I recently heard a colleague say: “Don’t worry about winning a bunch of jobs with really low bids. You’ll make up the losses in volume!” Of course, he was kidding. Because you won’t; you’ll just lose a bunch of money—in volume.
Here’s another thing I hear a lot: “No matter how tight I cut my estimates, my bids are still too high. I must be doing something wrong.” How do you know? What are you basing this on—the simple fact you are not the low bidder? Perhaps the low bidder actually believes he will make his money back in volume.
Be very careful thinking that losing bids is simply the fault of your estimating. Estimators and (usually) owners seem to believe they are doing something wrong if their pricing is often higher than their competition. First off, are you sure your competition has it right? They could be terrible estimators. They could also be terrible businesspeople. They could be struggling, super desperate and willing to take any job below cost just to stay alive. They could be using a terrible labor database or simply square footing the projects with incorrect square-footage pricing.
Don’t follow your competition into a hole
This is why I caution estimators and owners to stay focused on what their company’s business plan, budgets, accounting department and historical estimates tell them. Don’t base your pricing on your competition. They are not your company. Of course, you should make comparisons and track as much job data and get bid results whenever you can, but don’t immediately assume your numbers are wrong just because you lost the bid—even if you were the highest bidder.
General contractors, subs and vendors can make a difference
There are many elements at play beyond estimating. The general contractors you are bidding to could be sharing or shopping your bids to your competition. This is very common in our industry. What are you doing to protect your bid numbers on bid day? Are you only bidding to trustworthy clients? Are you only releasing your best price to your best client? When? Early or at the last possible moment?
Do you use subcontractors for most of your bids? Do you know if they are giving you the best prices? How are you verifying this? Are they bidding the same jobs with your competition? Could they be giving your competition better prices, favoring them over you? Is there any way you can find these things out?
The above also applies to your materials vendors and their quotations. Are you getting fair treatment? Perhaps some of your competitors are getting a 5 percent edge. That could be a lot of money, especially on a large project. The lighting and gear packages can definitely sway a bid result and quickly. For example, if you have a 50-home project and each house gets $10,000 in lighting and equipment quotes, that’s $500,000. If your competitors get a 5 percent lower quote than you do, that’s $25,000. Add 15 percent overhead and profit, sales tax at 7-plus percent, and it is more than $30,000!
What are you doing with your vendors and subs to ensure you are getting the best quotation pricing? Try different subcontractors and vendors and always get more than one quotation. Staying within too tight of a network of vendors and subs is not necessarily going to assure you the best pricing.
Sure, it could be your estimating
Of course, you could be estimating too high, building and using heavy assemblies with the wrong material items or higher labor values. Seriously look into this. Analyze your estimating protocols and methods. Try to figure out better ways to estimate and value-engineer. Analyze your rolloff technique. Are you heavy-handed or too casual with your wheel? Do you average circuit and homerun lengths more than you should? Do you use the same averages for every job? Is every job you bid the same? I doubt it.
Never fully trust yourself or your database. Consider using different materials and labor-saving products. Spend time creating a tighter estimating database. Stop using those same generic items and assemblies you’ve been using for the past 10 years.
Maybe you are spending too little time estimating too many jobs inaccurately. Perhaps you should spend more time bidding fewer jobs accurately.
In any case, my main point is that it may not be your estimates or your estimating techniques that are making you high on your bids. Keep in mind, we are in a very desperate, terrible economy, and there are folks out there willing to lose money because they think it will keep their businesses alive. They are sadly wrong and will likely pay for their mistakes in the coming years.
So don’t be too quick to blame yourself or your estimates (or your estimators). Don’t worry so much about the competition winning all the bids. Worry more about what you know to be right. Remember, you didn’t go into business to lose or give away money.
SHOOK has been estimating for more than 23 years. Until recently, he operated a fully staffed estimating company, TakeOff 16 Inc. He is currently focusing on writing, teaching and speaking about electrical estimating. Read his blog at stanshook.blogspot.com or contact him directly at StanleyShook@gmail.com.