by George Hedley
"It's impossible to compete in this tight construction market."
"There's always too much competition."
"I can't find any profitable jobs to bid."
"The only way I get any jobs is when we leave too much money on the table."
"I get tired of cutting our bids to beat the competition."
"How can we ever make enough money to survive?"
Do these quotes sound familiar? I have been hearing the same complaints about the construction business since 1977 when I first started my general contracting company. It seems as if nothing changes as contractors continue doing business the same way. But a select few successful contractors and subcontractors seem to get more than their fair share of the profitable projects over the years. What do they do different?
Bid like you fish!
Before you go fishing, you need a license. Your bid is like a license to go fishing as well. Fishing for an opportunity to negotiate and land a great contract. When you fish, your goal is to catch the big one. So you set out to find an abundant fishing hole and cast out your bait - hook, line and sinker. When looking for great companies to bid to or profitable projects to bid on, you also seek out opportunities that will give you the best chance to make the most money. When you finally catch a fish, you reel it in, weigh it, and decide if you want to keep it. After you submit a bid and get the call to cut your bid or match a better price to get the job, it is your choice to accept their offer as well.
When you go fishing and they aren't biting, what do you do? You try different fishing techniques, change your bait, or move on to another fishing hole. This is not what contractors typically do when they don't land enough construction contracts. Most contractors just keep bidding to the same customers over and over, using the same bait and proposal strategies as they've always used. Contractors often think if they bid enough jobs to the same companies or entities, the same way, eventually they'll get their share. This effort won't get you the positive results you want. Like in fishing, you must change your estimating and bidding strategies to get the big ones to bite more often. You have to use the right tackle, different techniques, and tastier bait to get the fish to think your bait is better than your competition, or look for better fishing holes.
When I present my "Profit-Driven Estimating & Bidding" program at construction conventions or company meetings, I ask everyone what their Bid-Hit ratio is. Most business owners, estimators, and project managers don't have a clue what their ratio is. In a survey I conducted of over 2,000 construction general contractors, subcontractors, and design-build companies, less than 6% know and track theirs. To me, this is like going fishing and not really caring if you catch any fish!
Bid-Hit ratio is the rate at which you successfully bid or propose on projects. For example, a 5 to 1 Bid-Hit ratio states for every five jobs you bid or propose on, you are awarded only one. Do you know what yours is? Do you keep track? What should it be?
I have asked over 5,000 general contractors, builders, and subcontractors what they think a good Bid-Hit ratio should be. Their responses vary from a perfect 1 to 1 to a poor ratio of 35 to 1. Which is the best ratio for you? Obviously, the lower the ratio, the better. But, the right ratio is what works for your company.
Companies who negotiate lots of work tend to have lower Bid-Hit ratios. They also require additional overhead expenses for marketing, sales, pre-construction services, customer development, and public relations. Companies that procure most of their work from public works jobs, or regularly bid against a long list of competitors, have higher Bid-Hit ratios. But, they generally have more estimators on staff which offsets the fewer marketing dollars they spend. These trade-offs usually balance out at the bottom line.
BID-HIT ratios revealed
See how you compare to construction industry averages:
General Contractors Bid-Hit Ratio
- Public Works 6 : 1 to 10 : 1
- Private Bid Work 4 : 1 to 6 : 1
- Negotiated Work 2 : 1 to 4 : 1
- Design-Build 2 : 1 to 4 : 1
Subcontractors Bid-Hit Ratio
- Public Works 7 : 1 to 11 : 1
- Private Bid Work 4 : 1 to 6 : 1
- Negotiated Work 3 : 1 to 4 : 1
- Design-Build 3 : 1 to 4 : 1
The right Bid-Hit ratio is what works for your operation. A 35 to 1 ratio is too high and 1 to 1 is nearly impossible. The highest reasonable ratio for public works bidding should not exceed 10 or 11 to 1. Higher than 11 to 1 will cost your company too much in estimating expenses and won't provide a reasonable profit. For private work, I recommend to strive for a 4 to 1 ratio or less. Another Bid-Hit ratio to track is the number of competitors you bid against on each project.
In order to determine how many jobs to bid, what type of jobs to go after, and which customers give you a higher percentage of their work, you must know your Bid-Hit ratio for these different categories. Track it monthly, quarterly and yearly. Track it for all types of projects you bid on and each customer you bid to. Also track by job type: large versus small, local versus out of town, commercial versus industrial or residential, bid versus negotiated, plans & specifications versus design-build, or new construction versus remodel.
