Feature Story
The Case of the Low-Ball Contractor by Ed Dugan, Northeast Bowie Sales LLC
W
e have all experienced it. You spend time estimating the job and considering all the contingencies and you put together a bid that you know is highly competitive. Maybe you even cut your price a bit close because, for any number of reasons you really want to win the job. You then find out you have been under bid and unbelievably worse, by over 25%! The notorious low-baller strikes again. It unfortunately happens way too often. So let’s delve into the scenario a bit to help understand the mechanics and how to strategize against it. Let’s get the first issue out of the way. Is it your fault? Did you make a mistake in your pricing? It is a good practice to review your losing bids and look for any estimating errors you may have made. For instance, did you miscalculate your product amounts? Overestimating site areas is a common error that can be made which can lead to higher material numbers. Being off by 10% on a large job can lead to mistakenly high top soiling, grading and seeding numbers. Confusing sq. ft. with sq. yds... is another error I often come across, particularly when erosion control blankets are involved. I have experienced a number of instances where I had to walk back customers on their quantities because of confusion of units of measure. Finally, are your profit margins unrealistic? If you constantly find yourself being under bid, perhaps the fault is your own. First let me be clear that we are all in business to make a profit. Owning a business comes with great risk and thus deserves great reward. However, being unrealistic in your profit margins is a business killer. A quote I have heard is “you can’t try to retire on one job”. Owning a business is a marathon not a sprint, long term business success is dependent on presenting a quality job at a competitive price while making a fair profit. Having been self-employed most of my working life, I have learned a few things about running a business. One of the most important is separating yourself as the “employee” and yourself as the "business owner". Both entities need to make money. You as an “employee” should arrange to receive a paycheck every week. Depending on your company structure this can be a real paycheck, or in a sole proprietorship, a predetermined draw. After you and your vendors are paid the remaining monies are the business profit. This is where money for new equipment or upgrades comes from. Failure to look at this type of money management is the biggest cause for the low balling contractor.
Who is the Low-Baller? The low ball contractor falls into a number of categories. Probably the most common is the novice. An inexperienced business bidding on jobs that they have little or no experience in. They frequently underestimate costs, particularly labor, failing to realize the needed man power, equipment and time the job will actually take to complete. They often fall under the “best case scenario” illusion that the job will run perfectly. They fail to anticipate weather or material delays or costly down time from improper scheduling, equipment
failure or work being performed by other contractors. Experienced contractors recognize the pitfalls and plan for them. Eventually the "novice" either goes bankrupt or survives the early years and learns better pricing strategies. An associate of the novice is the part timer or the still living with their parent’s contractors. These type of contractors are usually found in the lawn maintenance side of the industry. It’s been said that every person with a pickup truck can become a property maintenance company. Their profit margins are based on how much money is in their pockets on Friday. In most instances they are not looking for more than to make a few bucks. Their overhead is low and their investment minimal. They feed on the customer driven by price not quality. Unfortunately, there is little if anything to combat them. You see them all day long pulling a small trailer loaded with mowers in a pickup truck with no name or commercial plates and yes, in most cases working with some sort of illegalities. Paying workers under the table, not properly insured, not
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