Following a recent seminar, a dealer approached me to ask for my thoughts on why he’d been unsuccessful going after some commercial business. “I’ll bet I’ve priced over 20 projects, and I have yet to get one of them,” he said.
After he answered my queries about the specific type of commercial business he was hunting, his method of pricing, the submission of proposals and his follow-up procedures, there were a number of reasons for his lack of success: a fundamental misunderstanding of how that segment of commercial business was done; incorrect product cost pricing levels; he’d set too high a profit margin, and he lacked effective follow-up.
Let’s look a little closer at each of these areas:
Every type of commercial business has its own characteristics; what works in one area may not translate to other segments. However, some things remain the same: People buy from those they like, and avoid doing business with those they cannot stand.
Yes, it is about price, but really, what is the determining factor?
“Tom, I’d like to get you a price for this job, but what are the things you’ll consider in making that final decision?” Ask that question and then shut up! In some situations, Tom will have wide latitude and make value decisions, considering more than just low price.
Other times, you’ll be told, “You’ve got to have the right price.” If he likes you, then you may get a “last look” (another nibble at the apple) to recheck your numbers. Sometimes it is pretty formal, other times it’s a quick conversation. You need to know how the game is played.
Product Cost Pricing
This is a confusing area, especially from someone just starting in the commercial arena. Commercial mill pricing levels may vary widely rather than having a specific set price. It is not uncommon to see list price, dealer price, key dealer price, and project price levels.
When a mill rep is only too happy to give you a price when you call, you’ll usually get the list price. If you have a relationship with the mill, then perhaps dealer pricing. It is only when you have helped specify the product or become important to the product manufacturer that you’ll see key dealer or project pricing.
If you start out with the wrong cost, you don’t really have a chance.
Gross Profit Margin
This was another reason my friend had little success; he was pricing the projects at an aggressive retail margin rather than commercial price levels. The difference can well be 10 to 20 percentage points.
Some may be at a gross profit level of 22% to 25% or more; larger bid jobs can end up between 13% and18%. This is highly dependent upon the business segment, local competition, project size, and complexity.
First, start with the right price for products; make certain you don’t make a mistake here. Isolate your performance costs, including supervision and after hours schedule.
Now, ask yourself, are you really willing to be involved with this job for 14 months? Many a time, after review and discussion, we added more gross profit for the PIA factors (“Pain In the A**”) required for the job. And never forget the old saying that “The only reason my competitor got the job was because they didn’t understand it!”
This is the single biggest reason for losing commercial projects. Ineffective or lackadaisical follow up after you’ve priced out a proposal or submitted a bid.
Every buyer wants to see some enthusiasm, a marked interest in his project. You’ll never lose points for a quick phone call asking, “Hey, I just wanted to get some feedback on our bid. How do we look?” You may even get a little help along the lines of, “You looked pretty good, but you know, you ought to recheck your numbers on item 4 – they looked a little strong.” And if he really wants to help you, he may be more specific.
I’ve had cases where follow-up led to the discovery of an inadvertent transposition error; there was still time, so a revised proposal was submitted and ended up winning the job. Of course, every situation is slightly different. Use the follow-up contact to uncover any anomalies, identify areas of concern and for what reasons you did or did not get the job.
Here’s the rule: Follow up within two days after submission on any proposal; it is much easier to make an impact on the buyer before a firm decision is made.
When you’re working to make a commercial sale, unlike with some retail sales, it is not enough to just tell someone the brand of product you’re willing to supply. Rather, it is critical that you go into detail about what products you are furnishing, the time frame, where they’ll be delivered, the condition of job site and its readiness, and time allowed for and method of installation.
Short of incomprehensible legal jargon and sentences without end, the more details the better; just be careful what you say. I always tried to write a scope of work and details of performance so that I wouldn’t be embarrassed if it wound up on a judge’s desk.
Bids may run for 30 to 90 pages, but it’s scope of work; performance schedule; bonding requirement; due date for bid; opening date and time allowed for protest that are the most important. Most other legalese is protection for the buyer. As one contracting officer said, “You can ignore most of those legal statements so long as you do a good job and finish on time. Otherwise, we have a way to legally compel compliance that covers me from any criticism.”
The section on liquidated damages, if it exists, is particularly important and can be quite onerous if you are found to be at fault in delaying the project completion.
Five Tripwires That’ll Cost You Dearly
Bid pricing. Frequently, there is a summary page that contains the total pricing of the bid based on a detailed breakdown by unit pricing of the bid components. When unit pricing is the basis for the total price and a math error occurs, the buyer may elect to extend all unit prices for correctness and base the award on that total.
This can be good, bad or devastating if an error(s) was made in the unit amount or the number of units required.
Late bids. If there is a specific bid closing time specified and you are late, even by one minute, your bid may be handed back to you. This is a real killer, and one that cannot be explained away or negotiated.
In large dollar bids, it is not uncommon to prepare duplicate bids delivered by more than one person to ensure a timely bid will be received. If both are received, one is marked “duplicate” and tossed.
Don’t be late, ever.
Bid bonds. This type of bond is used to guarantee that you will not withdraw your bid once it is presented (or logged in) for consideration.
I once saw what would have been the winning bid tossed out because I raised the question during the public opening, “Where is their bid bond?” There was no bid bond or certified check attached to their bid as required, so the purchasing officer made the decision that the bid was “non-responsive” and was rejected.
Bid attachments. This may be anything from a company brochure or list of similar projects completed to a Dun & Bradstreet performance evaluation, a scope of work statement, or a detailed method of quality control.
Each bid is slightly different. When you first look at a bid, my suggestion is to make a list of what is going to be required for bid submission. If you wait until the last minute, you may find you are unable to produce certain key attachments that will make your bid acceptable.
Bid signature. Failure to sign the bid document is embarrassing and sure to be fatal. I know of a case where a bid was reviewed by three different people for completeness and accuracy. Each thought the other would then have the company officer do a cursory review and then sign the bid.
Unfortunately, the last person to do a review checked the contents, placed the documents into the bid envelope without having them signed and had it mailed.
Luckily, the mistake was caught and duplicate document was prepared, signed, and delivered prior to the public opening. The unsigned bid was explained as a “file copy” that had been mistakenly mailed. Since there was a signed bid, there was no bid rejection.
Getting the award on a commercial proposal or government bid is tough. You have to have the right price on the product, an accurate workup on product and labor details, a thorough understanding of your cost, the typical markup or gross margin in your locality, and a sense of which competitors may or will be bidding. Good luck, and don’t make mistakes.