Industry ExpertsCan You Sell More Than Price? Featured
Every contractor, subcontractor or builder I’ve ever met boasts how their quality and service is superior to the competition. But after you present your proposal and the excitement settles down, what really matters? PRICE!
Will your customers pay more?
It’s great to take pride in your company’s awesome service and quality workmanship. Thinking you’re better is one thing, but getting paid more than your competition for better quality is another. Ask yourself this question:
Do your customers pay your company more than your competition for the same work?
To get paid more, you must offer more. Most construction companies want to sell quality over price, but really don’t offer any more than their competitors. Getting awarded a contract is normally based on bidding lump sum for the minimum required per the project plans and customer’s specifications. When preparing an estimate or bid, most companies never consider including more than the minimum required. Why? They’ve got to be low bidder to get the work!
Imagine living in a world where project owners, developers, builders, and home owners actually pay more for quality work and excellent service. I took an interesting survey while speaking at a Construction Owners Association of America (COAA) convention. COAA is comprised of organizations and companies who regularly engage in building major construction projects as the owner or developer. During my presentation I asked the attendees to tell me how much quality and service matters when selecting contractors, subcontractors, suppliers or maintenance service. The results were not what I experience in the real world.
Is Your Bid Only An Estimate?
As a general building contractor, you know what I would really hate? It’s when you negotiate an easy project to build with a great repeat customer, and after the project is finally completed, you haven’t made any money. The customer trusted you, didn’t question your costs and then awarded the job to your company at a fair price. Seven months later, you find out your estimator didn’t have enough in the bid for labor or equipment to do all the work required by the contract. This is your worst nightmare! All the effort, time and energy invested building a loyal customer relationship enabled your company to negotiate the project. And now, it is now wasted!
So, you go and ask your estimator ‘what happened?’ He blames it on the project manager, or the superintendent, or the weather, or the engineer, or the City, or bad plans, or his bad childhood! So, what do you do? You can’t fire him. You need to bid lots of work to keep the pipeline full. Now what?
What is your estimator’s #1 priority?
When I speak at construction conventions, I get many different answers to this question. They include:
- Bid lots of jobs
- Get lots of profitable work
- Maximize sub-bid coverage
- Be competitive
- Know what things cost
- Make a profit
Is Your Bid-Hit Ratio OK? Featured
Is Your "Bid-Hit" Ratio OK?
Bid-Hit ratio is the rate at which you successfully bid or propose on construction projects. For example, a 5 to 1 Bid-Hit ratio says for every five jobs you bid or propose on, you are awarded one. Do you know what yours is? Do you keep track of it? How do you use it? What should it be?
Whenever I present my "Estimating & Bidding Strategies That Work" program at construction industry conventions, I ask everyone what their Bid-Hit ratio is. Most estimators, sales people, business development managers, and company owners don’t have a clue what their ratio is. In a survey I conducted of over 2,000 construction companies, less than 6% know and track theirs. To me, this is like driving a car blindfolded without a clue where you are headed!
Keep Track
In order to determine how many jobs to bid, what type of jobs to go after, and which customers give you a higher percentage of their work, you must know your Bid-Hit ratio. Track it monthly, quarterly and yearly. Track it for all types of projects you bid on and each customer you bid to. Also track by job type: large versus small, local versus out of town, commercial versus industrial or residential, bid versus negotiated, plans & specifications versus design-build, or new construction versus remodel. Another item to track is the number of competitors you bid against on each project.
As you study your Bid-Hit ratio trends, you'll find certain customers who give you more work than others. You'll find certain kinds of jobs you do better with. You'll also discover when competing against too many competitors, your success ratio isn’t the best it should be. This simple tracking system will help you determine which jobs and customers to bid to. It will also help you determine when to eliminate a project type or customer from your plate and seek out better opportunities to invest your estimating dollars.
As a general building contractor, you know what I would really hate? It’s when you negotiate an easy project to build with a great repeat customer, and after the project is finally completed, you haven’t made any money. The customer trusted you, didn’t question your costs and then awarded the job to your company at a fair price. Seven months later, you find out your estimator didn’t have enough in the bid for labor or equipment to do all the work required by the contract. This is your worst nightmare! All the effort, time and energy invested building a loyal customer relationship enabled your company to negotiate the project. And now, it is now wasted!
So, you go and ask your estimator ‘what happened?’ He blames it on the project manager, or the superintendent, or the weather, or the engineer, or the City, or bad plans, or his bad childhood! So, what do you do? You can’t fire him. You need to bid lots of work to keep the pipeline full. Now what?
What is your estimator’s #1 priority?
When I speak at construction conventions, I get many different answers to this question. They include:
- Bid lots of jobs
- Get lots of profitable work
- Maximize sub-bid coverage
- Be competitive
- Know what things cost
- Make a profit
Customers have stopped buying, companies are closing, layoffs are common, banks have stopped lending, consumer confidence is falling, and the list goes on. Many business owners hope things gets better before it’s too late and are struggling to stay afloat during these tough times.
As a business owner, manager or leader your choice is simple. Do what you know you need to do and do it fast, or die a slow death. Most people are afraid to make tough decisions, try new ideas, or do business differently. So they continue to hope their outdated business strategies will keep working as they tread water or sink slowly and wait for something good to happen. Even if survival is your goal, past methods won’t work. Running your company the same way you always have will result in failure. The successful will make tough decisions. What difficult choices do you need to make right now to grow your business and make a profit?
