How I Try to Minimize the Cost of a Lost Bid - ResidentialSystems.com

How I Try to Minimize the Cost of a Lost Bid

As a custom integration business owner, we work up bids around the gear that we think will be needed—a generally known and non-dynamic cost on most projects—and then estimate the amount of labor and wire based on years of doing previous (likely similar) jobs. If we miss a job estimate by a few hours or feet of wire, it’s not the end of the world, and we can take that knowledge and use it to hopefully produce a more accurate quote on the next job.
Author:
Publish date:

Someone called me the other day to discuss accounting—essentially how we figure our company’s profit-and-loss for jobs and how we used that to forecast future work. They ran a landscaping company and were preparing for a large bid, and it became clear early on that our forecasting styles were pretty different and carried different loads of “risk.”

As a custom integration business owner, we work up bids around the gear that we think will be needed—a generally known and non-dynamic cost on most projects—and then estimate the amount of labor and wire based on years of doing previous (likely similar) jobs. If we miss a job estimate by a few hours or feet of wire, it’s not the end of the world, and we can take that knowledge and use it to hopefully produce a more accurate quote on the next job.

For the landscaper submitting a bid for a year’s worth of work to a property owner’s association (mowing acres of lawns, applying fertilizer and chemical treatments, maintaining a large amount of shrubbery and flowers, etc.) bidding high could cause them to miss out on a year’s worth of work, and bidding low could literally put them out of business.

One thing that both of us had in common was sending people out to the job to take a look before being able to make an accurate bid. And often times, this required multiple trips to the jobsite to investigate things or to meet with different people to get the complete scope of the job and then possibly another trip to present and go over the proposal. All of this started me thinking about the actual cost that “losing,” or not getting, a bid costs a company.

The first step/cost here is scheduling yourself or an employee to drive out to take a look at the site. The IRS allows $0.56 a mile for business deduction to take into account gas, insurance, and wear-and-tear on a vehicle, plus there are the employees’ wages (plus taxes and insurance), or your own time away from the showroom/business. Even if you write your wages off as a zero cost, this is time when you could have been working on something else that was generating income.

The next cost is the time spent on the project discussing what the prospective client wants to have done. Depending on the job and client, this can be a quick and painless process, or it could be an excruciating meandering through their home as they go over the minutiae of every aspect of how they plan to live in the home and (added bonus!) relate the history of every piece of audio gear they’ve ever owned. A site check will probably also involve scouting around to see what will be involved in making whatever they want to do happen, where gear can go, wiring routes, etc., possibly going up into an attic or poking around the crawlspace and maybe even probing walls.

Of course, you have the drive back to your store/place of business, then, depending on the scale of the job, you might need to return a second time with another person. I know when we were bidding on our mega-install job, we took multiple trips to the site, bringing all of our installers for their input on how long they thought things would take, as well as a trip out with my business partner so I could get a second set of eyes and opinions on what I had in mind. On a major project, you can adapt the old military adage, “The more you sweat in training, the less you bleed in combat,” to “The more time and effort you spend in bidding, the less you’ll bleed out in profits.”

Once you’ve finally gone over all of your notes, you’ll likely need to do some amount of research to find the right parts for the project. This could be as simple as looking up dimensions but it might involve reaching out to other industry pros, reps, or even chats with tech support to make sure that a product will do exactly what you intend. After you finish designing the system, you’ll need to spend some time preparing it in a proposal that you then might have to schedule another meeting to present and go over.

How many hours does this entire process take? At best, you get the job and just write this off as a cost of doing business. At worst, you don’t get the job and the proposal takes up some kilobytes in your recycle bin. Well, not actually. At the very worst, the client hands your estimate and plan for the install over to a competitor who simply agrees to get all the same gear and do all the work for less. Yeah, that’s pretty much the worst.

One thing I’ve started doing on simple bids like TV hanging jobs or gear hook-up service calls is asking the client to email me a few photos of the area. Nearly everyone has a smartphone or tablet now, and I’ve yet to have anyone object to taking a few snaps for me. At a bare minimum, this can save an hour of time in just going there-and-back, and in most cases these pix are all that I need to know to bid the job. Also, chances are that I can get to an email and look at their photos far quicker than I can schedule a visit to their house, so I can get them a quote and on the schedule in much faster time.

Another idea we’ve contemplated is charging a nominal service call fee to drive out and take a look with the offer of rebating or applying this money toward the work if they end up hiring us. If customers are truly seriously about having the work done and not just looking to gather a bunch of quotes and then hire the lowest bidder (a client that none of us really wants anyway) then they aren’t usually opposed to it. Ultimately, if they have the work done, they’re out nothing. The risk, of course, is that this will alienate a prospective client that will just move on to someone else willing to come out and look for free.

With equipment profit margins getting tighter, we all need to look for ways to minimize our costs and losses. Chances are, you won’t win ’em all, meaning you don’t get every job you bid on.

What do you do to try and mitigate your outlay when going after new work? I’d love to learn more in the comments section below.

John Sciacca is principal of Custom Theater and Audio in Myrtle Beach, SC.

Image placeholder title

Related