YOU CAME IN SECOND

Have you ever made a presentation where you "just knew" that you were going to get that account? Your proposal presentation went excellent, all the buying signs from the prospect were there and you left confident that you would be selected to perform the service or at least as confident as you can be in today's business climate.

Then you really get pumped up when the prospect calls and gives you a glowing report on how professional your proposal looked, how great your presentation was and then they proceed to explain that you came in second. You ask the obligatory question of why you were not chosen and they explain that your competitor was a few dollars less per month and they felt obligated to their stockholders etc. to be good stewards of their money and select the lower price. Sometimes they will even tell you the amount you were "too high" and of course your natural reaction is we could have done it for that. I've learned, as have you, that in the real world, second place doesn't pay anything. In professional sports the second, third, and maybe fourth place finishers get some payment, but not in the world you and I live in. 

My question to all BSC's is, do you really know what it costs you to perform an hour of work? Many contractors will use industry averages or some form of estimate for their costs. For example, if you are paying $10 per hour for a technician, do you really know what your loaded cost per hour is or do you say it's about 15% or 20% etc. Let's see, 

One hour of labor---$10.00

FICA--7.65%
State Unemployment tax--Varies by state and dependent on your history.
Federal Unemployment tax-.80%
Workers Compensation Insurance--Varies by state and also dependent on your history
General Liability Insurance--Also varies by state
Bonding-Varies

In addition, the Federal and State unemployment taxes are on the first "x'" dollars of an employees wages each year. Once you get over that amount, you don't have that cost to load in anymore.

Some states have special assessment taxes to help compensate for the high unemployment rate over the past few years. The regular state unemployment rate can be one half percent up to several percentage points. The workers compensation rate is also dependent on your safety record and number of accidents etc. 

Do you know the rates in your state? You can control many of these rates and by doing so can be much more competitive when the need arises. You see, an hour of loaded labor might cost you $11.00 and then again it may cost you $13.00. What is your exact rate? About the only rates mentioned above that you can't control is the FICA and Federal Unemployment tax. The rest depend on the effective or lack of effective management of your business. 

The issue is basically the same with material costs. Many companies just use a pecent like 5% and then make that their proposal price. What is your real cost? Is there something in the proposal you are presenting that would cause material costs to be less or more. What about equipment? Will you have to buy new or will you be able to use equipment that has already been depreciated which gives you an opportunity to reduce your costs on this particular job. 

I recall a contract we secured several years ago for $24,000 per month when all of our competitors were at $30,000 or above. We were laughed at but we had done a very thorough job of making sure our labor, supply, and equipment costs were very accurate. In addition, we did a detailed workloading of the facility and then priced out each floor for our own budget purposes. The interesting thing was that we ran that account at 48% labor and then later added 2 day porters at a very handsome profit. Our competitors never had the opportunity to say "we told you so". Now that I have bragged about our expertise, I will also tell you we missed a couple down through the years.

Many times I hear from contractors that they weren't successful on a proposal and that their competitor priced it so cheap that they won't be able to do it for that. Are you sure? Maybe that contractor did price it too cheap but could it also be that he or she knew their exact costs of doing business and will make a reasonable profit at their price---maybe even more than you would have made at your price because they had a better understanding of their costs? I don't know the answer to that question but I hope you will be motivated to check and double check your costs so that as you price your proposals in the future you will know you gave the prospect your best shot. With the new year right around the corner, there will never be a better time than right now to make sure you know what you costs of doing business really are. Try to avoid those "you came in second calls". 

This year is just about history and I hope you have received some benefit from our weekly writings. Let us know what you think--if they have been helpful  or not. We want them to be worth our time to create and your time to read and act upon. We are so pleased with the number of readers we have each week in so many different countries and we want to know what you want to hear about. 

Till next time.