You may do the best job in the world of locating prospective clients within commercial segments, do a superb job of marketing your company and its abilities, but you will consistently fail to make sales if you don’t price your jobs competitively with the right profit margin.
I can tell you that nothing is more frustrating than to misprice a job and be faced with months of work for little or no money, or worse, end up losing money. This month’s column is designed to take the statement: “The good news is you got the job,” and making sure that remains true. Following are steps to take to get a profitable job that you feel good about at the end of the day.
The first step is to take a quick look at the volume potential for the job and what is called for in terms of products. A cursory review of the plans and specs, and quick estimate of square feet will give you some idea of project size. Is it an 800 yard carpet job with a few hundred feet of VCT and wall base, or is it 100,000 sq. ft. of linoleum sheet goods and 2,000 yards of carpet tile, where existing flooring must be removed?
When you look at the finish schedule, are you familiar with the specified products and are you able to buy them at a key dealer price level? As you become experienced in commercial work, you should be able to quickly decide after a short review if you are even interested in the project. I cannot emphasize enough how critical it is to do this type of review so as to avoid wasting a lot of time and resources on bids that will never result in profitable sales.
Think about what size job is most appropriate for your company within a particular commercial segment at this particular time. When contemplating a bid for a property management tenant build-out, how will this affect your existing product credit lines? If you have to provide a specific product type, do you have a source and a credit line relationship with a first-rate manufacturer?
Is this a quick-turn project that you can complete within 45 or 60 days? Or a large tenant remodeling project with multiple phases that will stretch out over a year or longer? Once you order the materials and they are received, you should have 45- or 60- day terms. What if there is a delay in installation? Even if you’re billing for stored materials, you still have to requisition the client, so you are looking at another 45-60 days to actually receive a check, if everything goes right.
You must have the positive cash flow so that you can pay your supplier prior to receiving payment from your client to maintain your credit standing.
After your review, the next critical steps are to find out if you can buy from, and establish the right prices, from the selected products supplier(s). Don’t just assume you can offer other products; while they may be considered, a switch of items is not something you can count on happening. If you are enthusiastic about the project, is the supplier interesting in working with you? I have declined to bid numerous projects over the years that were a good fit for the company, except for the attitude of the supplier and his unwillingness to extend the right pricing and credit terms.
The supplier’s attitude toward you trumps all other issues; if he is not willing to work with you, you face an uphill battle with limited chance of success. Yes, you may eventually get the job, but usually at a very low margin of profit. My advice is move on to something else.
However, let’s assume the project is about the right size, projected duration, has products that you can comfortably install, from a supplier that is at least friendly to you, and honest in their dealings.
The next critical steps in determining your potential for success are your plans take-off, and/or scheduling a site evaluation. If you miscalculate or screw this up, a domino effect occurs in all that follows. If you are working from plans, make sure you have the latest set with all addendums; when there are questions, get answers in writing, and make sure you understand them. If there is a discrepancy in the finish schedule, get clarification.
If there is a site visit, pay particular attention to the scope of work you will be required to perform. Who will remove and dispose of existing flooring? What amount or allowance is to be included for floor prep and repairs? Who will perform moisture testing? Will the areas be empty or will you be responsible for handling or staging furniture relocation? How comfortable are you with the project’s proposed schedule of performance; does it make sense with the type of installation that must be done?
It is always better to do a plans take-off, assemble the quantities, and then have another person recheck the results. You may also talk with your friendly supplier and see if your quantities of his products are in line with what he has heard from others. If you came up with 1,785 yards and everyone else is around 2,400 yards, then you may have a problem.
After you have a valid plans take off or site visit for quantities, then get your final project pricing for the products required. Get your pricing in writing and make sure you understand the terms offered, projected delivery date, and any other conditions. Is a deposit required with your order, or is that low price you received without discount terms? Is payment due 30 days after shipment? I once failed to notice that the attractive low price was only low because the 5%, 45-day terms had been removed in favor of 30 days net payment terms.
In another case, the mill rep conveniently forgot to tell me that they required a 40% deposit on the custom pattern carpet. Shame on me for missing the fine print on the pricing quote.
Once you have your product costs locked down, review the quantities you will be installing, and over what period of time. Consider these questions when reviewing the project: How much floor prep will need to be done? Will part of the work need to be done after hours or on the weekend? Who will be responsible for delivering products to the job-site? How much of each product may realistically be installed on a daily basis? Will other trades be doing work on the job-site that may impede your schedule? If so, make sure to factor this into your schedule.
Is there special installation work that must be performed such as flash coving, heat welding, border work, insets, and transitions that may require special expertise or a specialized installation crew? Have you allowed for the premium-grade manufacturer recommended adhesives? A common failure in pricing is to minimize the expertise required in some installation and maximize the speed with which it may be done. Use caution in estimating how quickly and easily you may get the job completed to an acceptable level.
Do you know the gross profit margins of your commercial market competitors? If not, you need to ask around. It is not so much the profit you’d like to make as much as charging what the traffic will bear. Maybe you are used to a 38% margin on your retail business, but find 24% is about average in commercial property management. Can you be profitable at that level? In the final analysis, if you cannot feel good about the gross profit level that will allow you to win the job, you should not provide a bid.
Here’s why: The chance of your getting the job and improving your gross profit margin is about 1 in 10 whereas the chance of gross profit erosion is about 9 in 10. Why take a shot? The worst possible combination is to grit your teeth, lower your price, and pray for change orders to improve your profit. Make sure to follow these steps for success or you could end up with the job from hell you’ll always remember.
Sponsored by: Roppe