Answering Questions On Bidding And Profit Margins
Following are questions from another reader regarding bidding and profit margins:
Mickey, I’m bidding on a commercial contract and would like to ask you a few questions.
Question 1: “My markup is 9% and I feel that is high. How much is acceptable for commercial markup?”
Response: Your markup will be in relation to the size of the contract with predetermined minimums in some limited cases. The smaller the contract, the higher the percentage of mark up (profit/retained earnings) of the total dollar amount. The larger the contract, the smaller the percentage even though the dollar amount may be large. Extreme example: 100% of $100.00 = $100.00 mark up whereas 1% of $1,000,000.00 = $10,000.00. Which dollar amount would you prefer regardless of the percentage? Your large commercial BSC’s will oftentimes only have a 2% markup on large contracts but tend to capture other savings in labor and efficiencies. I realize this is probably not the answer you are looking for but can only give general guidance based on information available.
If you conduct market research you can learn what the rates are for your competitors and decide if it is worth it. Please realize that it is very difficult for a startup company to be competitive in the commercial market due to the internal structure and culture. You oftentimes have to sell contact, value, quality and even social benefit since you will seldom acquire a commercial bid by being the lowest bidder.
Question 2: “My benefits are 28.75% of janitors and supervisor wages. Should it be more and if so what are the rate %?”
Response: That number seems a little high but not sure what is included in relation to size of contract. Again, it will be in direct relation to the dollar value of the contract under consideration.
Please be careful of getting too focused on percentages since they can be a guide in some circumstances.
Your comments and questions are important. I hope to hear from you soon. Until then, keep it clean…
Mickey Crowe has been involved in the industry for over 35 years. He is a trainer, speaker and consultant. You can reach Mickey at 678.314.2171 or CTCG50@comcast.net.