As any contractor can tell you, the competitive bidding process can be complex. Becoming skilled at it means blending a mixture of skills learned over the course of many years. We’ve heard the required skill set described as being part craftsman, part accountant and part psychic. If that sounds like a tall order, that’s because it is!
Learning how to successfully bid for work without sacrificing profitability often means walking a very fine line. Getting it wrong can mean losing out on a job or worse—winning a bid only to see the project slip into the red. Throughout the years, we’ve heard all kinds of tips and advice on bidding from our customers and have acquired a wealth of professional experience among our staff. Now, we’d like you to benefit from it, so here’s a guide on how to win contractor bids without underselling your services.
We mentioned earlier that some have listed (humorously, we hope) psychic ability as a key skill for creating successful bids. While we don’t recommend that you seek the advice of the Oracle at Delphi, you can learn quite a bit from the ancient Greek inscription over the door. It reads “know thyself,” and it’s the first thing any contractor must do in order to produce winning bids.
What we mean is, it’s vital to get a firm handle on your overhead to provide a baseline for every bid. The yearly overhead costs need to be covered by splitting them out among each job in the form of an overhead charge or by building it into an hourly rate. They include, but are not limited to:
- Staff salaries
- Liability insurance
- Office space costs (lease, equipment, utilities)
- Legal and accounting fees
- Fuel and other consumables
Once you know the yearly cost of doing business, divide it by the average number of completed jobs per year to arrive at a rough idea of how much overhead must be built into any bid. You will be able to adjust this up and down based on the size of the job.
Conduct Due Diligence
After getting a handle on your baseline costs, it’s time to figure out the costs associated with the specific job you’re bidding on. To do so, it’s a good idea to conduct a thorough walk through with the client to get a precise idea of what they want to have done.
While visiting the location where the work will be performed, take note of any irregularities or areas that might be difficult to work in. If you’re able to identify parts of the job that could be troublesome, your time estimates will be far more accurate. Also, look for anything that may be best left to a subcontractor so that their costs may be accurately reflected in the bid as well.
Determine Job Costs
Now that you’ve become acquainted with the scope and specifics of the job, you should be able to create a detailed estimate of material and labor costs. When doing so, consider:
- All materials needed
- Demolition costs
- Total man hours needed to complete the work and the labor pay rate
- Equipment rental or specialty tool fees
- Subcontractor costs
- Finishing and cleanup costs
Obviously every job will have different requirements, so take your time and consider everything before committing to a formal bid. Businesses that tend toward complex projects should consider using estimating software to manage all of the cost calculations, lest something be overlooked and hurt the bottom line.
Determine Profit Margin
The final consideration that goes into a bid is the one that all contractors love the most: profit. There are no hard and fast rules to follow regarding profit, and each business has to examine their own market conditions to determine a profit markup.
To get started, consider your competition. Anyone that’s been in business for some time should have at least a rough idea of the prices being charged by others in their area. That (for obvious reasons) will provide a general guideline to follow. Remember though, the other contractors in your area have similar costs of doing business. If they’re quoting absurdly low rates, they are probably losing money or cutting corners. Either strategy is a recipe for failure.
Choose a profit percentage that you feel reflects the value of your work. Remember that you will need to combine it with the general overhead costs mentioned earlier to determine the total markup for the job. Be careful not to fall into the trap of cutting your profit margin too much. Those that do often find themselves left with bills to pay instead of profits at the end of a job. It’s important to remember that if you are doing quality work, you don’t need to engage in a race to the bottom in order to win bids. Consistent, quality results will generate referrals, and the kind of customers you want will be willing to pay for what you offer.
Put Your Best Foot Forward
Once you have completed the work of putting together a solid bid, you’re only part of the way to your goal. The manner in which you present the bid matters as well. Make sure to deliver the bid in person, ideally at a meeting with the potential client where you can discuss it in detail. Remember that you’re not just selling a service, you are selling a working relationship.
Bear in mind that most potential clients don’t have any knowledge about contracting. They will be relying on your experience to guide them through the process. If you show yourself willing to be transparent about costs and you take the time to answer any questions that arise, your efforts won’t be in vain. Most will appreciate your help and will feel comfortable that you are charging an appropriate fee, often passing on lower bids because of the good impression you’ve made.
As with most things, experience breeds wisdom. While we’ve striven to present a complete picture of what successful bidding entails, there’s no substitute for learning in the field. The winning approach will always vary slightly from market to market. In any case, following these steps will help to guarantee that your bids will be accurate, well-crafted and successful. The best part is that you don’t have to go it alone either. When you’re ready to create your next bid, stop by any of our locations and our helpful staff will go over your materials list to make sure you’ve got a good handle on costs – we’ll even try to save you some money, too!