You must do these 10 things right now:
1. Set goals to grow and make a profit now!
Stop lowering your prices and cutting costs. Start focusing on sales, customers, and making money. Write down your annual targets for revenue, direct costs, overhead expenses, and net profit for the next three years. This will get you aligned in a positive direction so you decide what steps you’ll need to take to achieve your profit goals.
8 Steps to improving the financial health of your contracting company.
How many times, in diet-obsessed America, are we bombarded with advertisements and infomercials promising us dramatic weight loss and six-pack abs … in just weeks! A pill, a morning shake, the no-carb/high-carb/all-protein/low-protein diet is all it takes to turn around years of unhealthy eating and sedentary habits. Pleeease! We all know it takes hard work and lifestyle changes to really make a difference over the long haul.
And so it is with the financial and accounting health of a business. Owners looking for quick fixes or instant, revenue-boosting results will be as disappointed as the yo-yo dieter. Realistically, you need to invest time and effort in order to reap long-lasting rewards. What follows is an 8-step plan for improving the financial health of your company. It comes with no promise of miraculous double-digit profits or financial utopia. But it will force you to make the necessary changes to help your company become, well, better next year. Think of it as an exercise regime that will slowly and gradually reduce inefficiencies and excesses, while increasing your company’s competitive advantages and profit-building opportunities.
Whether your organization operates at the height of efficiency or back in the Stone Age, there is always room for improvement. As the construction industry continues to become more sophisticated and complex, contractors will undoubtedly face stiffer competition for jobs, slimmer profit margins, and greater reporting challenges. The stakes are high for business owners who operate at status quo.
Overwhelmed by Overhead Allocation? Featured
Technology makes simple work of this all-important task
Overhead allocation is one of the most misunderstood concepts that you will face in running your business. But it is also an essential task – worthy of a great deal of attention - – because it is central to determining your company’s profitability and real bottom line.
On the surface, overhead allocation seems simple. As opposedIn addition to direct costs for material, labor, subcontractors and equipment, you need to account for indirect costs, – or overhead. Figuring out overhead costs, however, and selecting the best method for calculating these indirect costs, is not so easy.
The good news is that once a method has been chosen, technology can help constractorsyou better understand overhead allocation, and easily allocate these costs for a complete picture of your company’s financials and job costs. Today, many construction-specific accounting systems are able to help you track overhead, calculate its ratio against actual expenses, and report it in a way that’s understandable and accurate.
Are you a number pro or only so-so?
Some lucky folks, it seems, were born with the “numbers” gene. The number nimble pay attention to every cost and every receivable. As construction owners, they understand how to manage cash flow and they know exactly why some jobs are more profitable than others.
The number challenged
Most people, unfortunately, don’t approach business that way. They focus more of their attention on trade expertise than on the company’s finances. This lack of financial savvy puts them at a real disadvantage because what they don’t know really can hurt them.
Where do you fall?
Numbers pro or maybe just so-so? Even if you have no financial training whatsoever, you can learn to manage and really understand your numbers like a pro. Sometimes all it takes is assistance from an experienced accountant… or a new accounting software package… or a little re-focused prioritizing.
How to Select the Best Construction Estimating Software Solution for your Construction Business Featured
When you first investigate computer based estimating software, you will find that there are many software vendors selling solutions which range from a few hundred dollars to many thousands of dollars. In fact some estimating software packages can cost upwards of 15-20 thousand dollars and in some cases, as high as $100,000. That is quite a range of price.
Often, estimating software is selected based upon the cost, features, functions, reviews, word of mouth, or other avenues. In many cases, potential customers do not consider how they are doing their estimating processes today, what they would like to improve, how automation can, will, or will not help them, and what an estimating system should do for their business.
In many cases, the construction professional will try and find a way to adapt their business to the way a software package operates, rather then determine the best way to adapt the software to enhance their current way of doing business. In many cases estimating software may not be flexible enough to allow a construction professional to "customize" the software to work in conjunction with the best business practices of the company.
With the state of the economy these days, bids are becoming more competitive than ever before. The number of bids contractors are taking on is increasing as well. With estimating as important as ever to the life of your business, FastEST, Inc., has an exciting program feature that can help make your estimating more efficient, and can improve and streamline your project management as well.
One of the newest features added by FastEST, Inc., is the On-Screen Digitizer, winner of the 2008 Gold Design Dealer Award, given by the weekly HVAC periodical The Air Conditioning, Heating and Refrigeration News. With the On-Screen Digitzer, estimators can takeoff plans directly from their computer screen. Electronic plans can be imported into the program, saving the time and cost of having plans printed.
Because contractors are receiving plans digitally more often these days, normally they then have to send them to the local printer or to their own plotter to be printed before beginning their estimate. But with the On-Screen Digitizer, these files can be imported and used immediately for takeoff, without the sometimes excessive cost of printing out the bid set, and without the time-consuming trips to pick up the drawings from your local printing company. In the end, the company is saving time and money, and helping the environment at the same time.
Use of FastPIPE and FastDUCT’s On-Screen Digitizer can increase the speed and efficiency of your takeoffs. After importing the drawings into the program, you simply set the scale on the drawings, and jump right into your takeoff. As you perform the takeoff, the plan is colored while material and labor is added to your takeoff list simultaneously.
