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Business Builders Blog

How to Price for Profit in Your Construction Bids

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When my client Joe and I met a while back, he shared with me his recent revelation that has caused him to completely re-think how he bids projects.

It all started while reviewing his financial results (prompted by his concern over a declining bank balance).  It didn’t take long for him to see a pattern… his company’s gross profit margin was steadily dropping.  Joe knows that construction companies live and die by gross profit margin, which meant he needed to dig deeper.  As he did, here are a few things he discovered..

1) Pricing in the estimate for materials was not the price they actually paid. There were two reasons for this:

a. The price paid for materials were not what was in the estimate. It’s easy to let this happen, especially if you do long term projects like Joe’s company, where there’s a lag time in between writing an estimate and placing a purchase order.

b. The quantity of materials purchased was over what was in the estimate. When they were self-performing the work (as opposed to using a subcontractor), the final material take off had far less material than they actually needed as shown in the plans.

2) The estimated hourly cost of labor for different positions was too low.  This was only affecting the work that was self-performed. So the work done by subcontractors was profitable, but self-performed jobs were losing money.

In today’s video we’re going to talk about why this type of problem occurs on porjects and in bidding, and what you can do to make sure it never happens to you.

We’ll tackle one of the biggest challenges construction companies face when bidding jobs, and I explain how to always make sure you’re pricing for profit.

Creating profitability in your construction company starts with bidding jobs with accurate costs. So how do you estimate construction costs accurately?

Let’s go back to the problems Joe discovered. I’ll share what changes he made to address them and my own recommendations to make sure you’re pricing for profits.

Estimating Materials

In order to be more effective at estimating materials, get a foreman or production manager to look at the bid as a second set of eyes. It’s important that the production team is involved in the estimate to make sure nothing is left out or underestimated. They will help make sure the full scope of materials is included.

Second, do purchase orders at the beginning of projects so that the estimate is based on fixed and agreed upon prices. This is especially important if you do long-term projects because the cost of materials may go up between making the estimate and doing the work.

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A Contractor’s Succession Plan – Part II

This is the second part of a two-part series on succession planning for a contractor, and the process of finding and developing a new leader for a business as the owner nears retirement. If you’re thinking of someday selling a construction company, wondering about the future of your business, or curious about what your retirement could look like, you don’t want to miss today’s interview.

In this video, we’ll discuss what succession planning is, what does it take to sell a business, what has worked really well for my guests, and what would they do differently after going through the succession process.

I’m talking to Tom and Barbara Weiher, the original owners and founders of Carmel Builders in Milwaukee, WI. Carmel Builders successfully transitioned the business from Tom and Barbara to their son, Louis, a few years ago. (You can watch my interview with their son Louis here.)

Tom started the design, build, and remodeling firm 40 years ago. Ten to 15 years ago, he started wondering, “How’s this going to end?” It seemed ideal to him and his wife, Barbara, for one of their five children to take over the business to keep it in the family. But at the time, none of them were working in the business or interested in taking it over.

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A Contractors Succession Plan – Part I

Today, I’m sharing part one of a two-part series about succession planning. In the contracting industry I see so many folks who have been working for 30 years, 40 years, and beyond, who want to transition out of their businesses but they don’t know where to begin and as a result, continually put it off. 

Knowing how to plan for your phase out or complete succession from your business is the pathway to you being able to reap rewards from the hard work the you’ve put into it over these many years. And proper planning, as my guest today will share with you, can help you save money and increase your return as well.

One of the companies that successfully made the transition is Carmel Builders in Milwaukee, WI. Today, my guest is Louis Weiher, the owner and president since 2016. In my next blog post, I’ll interview his parents, Tom and Barbara Weiher, the founders of the 40-year old design build build firm.

Whether you’re on either end of a possible succession or just wondering about your eventual retirement, these two interviews will help you navigate your way to a successful transition.

Louis’s number one piece of advice is to start early. “We should have started sooner and planned it out better because between my dad, my mom, and I, we all wanted the exact same thing, but it’s still really hard to get to that.”

