Crunching numbers

All building service contractors at one time probably have found out how much another contractor was charging a prospective customer and then said to themselves, "There is no way that company is making money on this job." Or, there was a time they submitted a bid, only to have the client come back and say that they were the highest of anyone that bid on the job, by almost double. And, what about the jobs won, but month after month, the profit and loss statement says the job is actually a big loss and now there are cash flow issues?

Accurate bidding and estimating continues to be one of the toughest tasks that building service contractors face today. Prices need to be competitive, but they also should assure that the BSC makes a fair profit. Call it a kind of science that, if done properly, can drive both top and bottom-line growth for a contractor. The key is bottom-line growth, as that is where the profit stands.

If contractors are bidding on jobs without a real sense of their numbers, yes sales will go up, but they're flying blind when it comes to overall profitability. Contractors that know their pricing — down to the last penny — can confidently walk their customers through each job and know how much money they will make in net profit. They will also know when to walk away from jobs that don't meet their criteria.

If there aren't sound bidding and estimating techniques in place, contractors can fall into one of these dangerous groups when it comes to pricing:

  • The contractor that prices their jobs according to his or her competition or what the "industry standard" should be for that particular line of work.
  • The contractor that says to the customer, "Where do you need me to be?"
  • The contractor that just pulls big, round numbers that will be a windfall if they get the job, but numbers that also allow them to "knock a few bucks off" should they be questioned.
  • Contractors that are part of long-standing businesses where nobody has ever truly taken the time to update their pricing models. A "this is the way we've always done it" mentality.

Granted, each one of these contractors will win jobs, but over the long-term, none one of these scenarios work particularly well. Today's buyer — be it commercial, residential or industrial — is becoming quite educated and there's plenty of free resources out there.

Most facility executives or purchasing agents either know, or can look up, what they "should" be paying — or at least develop some type of belief about what they think is fair. Those same buyers will unfortunately get quotes from contractors that have no idea how to bid and estimate, and then the bar is established for every other contractor walking in that door. Not a good situation for anyone … unless BSCs can differentiate themselves.

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Contract Bidding Takes A Team Effort