Last December I received a note from a gentleman who runs a concrete business with his brother. He asked a great question on estimating and made a few other comments that I want to share.
Hi Michael & Devon,
I hope things are going well for you and yours. I will apologize in advance for two things, the length of this question and butchering the english language.
Anyway my brother and I are partners in a concrete construction business, currently residential only. We have been in concrete since 1978. Have went from 5 employees to 50 and now with 11 total (my brother and I, an office manager and seven guys.) Our projects have ranged from 60 square foot dog kennel to multi level parking ramps.
In 2009 when the bottom fell out and we went from sixteen guys to six, sales dropped by 45%. Dang if we begin to do better, much better. After all, the six guys we kept were rock stars, we paid close attention to our costs and did just fine. We have a great reputation and most of our work is for high end customers who are more concerned with quality and trust vs. low price. So, we decided to stay small, pay attention to the numbers and have done quite well. I came across your website, bought your books, read your weekly newsletters and now we are REALLY doing well. This year may be our best ever, as far as net profits anyway.
I’ll get back to his note in a bit, but I need to point out that it isn’t often you hear someone say that the recession of 2009 made their business better. Sales dropped by 45% so they made changes. They reduced payroll and kept the rock stars, paid attention to nickels and made more dollars.
Too many people believe that the measure of a company is the annual volume or sales revenue. They’re wrong; the measure of a company is net profit. It’s possible to earn a higher net profit with a smaller company, and this is a great example of doing things right.
That being said, here is my problem. I do most of the bidding and my brother oversees the projects we complete. We average about 100 projects a year (115 this year to date). I usually quote around 400. Typically I meet on site with the owners, go back to the office, type up the proposal, email and mail it out and wait to hear back from the owner. I will either text or email the owners to let them know the quote is on the way.
This year, as of today I quoted 538 projects. (Being December I doubt I will have many more bids or any more projects this year.) It was terribly hectic and I did miss getting back in a timely fashion with many of the phone messages I received. It was impossible to return ALL phone calls the next day and I actually stated that on my voicemail. I get about one job for every five I quote. Knowing our numbers our price is very high compared to our competitors. That is the way it is, has been and always will be. I get that, but it seems that I spend much of my time with tire kickers, people “just wondering” how much it would cost. It being a new patio, sidewalk, driveway etc.
Here my question, I (we) are thinking about charging $25.00 to provide a written quote. If awarded the project the $25.00 will be deducted from the quoted price. What is your opinion of this?
Last summer I heard that one of our competitors was charging $25.00 for quotes so I called him about it. He basically said that he was sick of all the racing around for nothing. He also said that the fee was working out ok. According to him most were fine with the small fee for a quote. Also, I talked with two other concrete contractors and they said that if we began charging for bids they would do the same. So…..in my mind charging a small fee for a quote will take some getting used to. After a year, perhaps two a small fee will be the norm. Right?
I truly look forward to each and every one of your newsletters. I have read Profitable Sales and Markup & Profit several times and browse them often. In the offseason I spend a lot of time re-reading your writings. I truly cannot express how much I appreciate the knowledge you have shared.
Getting a commitment from potential clients is critical if you want to save yourself a ton of time and work putting together an estimate that won’t go anywhere. You have better things to do with your time. If they won’t make a commitment and help you put the project together, walk away. You wouldn’t have sold the job anyway and it will save you a bunch of time and work. A commitment involves money changing hands.
I suggested he reread the book, Profitable Sales; A Contractor’s Guide. By doing estimates without getting a commitment from the potential client first, he’s creating a lot of busy work but not much business. As a specialty contractor, a design agreement might not be applicable because he doesn’t do a lot of design, but charging for estimates makes sense.
Now let me comment on a few other things. He’s doing a good job of getting leads in the door, with more leads than he can handle. But a sales-to-leads ratio of 1 in 5 is too low, it should be 1 in 3.
He could improve that sales-to-leads ratio by doing a better job of qualifying potential customers over the phone and frankly, by improving his sales skills. It doesn’t matter whether or not your competitors are charging for estimates. When you sell the value your company brings to this job, the potential client will realize that you are the contractor of choice and they’ll be willing to pay for your time to put the job together.
Don’t get in the habit of emailing proposals and waiting to hear back from the owner. That’s not sales, it’s wishful thinking. I think some company owners get in this habit because it’s easier than having someone look at you and say “No.”
Sales involves face-to-face presentations, and every “No” gets you closer to the next “Yes.” Once you start charging for estimates, you’ll be putting together fewer proposals and it will be easier to schedule the time to meet with the owners and get a signed proposal. They’ll be willing to meet; after all, they paid for that estimate.
So, all that said it boils down to getting the four basic questions answered and getting commitments from your potential clients before you do any work. Your time has value. Your sales to leads ratio will improve, and life will be easier, when you eliminate the tire kickers, price shoppers and time wasters up front.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations.
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