Whenever there is an economic slowdown there is an accompanying pressure on prices. The current situation has emphasized that to the extreme as too many companies underbid each other for a smaller pool of available work.
There often seems to be no bottom to the bottom-feeders either. The term “cutthroat” comes to mind, but too often the intentions far removed from simple business competition. I can’t count the number of times I’ve heard a shop owner say, “I knew I wasn’t going to make money on this job, but I took it to keep the guys in the shop working.”
Keep them working at the cost of potentially losing the company? How many losing jobs does it take to do you in?
But the sad truth is that in too many cases, the owners don’t really know how much these kinds of tactics cost. They don’t know because they don’t really know their costs. They don’t really know their overhead. They price by formulas that are easy to use precisely because they are so inaccurate. And they produce customer estimates that make it too easy for customers to say, “Can’t you do better than that?” because the customers don’t see the value in the bid.
For more than a dozen years we’ve been studying pricing for custom work through our annual Pricing Survey. Check out the 2009 survey. Discrepancies in estimates for materials and time have characterized every one of the surveys. Crazy low bids come just as often from experienced as inexperienced shops, automated or not. Really high bids come from, well, anywhere.
Seeing all this should be a wake-up call to take a close look at your own pricing and estimating procedures. Do you always update materials costs immediately? Do you produce estimates and bids that are detailed enough so customers really understand what they are buying? Do you reconcile actual labor hours to estimated time all the time?
Doing these things gives you a power that is too frequently overlooked in times like these. It is the power to say no. When you truly know your costs, you know when to say no and when to walk away from jobs.
One owner told me he is now competing with the “one and done crowd.” Those are guys who low-ball bid a job that they have no business doing, and it puts them out of business. Don’t be one and done. Say no to a few to survive and prosper.
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