Low Price vs Presentation & Pinot Noir
Tough economy equals tough choices. Your company can focus on bidding lots of jobs and counting on low prices to get you contracts, or decide to set yourself apart from the competition. Face it: most companies are not really much different than their competitors in what they offer: good service, on-time projects, and quality workmanship. When this is the case, every bidder becomes a commodity and gets selected based on their low bid. This is a tough way to make a profit when there are too many competitors on every job.
Estimators Are Not Professional Pricers
One of the biggest goals of all construction estimators is to win profitable jobs. Most estimators think they’re paid to price work. The more they bid, the more jobs they’ll win. But you know this doesn’t work. Especially if jobs you bid are against too many competitors. The key is to look for ways to improve your bid-hit ratio winning percentage by selecting the right projects and customers to bid, and working on ways to entice customers to award you more of their work at a higher margin against fewer competitors.
Looking for jobs to propose on with high barriers to entry is one way to get on shorter bid lists. The tougher it is to qualify to get on bid lists, the fewer the competitors. For example, to be selected by an energy company to work in one of their power plants requires filling out fifty pages of forms, getting certified for specific work, and having a extensive qualified training and safety program in place per their standards. The extra effort puts you on a short list of only a few qualified professional competitors when they need a contractor. Certain branches of the military select contractors based on performance and price equally. But to qualify to get on their approved bidder list takes extreme effort, paperwork and presentation skills. To be placed on the short list of approved contractors in some school districts to win ‘lease-lease back’ design-build contracts requires you to present a project plan to the school board. A complete and winning presentation must include a power point slide show of how you will operate, team highlights, aerial photos, and a convincing script.
Companies who rely solely on their low bid to win work, are leaving missed opportunities behind. If you figure your sales job is done when you email, fax or deliver bids or proposals to potential customers, you are losing out on making more money. Customers really don’t buy numbers on a piece of paper, unless the price is significantly lower than other bidders. When prices are about the same, customers make decisions on who to hire based on things that set them apart like the extra things the company offers to do for them.
Present in Person
You can’t present what your company will do on a standardized bid form only listing out your terms, exclusions, inclusions, and qualifications. It must be done in person by someone responsible for selling and closing the deal. If that person is you or the estimator in your company, they need to be trained to develop customer relationships, build trust, sell confidence, overcome price objections, effective selling skills, negotiating tools, and winning presentation methods. They need to be taught they’re in ‘show’ business and how the bid is presented is often more important than price.
Double Profits by Improving Your Bid-hit Ratio
If you can create strategic ways to improve your bid proposal success, winning percentage, or bid-hit ratio by only 20%, your top-line sales volume can go up by 25% and you can boost your bottom-line easily by 100% or more. For example:
Bid-Hit Ratio 10 to 1 8 to 1
# Bids / Year 100 100
# Jobs Awarded 10 12.5
Average Job Size $ 100,000 $ 100,000
Total Annual Sales $1,00,000 $1,250,000
Job Costs @ 70% $ 700,000 $ 875,000
Annual Overhead $ 250,000 $ 250,000
Net Profit $ 50,000 $ 125,000
Start by thinking about customer targets you currently go after. Now think about new targets and customers who would be harder to get in front of and have less competitors who bid their work. What will it take for you to get on more bid lists that are shorter and have less competition? This will take focus, dedicated effort, time, and money. You must be willing to work harder to make more money. The easy way of waiting for customers to call won’t work anymore like it did in the good old days of too much work and not much competition. You must have a plan of attack. And once you arrive at a new customer’s office, you must be ready to present your company in a professional way that sets your company apart.
Make Them Remember You
One of my subcontractors has built a relationship with me by leaving something behind when he visits our office. By making it a point to ask personal questions, he has gotten to know me better and what I like to do in my spare time, my hobbies, and things about my family. Last week he was at our office working with a project manager and on his way out he dropped off a bottle of Sonoma Coast pinot noir on my desk. A note attached read: ‘George, I just bought a case of this new vintage and I know you’ll enjoy it!’ A few months ago he left a ‘Masters’ golf hat on my desk with a note he knew I liked golf.
These little personal gestures over the years have set his company apart. They are now our preferred subcontractor of choice. Obviously they do good work, but the little touches have built and solidified a close trusting relationship between us. By the way, I collect Pinot Noir and love to watch the Masters golf tournament. He knew what I liked and personally delivered gifts customized to my tastes. Wow, that’s a winning presentation which will set him apart and improve his bid-hit ratio.