that transaction. 

If you have been ok with that game up until the market changes, you’ve been an active player in enabling that system. You shouldn’t be surprised when it turns against you or no longer works well for you. Anytime you are in an industry where you’re letting somebody else sell your services for you, you’re at a disadvantage. You don’t own your own marketing. You don’t own the messaging around your services. You are simply the supplier in the product chain and the supplier always gets beat up on their pricing. The manufacturer of the car just needs a rear-view mirror, and they have 100 suppliers they can get it from. Of course, they want some degree of quality, but they dictate the quality standards, not the supplier. The supplier just supplies the product to the manufacturer, or the middleman based on being the lowest bidder for the quality the middleman or manufacturer is seeking. 

You don’t get mad at the sky for being blue, you don’t get mad at the sun for being hot, and you don’t get mad at the ocean for being wet. Stop screaming at the rest of the world to raise their fees so that you can have a chance to make more money without adding any more value. If you don’t understand how this works, you’re simply somebody who doesn’t understand. If you do understand how this works, you’re likely focusing on the massive opportunities staring you in the face at this very moment. Take advantage of these times of change, stop trying to sell tap water at bottled water prices, and go add some more value!

Until next week, I’m out…