As you study your Bid-Hit ratio trends, you'll find certain customers give you more work than others. You'll find you do better with certain kinds of jobs. You'll also discover when competing against too many competitors, your success ratio won't be as good as it should be. This simple tracking system will help you determine which jobs and customers to bid to. It will also help you determine when to eliminate a project type or customer and seek out better opportunities to invest your estimating dollars. You can submit better bids, get more work and improve your bid-hit ratio.
Strategies to improve your BID-HIT Ratio
1. Offer what your customers want
Think about what you include in your typical proposal or bid. You automatically include the price, terms, scope of work, specification section number, inclusions, exclusions, a list of the plans and specifications, and payment provisions. These facts and figures don't take into consideration what your customer really wants. Sure they want a low price based on an "apples to apples" scope of work, but what else?
If you wanted to hire a remodel contractor to add on to your home while you continue to live there, would price be the number one factor in selecting your professional contractor? What about disruption to your life, keeping the house clean, noise, security, commitment to meeting the schedule, integrity, financial strength, manpower, supervision, etc.?
Things your customer may value more than price:
Ability and experience:
- Understanding of plans & specifications
- Understanding of contract terms
- Reputation for excessive change orders
- In-house design & value engineering
- Design-build capability
- Contractual issues & potential hassles
- Experience in similar type projects
- Trust with a delicate customer
- Service department
- Response time
- Properly trained professional field crews
- English speaking foreman
- Foremen who can make decisions
- Large enough crews
- Workload and ability to make the schedule
- Quality workmanship
- Ability to help sell the job
- Presentations skills
- Great safety record
- Maintain clean jobsite
- Jobsite image & uniforms
- Financial strength & bonding capacity
- Payment schedule & need for cash
end Side Bar
Every project has unique requirements which are often as or more important than price. Before you start working on an estimate for a customer, Always ASK - ASK - ASK the decision maker:
- What are the top 3 most important deciding factors when selecting contractors and awarding contracts on this project?
- What would set us apart from the other bidders?
- How important is price?
- If our price is the same as other bidders, do we have a chance to be awarded the contract?
Then, custom design your bid proposal accordingly. Highlight the differentiating factors and make it clear that their priorities are the same as yours.
As a general contractor, when we are selected to build a project, price is almost never an issue. We don't like to compete on price. To set us apart, we try to offer more than our competition. Take a look at these extra services we provide and check some to add to your list of services:
__ Project feasibility study, budget & pro-forma
__ Recommend & select architects & engineers
__ Review & coordinate soils engineering
__ Obtain city approvals & permits
__ Power & telephone company coordination
__ Water & sewer company coordination
__ Fire department approvals
__ Review & coordinate all plans
__ Review project specifications
__ Recommend & work with project lenders
__ Obtain owner's course of insurance policy
__ And the obvious - offer the same as your competition!
- build a quality project, with personal service, on-time, & under-budget.
You have to be competitive, but you often get chosen because of what else you offer to your customers. "If you don't offer anything more than your competition, you only sell price!" Always ask what your customer needs before you submit your bid. You'll be surprised how often price is not the most important factor in selecting you as the general contractor or subcontractor.
2. You're in the people business!
Busy contractors realize that getting profitable work requires using different tactics and strategies than competitors use. And even more important is to realize that bidding is only a small part of the sales process. Being awarded a profitable contract starts with getting your customers to want to give you good jobs at your price. When more than being low bid is the deciding factor, remember:
You're selling a relationship.
Think about the personal relationships and friendships you have. They were nurtured over time and stayed strong because of the investment in time spent together. Business relationships are no different. Business relationships are also built "face to face" and often the deciding factor when procuring construction work. Most contractors' idea of a business relationship is to pick up a set of plans to bid, fax the bid to the customer, and then wait for the phone to ring, hoping to be awarded the job.
Sometimes brave contractors call their customers after submitting bids and ask, "How do I look?" The only response you'll ever get to this question is, "Cut your bid and then you'll look better!" You've got to give customers a reason to call you. You need to use and offer differentiating factors to entice your customer to want to talk to you.