Like many family-owned companies, it was just an assumption from the time Louis came on board (after a stint in the hotel industry) that he would take over one day, but they didn’t plan anything out for the first few years.

It took several years to make a clear decision together that he would take over the business. It would have kept things simpler and saved money, he said, if they had sat down for those conversations earlier.

When I asked what part of the conversation he wishes they begun earlier he said “making the distinction of the differences between who owns the company, who manages the company, and who leads the company.  Those are three separate things. Ownership is what most people initially think about, and management is fairly straightforward, but leadership is a sticking point. Who do people look to when challenges arise? Whose actions set the tone of the company?”

Louis recommends getting the management role in place first, then transition the leadership, and finally the ownership can happen whenever. Ownership doesn’t affect the employees as much as who they’re reporting to and who is leading the vision of the company. Looking back, he wished they had communicated the leadership transition plan and timeline to the rest of the team earlier on and more clearly. Staff knew it was happening, but regularly checking in would have been helpful for everyone and made the transition smoother.

I particularly liked his suggestion of setting a transition job description that includes what the ascending leader will be doing this year, next year, and so on in terms of taking over management responsibilities and leadership of the company. You can get my outline for 6 Steps to Writing Great Position Agreements to help you get this piece in place.

Be sure to nail down a firm mission statement and set of core values before going through a leadership transition because they can guide you, as well as bring the staff and the new leader into alignment. It builds a lot of buy-in from the team.

Louis says for them, core values answer 90% of the questions and challenges that came up with he and his folks. Carmel Builders’ core values are:

  • Be kind.
  • Do the right thing.
  • Seek to collaborate.
  • Consider the future.

What is remarkable is how those core values continued the legacy of his parents through to his leadership. It’s a guiding post for every decision, and yet it’s so simple.

He also shared the financial component of their succession. For many owners, the business is their retirement plan, and that was the case for Louis’s parents. But at the same time, they didn’t want to see their son go into debt to buy the company. So the arrangement they came up with was creative and benefitted everyone.

  • Louis became majority owner
  • His parents retained a minority share of the corporation, and thus continue to get profit distributions
  • His parents got to keep a sense of connection to the business, while Louis maintains the operations.

His advice to the successive generation when considering the financial arrangement is “Don’t take for granted how big of a deal it was for the previous generation to start something from scratch.”

Along the way they, and he, spent time building the foundation on which the company could be transitioned to the next generation.  They put in place process, procedures, and standards – all of which helped build a solid foundation that let Loui’s parents gradually transition out of the business.

Whether your looking to simply work less in your business, or transition it to the next generation, building systems that can sustain success in your absence is key.  In my book, The Profit Bleed, you can find tools and free downloadable resources that can help you get those process and systems in place – and all you have to pay is shipping and handling.  Make sure to check out the bundle of pre-packaged resources when you check out.

When I asked Louis if he had any final words of advice for anyone thinking about succession-planning he said, “It’s more important to focus on what you agree on and don’t try to fix everything you disagree on because you’re never going to agree on everything.”

Make sure to watch the whole video interview with Louis, and stay tuned for A Contractors Succession Plan Part II where I interview Louis’s parents Tom and Barbara.

Warmest,

Vicki

PS. Get Louis’s free checklist 12 Tips to Successful Succession.

PPS. I’d love to know if this interview resonated with you as you think about succession planning. Leave a comment below if you have questions we didn’t answer or share a helpful tidbit you have about this topic.

Vicki Suiter helps people see their businesses differently, then gives them the tools to do things differently.  Since beginning her business in 1990, Vicki has helped hundreds of contractors achieve the kind of success they never dreamed possible. Today, in addition to consulting, Vicki is an in-demand speaker at industry conferences nationally and internationally. Vicki’s articles and opinions have been widely shared in print and across the web. She is also the author of the book “The Profit Bleed” How managing margin can save your contracting business.

How to Close More Sales and Three Ways to Get More Referrals

In this week’s blog, I’m super excited to be joined by Chip Doyle of Sandler Sales. Having successfully trained hundreds of people to be great salespeople, what Chip talks about is a proven approach for effective prospecting that results in closing more sales.

