More Work or More Profits?

March 10, 2011

Is finding both even possible in today’s economy? Companies need two things: work (as defined by sales and installations of systems) and profits (as defined by the margin on product and labor). Business owners in our industry can’t seem to have both right now. I’m hearing from a lot of members bidding at cost in order to get the job to keep people employed. The “at cost” mentality is based upon them knowing (or believing) that they can’t get the job unless they go that low. They choose to err on the side of keeping their good people working.

Until early 2008, two or three qualified bidders would show up on each opportunity. Now, we hear reports of 10 or 12 bidders being a common occurrence. That additional bidding pressure has led to a mindset of bidding both the equipment and labor at cost and then hoping the change orders, ongoing service work, or some form of recurring revenue produced from that project will justify the break-even pricing model.

The construction slowdown has driven integrators to look for work farther from their base of operations. Will the uptick in the economy reverse this trend? I compare this form of bidding as operating without a safety net. As recent as 2007, integrators would slap 30+ points on the product and estimate labor with all the overhead, fixed and variable expenses along with a labor margin sufficient to carry them if a mistake or unforeseen overrun occurred. That’s a far cry from the stories I hear today.

So, what if you have this exact situation in your business? Well, in talking with some of the best in our industry, they say this: set a minimum mark. Then set a minimum installation labor rate. Then set a minimum contingency factor. Then be prepared to walk away from any job that requires you to go below these three marks. You simply have to.

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