Corey Adams
It seems like many want to treat their estimating as a black and white event. It is what it is, and that is that. Now I can agree that numbers do not lie, but there is more to estimating a project than cost plus markup.
As with any estimate, knowing your numbers is an absolute. After that is when real profit can be found. I have taught quite a few how we estimate our projects, and they are always surprised with the ending. After we figure out our true break-even point, our markup for profit fluctuates based on a few questions, thoughts, and circumstances.
First, I ask myself, “who else is bidding?” I want to know who my likely competitors are, their company size, and their history.
By knowing my likely competitors and their size, I can make an educated guess on their average project size and their markups. We are all aware that as a company grows, they have lower profit margins, higher overhead, and less flexibility with those numbers. More often than not, these are the companies that are black and white estimators. They have hired people to compile the estimates and have a standard form they are forced to work off of to create them. Their overhead is often much higher than mine as we strive to stay in a specific market where the larger companies do not want to venture. This is an opportunity to use the difference as added profit.
Another factor I consider is the project itself. Is it clear cut, or is it a convoluted mess that will require more project management time? This allows me to ask the biggest question, “If not me, then who?” Who will spend the time running through the prints, solving problems before the bid, asking the right questions, and taking the time necessary to bid correctly? Black and white estimators do not do this. They like easy bids, and easy bids are cheaper bids. This is one of the reasons why we do not bid ground up projects. Our focus is on commercial remodel. We have found that these projects require more time to bid, but also eliminate a ton of competition. Difficult projects eliminate the large companies that do not have time to devote to estimating convoluted projects, and eliminate the smaller companies that do not have the resources or experience to compete. Another profit raising exercise.
Next, I consider location. Why? For a reason that seems obvious once you hear it. Our market is smaller commercial remodel in the $50,000-$150,000 range. If that project is in a rural area more than 1 hour outside of a major market, there is likely a local guy that will kill himself and his margins to get it. We all want to work in our hometown, and smaller companies salivate at the opportunity. If I get one of these rural bid invite invitations, I know that we will have a hard time competing. I don’t know the local concrete or supply companies, have no relationships, and everything becomes harder. Unless the GC is awarded and begging for a number, I decline. If it is in a midsize to larger metropolitan area, I know that the small guys are busy with residential or other projects, and the larger companies have bigger fish to fry. Also, these projects have access to larger suppliers, hotels, and national account branches. Game on for higher margins.
I spend as much time researching my competitors as I do bidding sometimes. It pays dividends. Every new GC we bid to gets asked the same question. “Are you having a hard time finding subs, or do you just need a number?” Follow that with, “how many bids have you received?” Their answers tell me almost everything I need to know. A quick Google search of competitors in the area will pretty much tell me the rest.
It is a disservice to our company and ourselves to not constantly look for more profit opportunities. Knowing your numbers is just the start. Knowing your competitors, your target market, and what money is on the table is proper estimating.
Do what no one else is willing to do, and you can charge a premium. If not you, then who? If the answer is nobody, go for it. The gray area in estimating is where real gains are realized.