In my interview Chip shared some best practices around sales and prospecting that are simple to implement, and don’t require you to be “salesy.” 

“To create fruitful prospecting (i.e. be attracting the RIGHT customers), you need to control the lead source,” Chip shares in this interview. 

I especially love when Chip explained how “every opportunity you have to connect with customers and prospects is an opportunity to prospect for more customers, thus an opportunity to close more sales.”

Here are three ways to get more referrals:

  1. Talk with current clients – make the ask
  2. Call past clients – capitalize on this gold mine
  3. Public speaking – be seen as an expert

I asked Chip how those of us who are super busy (that’s everyone I talk with), can find the time to maintain active prospecting.  Here are Chip’s top three practices to help you be more purposeful in your prospecting:

  1. Be intentional about it – make a plan for WHAT you’ll be doing to prospect – it’s just like identifying project scope.
  2. Make time for prospecting – put it in your calendar – it’s just like having a project schedule with milestones.
  3. Put a reminder on your desk of WHY you’re prospecting and working to generate leads. If you’re doing it for your family, put a photo of them on your desk and add a note that says “prospecting” on it to remind you to be proactive!

Here is a pro tip Chip shared in our time together:

When asking for referrals, be sure you are clear about what you’re looking for and be able to clearly articulate that to someone who wants to refer business to you.

I’d love to hear how this interview resonates for you and how you see you can implement improved proactive prospecting in your business. Feel free to leave a comment below to share any tips you have on prospecting and closing more sales.

Warmest,

Vicki

p.s. To receive Chip’s newsletter, send him an email at [email protected] Connect with Chip on Twitter and get his latest updates and tips @chipsell. And you can grab a copy of Chip’s book, “Selling to Homeowners The Sandler Way” here

p.p.s  If you’d like to get more tools to help you close more sales, check out my Sales Process Toolkit – a step by step guide to controlling the sales process, and allow you to close more sales.

How to Charge for Pre-Construction Services

As he sat down across from me, I asked Josh “how have things been going this past month?”

“Last week I submitted the fourth bid to a client who has an incomplete set of plans and is not clear on exactly what they want.  This whole thing of helping people figure out what they want to design, and what it will take to build it, while simultaneously asking me to bid and re-bid, and NOT getting paid for it is making us crazy!”

“What about instituting pre-construction agreements as part of your process of project development?” I asked. “Easier said than done!” he exclaimed.

While I can completely appreciate that making a change like this in your business can take time, it’s one that I’ve seen can make a HUGE difference in the overall success of your projects AND profitability of your company.

It was about a week after Josh and I’d had that conversation that I met my blog guest, David Davison of Realty Restoration, Inc. David has a completely different perspective on doing pre-construction agreements and has been HUGELY successful in implementing them in his design build firm.

In this video, David shares how he navigates this conversation with the client, and how he justifies the costs in a practical and grounded way.

To help you implement pre-construction services, David was generous enough to share with us the Pre-Construction Agreement Realty Restoration, Inc. uses in their business. A super generous offer – thank you David!

I hope you’ve found this video to be helpful in your leadership journey.  If so, please share it with a friend?

If you have other thoughts on the topic, I’d love for you to share them below.

Warmest,

Vicki

p.s.  In this week’s blog, my guest David Davidson with Realty Restoration, Inc., shares with you how to charge for pre-construction services so you can start making projects run more smoothly and be more profitable too!

p.p.s.  David generously shared with us the Pre-Construction Agreement they use so you can implement this into your business too!

Vicki Suiter helps people see their businesses differently, then gives them the tools to do things differently.  Since beginning her business in 1990, Vicki has helped hundreds of contractors achieve the kind of success they never dreamed possible. Today, in addition to consulting, Vicki is an in-demand speaker at industry conferences nationally and internationally. Vicki’s articles and opinions have been widely shared in print and across the web. She is also the author of the book “The Profit Bleed” How managing margin can save your contracting business.

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