Remember, phone calls don't count. Only face to face meetings improve your bid odds dramatically. Whatever it takes, you've got to get in front of your customer. OFTEN! And remember, estimators are not professional visitors. Their number one job is to get profitable work at their price. Anyone can do good take-offs and estimates. Real estimators sell!
3. Only bid what you do best
Over the years we wasted lots of time and money chasing work we wouldn't get and didn't really want. Once we decided to specialize and focus on certain types of projects, in specific locations, for certain types of customers, we improved our Bid-Hit ratio dramatically. We chose industrial and office projects within a 60 mile radius for customers who build at least two projects every year.
The next big decision we made was to define the ideal job size to target by creating the minimum profit margin we wanted on every job. We decided to "Just say 'No!'" by setting our minimum contractor's fee at $75,000. This eliminated most of the small projects we had previously done under $1,000,000. This increased our effectiveness, made us more competitive, and allowed us to focus on doing a great job on larger projects. The last decisions we made were to primarily seek negotiated jobs and never bid or propose on projects against more than three quality competitors. These bold and scary decisions transformed us from a "too busy, low profit" contractor selling price into an "above industry average profitable" company with loyal repeat customers who use only our construction services and give us lots of referrals.
4. Bid like a pro
The key to a good bid is arriving at accurate job costs. It is the estimator's job to know the costs of constructing projects. The estimator does their job perfectly when the final job costs equal the project estimate and budget. We give our estimators incentive bonuses when this happens. The only variables between your bid and the completed project should be overhead and profit markup. In order to insure accurate job costs, include the following as your estimator's area of responsibility and accountability:
- Accurate time cards
- Accurate labor burden rate
- Accurate crew bidding rate
- Accurate equipment rates
- Accurate cost history library
- Accurate general conditions
- Accurate overhead mark-up
- Accurate profit mark-up
5. Get on the right bid lists
One of the best ways to improve your Bid-Hit ratio and get more profitable work is to get on the right bid lists. This starts by keeping track of your Bid-Hit ratio by customer, project type, location, and competition. Another important factor is to have a bidding strategy with goals to shoot for. Most estimators don't have a clear strategy - just bid, and hope to land, as many jobs as they can. What is your bidding strategy?
Our bidding strategy is simple:
Goal #1 - Negotiate contract
Goal #2 - Be only bidder
Goal #3 - Get last look
Goal #4 - Bid odds greater than 66%
Goal #5 - Only 3 bidders
Our strategy may not work for your company, but it keeps us focused on jobs and customers we want. You can improve your bid results by focusing primarily on the project types in which you specialize and the customers for which you want to build. Sit down and develop a bidding strategy that fits within your business strengths, plans, and goals. It's too easy to get on a treadmill chasing the same kind of jobs and customers over and over. By being pro-active and seeking the jobs and customers you want, you can really make some money.
Rules to get on the RIGHT bid lists
- Don't waste time & money. Never invest estimating effort bidding projects to customers without any hope for a return on your investment. Get a positive commitment and understanding from your customer on how the contractor will be selected before you start working on a preliminary budget, estimate, or bid.
- Pick the jobs you want & work them hard. I noticed our estimating department was too busy to focus properly on every bid. Instead of concentrating on the jobs we really wanted, our estimators were working on lots of bids and commitments that would never happen. This diluted our efforts and caused us to lose the good projects. Be selective and eliminate the projects you don't want and diligently pursue the jobs you want to improve your Bid-Hit ratio by as much as 100%.
- Never bid jobs you won't get, no matter how low you bid. You know which jobs I'm talking about - the ones with too many bidders on the bid list or the customer has used the same contractor on the last 15 jobs in a row.
- Never bid jobs you can't get. These jobs include those where your company is not the perceived expert in the project type, you are not a local contractor or subcontractor, or you don't have enough trained help to man the project properly.
- Never bid jobs without meeting the decision maker. This is my BIGGIE for private construction work. Unless you can meet with the decision maker before you start working on an estimate, don't waste your time - pass on the opportunity. When you meet, ask the following:
- Who will negotiate?
- Who else is bidding?
- Who have they used on their last five projects?
- Are the construction funds available?
- What are the chances the project will be built?
- How will the bids be opened & reviewed?
- Who makes final selection & award?
- What is the selection criteria?
- What is the most important factor in selection?
