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Bid Low to Charge More

05/15/24

There is a concrete finishing and placing company owner whose company acts as a subcontractor to general contractors. They supply labor and equipment only to pour and finish concrete slabs, and they sell their services by the square foot of concrete finished. Their customers are very cost conscious and decide if and when they want to do the finishing themselves, or use the company’s services on a job-by-job basis. Getting awarded contracts is very competitive as they have several competitors who offer the exact same services within one or two cents a square foot of each other. This leaves no room for error and little chance to make a reasonable profit.

When asked what else their crew could do to offer more services to increase their price, the owner couldn’t think of anything they weren’t already doing. When asked how they could do business differently to improve the bottom line, they had no answer again. It was suggested that the owner consider offering more services and getting into a more difficult type of construction contracting, like tilt-up construction, heavy foundations, or decorative concrete where customers will pay more for expertise and quality. They struggled with the idea as they weren’t sure their crew could handle more difficult work, plus they didn’t know how to price anything except flat slab labor. Then it was suggested they either increase their sales volume or reduce their overhead. The owner responded that the business was as lean as it could be without going out of business, and they were bidding cheaper to keep the crew busy and the doors open.

Are you stuck

One of the ways to increase your bottom line in a competitive market is to look for sharp new tools to improve productivity, save money, and reduce costs. Doing the same old things and expecting it to get better without trying new people, subcontractors, vendors, methods, or ideas won’t work today. Remember what you did when you got your car stuck in the snow? First you tried getting out of the rut by gunning the engines faster, but that didn’t work. You were still stuck and in a deeper hole. Just like in business, trying the same things and working harder and faster won’t get you going again in a positive direction. When your hole is getting deeper, you have to try some new tools. When you try new techniques, tools, ideas, tactics, and strategies, you’ll get out of your hole and back up to speed.

Bid low to get a meeting

On private construction work, the goal of every bid is to get a meeting with the decision maker. This way, you can sit down and negotiate the final price and scope of work. Unless your customer is only getting a proposal from your company, you’ll most likely have lots of competition. The best way to get a meeting with potential customers is to be the preferred builder, supplier, subcontractor, or contractor of choice. Another way is to have a strong, personal, trusted relationship with them. But if you don’t have an “in” with the customer on the specific job you’re bidding, and all else is equal, your customer will want to meet with the low bidder first. So, the next best way to get a meeting is to be the lowest bidder.

Your original bid proposal should be for the bare minimum required by the bid documents. No more. If in doubt, leave it out and don’t include additional items, gaps in the plans, improperly specified materials or methods, or upgrades from the minimum things needed to get the job done. If you have less expensive ways to supply or install items, include the lower cost items in your proposal as an inclusion. For example, if the painting specification calls for three coats of paint, state that you have included two coats of paint on all surfaces. Or, if you know the job should require door closers on exit doors but the plans don’t call for them, don’t include them in your bid or mention them as exclusions in your proposal.

Remember your goal is to be low bid so you’ll get a meeting with the customer. If you clarify all these issues in your written proposal, the customer will send your ideas out to your competitors to get apples-to-apples pricing. This standard tactic eliminates the need to meet with you. When you get the bid review meeting, you can discuss project problems, conflicts, alternates, substitutions, and exclusions face-to-face. This tactic will keep your pricing lower, and will help you get that important meeting with the decision maker to review your proposal.

Don’t ask, don’t get

At the meeting, discuss every option to upgrade the project, improve the quality of materials, add additional items, or present prices for things required to fill the gaps and complete the work. To boost your bottom line, offer these upgrades and additional items at lump-sum prices, including a markup of double your standard rate. As you present each additional item to your customer, carefully watch their face, expressions, body language, and reactions to the pricing you present. Look for clues whether you’ll be able to get extra money or what you might have to include to be awarded the contract. Remember the slogan, ‘don’t ask, don’t get.’ Your meeting goal is to get a commitment for the contract and get the work at a higher total markup percentage than you used on your base bid. If you can get an additional 15 percent markup on an additional 10 percent of work, this will increase your total bottom-line by 1.5 percent. Over the period of a year, this bottom-line booster tool will add up to big bucks.

Business - Commercial Real Estate Industry

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This article contains general information only. Sunflower Bank is not, by means of this article, rendering accounting, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, before making any decisions related to these matters, you should consult a qualified professional advisor.