ECN Forum Forums General Topics of the Trade Business Related Discussion ESI flatrate

If anyone gets Contracting Business magazine, there's a great column on this exact subject on the last page.

Check it out

I'm leaning towards flat rate more and more. I try to be as fair as possible but it seems many customers can't or won't appreciate. this. The crying when the bill gets there after they request additional work gets me going.. So if they ask me for additional work I flat rate on the spot. It seems to be working, iI might add. So I guess I use both Flat and T&M.

Thanks for the tip KH. There are some great articles there.

Dave

I am having a hard time believing this discussion about prices. This is business, and you put as much in the bag as the market will bear, and don’t look back. The only person you have to justify your price to is your customer and that discussion should be kept short as possible, if they will pay then justification over, get to work.

I pay more at Starbucks because the coffee tastes better, and I charge more for my work because my men are some of the most skilled craftsmen in town and my work is guaranteed. But my price is the one I make up based on my feel for the market, historical pricing, available manpower, price of copper, actual cost, and how hungry I am. Some jobs I wont touch without at least 30% profit in it, while others I will take with as little as 2%, it all depends on the current market conditions.

Why wire a Bed Bath and Beyond for $285K when you can get it for $325K How do you justify $40K? YOU DON’T HAVE TOO, they can take it or leave it and in this case they took it. If I were hungry and had to have it, my price would have been lower.

If you want to use national estimator, then wax on but the market will pay what you can sell, and you had better know your own pricing, your own market, and your own organization, which is where the real money is.

Also keep in mind a “hard bid” has risks and you don’t assume the risks for free if you want to stay in business. Sometimes you lose, sometimes you win, the trick is to win more often than you lose. Making 30% on a job helps make up for the times you lost 20%; its business and don’t even try selling that mentality, nobody will buy it they just want your work for cheap as possible, and preferably at your expense.



[This message has been edited by ITO (edited 12-05-2006).]

ITO,

Is is apparent that you are into more bid work than service work. These are two different fields and I don't think your method (get as much as you can) would necessarily work with service. I am by no means against charging what you want to for any particular job, but my point is that in service, it should be consistant. Does Starbucks charge you a different price by the type of vehicle you drive? Does the fanciest of restaurants charge by the type of clothing you wear? No. Charge what what you will, but first figure out your costs, and your desired profit, then apply those to your jobs consistently. Because you can "afford" to pay a higher price does not mean that you should have to.

And on another topic, the real trick is to not have any losing projects (easier said than done) because at a 10% profit margin, which is probably more than the typical new construction contractor, revenue would have to increase 10x of the lost profits to break even. So if a job jost $100,000, a contractor would have to bring in $1,000,000 worth of new work with the same crew to make up the loss. That is a pretty daunting task.

Yes you are correct I don’t bid service work and I avoid residential work like the plague. However the business model applies, you charge what the market will bear or you go out of business.

Just because you loose 10% on a 100K job does NOT mean you have to take 10 more to make it back. Some jobs are stinkers sometimes they are winners, and sometimes one really good job can make up for a bad one. Sometimes you take work at or below cost to keep from sending your labor home.

You are correct. If you double your normal profit % then you will make it up. But if you could double your profit % on any given job, why not double it on most jobs. the fact is, with the bidding process, it is difficult enough to make the margin that you aim for to begin with, let alone trying to make up for a previous loss.

I do understand that some jobs are more profitable than others, but generally speaking, if you have consistant estimating procedures and current material, labor, and equipment pricing, your bids to the GCs should reflect your standard overhead and profit markup. I believe that it would be very difficult to squeeze an extra 10% out of a $100,000 job unless are have a niche that no one else can or is available to do.

With all due respect I love bidding against guys like you.

Double the profit you put in your estimates and you will never get another job. Knowing when to add 30% and you can make some money.

An estimate is nothing more than a good guess, all money is made and lost through project management and bid strategy. Granted if you leave enough out of you take-off you will loser your ass, but sometimes you have leave something off your bid to get the job in the first place. If you go in knowing it is a losing job, you can make it work, and make money with aggressive project managing, but this has to be balanced with the market knowing when to raise your prices.

This is a subtle thing I know, but knowing your market is the most important part of this business. Knowing when to buy copper, and when not to, when to put out fat bids and when to cut them to the bone. When you competitors are all working their asses off, and GCs are coming out of no-where begging you for a number, then you can charge a lot more, but when you are chasing work and doing the begging you have to be a lot more competitive. The times when you are doing the fat jobs, helps you get through he times when you do work with slim profits, or when you get screwed on copper prices, or when the unexpected happens. You also need to know when to walk away, there are some GCs I wont bid.

Combine this bid strategy with doing multiple size jobs, like a 1 or 2 really big ones and a few medium jobs, and then multiple fat small ones and you can cash flow quite nicely as you pick which jobs you want.

BTW if you are not making 10% on your 100K jobs, you either need to charge more, PM more aggressively or go back to doing service work. The money is there for the right bid, the right job, and the right project manager.


[This message has been edited by ITO (edited 12-05-2006).]

we found one point to agree on...that is 10% on a 100k project isn't worth getting out of bed for.

ITO,

your points are incredibly valid for a commercial new construction company that does bid work for GC's.

For residential work, we have to have a set standard so to speak for our pricing and our tasks.

Imagine have 30 of you men out, each pricing 3-5 small service jobs a day. You couldn't rely strictly upon their instinct to price a job correctly. Nor could you have them all call one estimator in the shop to come up with the scientific price.

Now imagine a couple of those guys consistantly pricing too low and losing money. And also consider a couple of those guys pricing unjustifiably high (maybe the homeowner is a senior citizen that really has no clue)and sells a service upgrade for $15,000 (not a justifiable price, a just cause they can price)

Now imagine doing a service upgrade for the jones house, in a specific development. You charge the jones's $X. Their next door neighbor, the smith's want the same upgrade. Same house, same everything. You send a different tech, he quotes 50% higher than the jones' just cause he thinks he can. Think neighbors don't talk?

So, you average items and put them in a book. Sometimes you make more money than average, sometimes you make less money than average. But at the end of the day/week/month/year, you probably made your average targets.

I agree with your general position, however when bidding $300k projects, 10% is a big number. When bidding $300 service calls, adding an addition 20-50% is not that big of a number.

The smaller the price, the more profit you can tack on...

[This message has been edited by mahlere (edited 12-06-2006).]