- If all else is equal, what are the chances we have to be awarded the job?
Get wet ink!
The goal of estimating and bidding any project is to get wet ink on a signed contract. This is accomplished by first getting on the right bid lists and then getting in front of your customer. Remember your bid is a license to go fishing for a contract. Our success is based on the understanding that the main purpose for our bid is to get a meeting with our customer. At this meeting you can discuss the project in depth, review how you can help your customer meet their goals, explain why you are the best choice, review pricing options, get a second chance to be the selected contractor, and get last look. Getting last look is your second chance to match the price of the lowest bidder, only if you want to. It is very difficult to accomplish all of these actions over the phone.
The hard part of this process is to actually get a meeting. Try to exploit your relationships, referrals, or any other means possible to force a meeting. Other tactics to get a meeting include excluding bid items that need discussing, specify alternatives to entice your customer, offer lower price value engineering ideas, ask questions needing clarification, or suggest ways to improve the schedule. You must do whatever it takes to get a meeting including just showing up at their office and waiting in their lobby until they see you. But, the best way to get a meeting with the decision maker is to be low bid!
How to be low bid
- Be "Select" bidder. Select bidders almost always get the first chance to propose on a project and a chance to get last look. Being the select bidder is a result of your relationship and market perception of your expertise.
- Get on the "Right" bid lists. Implement the points discussed above.
- Offer MORE than price, service, & quality. Service and quality construction is a 'given' today, expected, and won't give you an advantage over your competition. Give your customer a different reason to use you instead of your competition. Give customers what they want, help solve their problems, provide total solutions, reduce their risk, offer a guarantee, and set your company apart.
- Bid plans & specs. I am a firm believer in the motto: "If in doubt, leave it out." If the plans don't call for it, don't include it, exclude it, or qualify it. By bidding only per plans and specifications, and not listing out all of your bid qualifications, you'll be called to discuss your bid with your customer. This will give you a chance to request a meeting. When you list out everything on your bid, your customer will take your list and send it out to all of your competitors to get comparable bids. This takes away any advantage you might have had.
5. Don't exclude anything. Another tactic we use is to list our exclusions, low priced alternates, and substitutions as "inclusions" instead of exclusions. For example: "Our bid includes an alternate material for the aluminum storefront." When the plans conflict with the specifications use an inclusion like: "Our bid includes 2 coats of paint per plans sheet A-7." If you must exclude an item such as sand below the slab, list it as an inclusion: "Our bid includes a 5 inch slab over native soil compacted by others." Inclusions usually don't draw attention to bid clarifications.
It's not a good tactic to reveal the amount of your alternates or exclusions on your base bid. Wait until they call you to discuss these items. This will also give you a reason to call and ask for a meeting. These tactics should make your base bid lower than your competitors and help you get a meeting by appearing to be low bid. Remember, at the meeting it is your ethical responsibility to share all of these items so your customer will get full value when they contract with you.
Not all of these tactics will work for you. But, try them and you'll like the outcome as they improve your Bid-Hit ratio and help you get more work. When you're not getting the results you want, change your tactics, try some different bait, and find a new fishing hole as you look for profitable work. By trying new ideas, you can make estimating and bidding a fun and challenging experience with a great return. Have fun fishing!
ABOUT THE AUTHOR
George Hedley is the best-selling author of "Get Your Business to Work!" As a professional speaker and business coach, he helps entrepreneurs and business owners build profitable companies. E-mail: email@example.com to request your free copy of "Everything Contractors Know About Making A Profit!" or signup for his e-newsletter. To hire George to speak , attend his 'Profit-Builder Circle' academy or find out how he can help your company grow, call 800-851-8553 or visit www.hardhatpresentations.com
3300 Irvine Avenue #135
Newport Beach, CA 92660
Phone (949) 852-2005
Fax (949) 852-3002
Email: firstname.lastname@example.org website: www.hardhatpresentations.com
George Hedley owns a $75 million construction and development company and
Hardhat Presentations. He speaks to companies on building profitable businesses,
leadership, and loyal customers. He holds 3-day in-depth "Profit-Builder
Circles" open to construction company owners in an interactive roundtable
format every 3 months. His "Profit-Builder System" includes proven
tools to always make a profit, build equity, create wealth, win profitable
jobs, motivate your people, and enjoy the benefits of owning a profitable company.