In my travels I hear contractors say, no matter how low I bid, I still can't get any work; my estimators are busy all the time; we are still striking out; and I'm at my wit's end. Usually they want to know where business can be found and how they can become successful. Trust me, we were no different at our company years ago. We too struggled with long bid lists and poor success.
As I look back on the keys to my business success in both good times and bad, I realize that my passion for developing a written business development plan had been a keystone to our success. This plan was integrated with our operations plan and budgets.
Most contractors hear the word business development and immediately think it's too complicated. Then go back to reading their dodge reports. This behavior will ensure high-bid volume, low success rates and even lower margins, certainly not the way to build a sustainable company!
We changed all of this by developing a culture of making everyone in the company a salesman and supporting their efforts. Our sales grew and so did our profits while we increased the "hit" rates on projects bid. The keys to success were: customer analysis, sweet spot identification, bidding with a purpose, education and putting it in writing.
We started by identifying our market, we asked what do we do, where do we do it, who do we do it for and where do we make our money.
We had been in business for 35 years when we took on this task, so we had developed a significant customer list. We broke this list into a number of smaller lists by type of work, geography, type of bid (prime, public, negotiated) and trades, and then assigned our PM and estimators to dig deeper into each project. They developed a list showing profitability, competition and relationships. We then combined our lists to determine who our best customers were. Bid success rates were added to each customer and we discovered some interesting facts that enabled us to better deploy our limited estimating resources.
Some customers were using us to "check" prices, not awarding projects to us, or just giving us the occasional bone or the most difficult projects. Based on this and other factors, such as how were we paid and how were projects managed, we decided to eliminate a number of customers by "firing" them. We could then focus on the good opportunities and developed a checklist for future customers/projects to help us with our "bid/no bid" decisions.
Next we looked at successful projects where we made money on a consistent basis. Our first step was an analysis by customer, type of work, size of project and how it was acquired (bid vs. negotiated). This was a powerful exercise and pointed out some types of work we should either avoid or needed to raise our prices on in the future. We also discovered the notion of risk and found that when we tried projects out of our core geography or type of work we generally had poor results. We were able to define our "sweet spot" and focused on projects that fit into this profile.
Bidding on purpose
Armed with the information we had gleaned from our records we began to track projects that fit into our success profile. Our estimators bid fewer jobs, but did a more thorough estimate leading to better results in work acquisition and performance. We would track the project from the beginning, offer help through budgeting, meet the owner, and budget if possible, all to become a value added resource to all involved. This paid off not always on the project we were bidding, but on future projects too.
Adopting the culture of "everyone is a salesman" took a lot of work. Not everyone is comfortable in this role, so we tried to define how each of our team members could affect our ability to obtain work. By breaking down to the receptionist how important it was for her to professionally greet all callers and letting foremen know why job meeting attendance could influence opinions, we got all of our teams to buy into this concept.
The power of your staff working to get and keep your customers should not be underestimated. In fact if your competition does not have this culture there will be opportunities for you to gain more business from them.
Writing the plan
Basically we have created all the information you need to build and write your plan. You should follow the KISS theory, stressing that simplicity should be a key goal, when preparing the plan. The length of the plan depends on the size and complexity of your company. Our first plan was three pages long identifying our "sweet spot" and key customers. Accountability was essential to success, so we assigned customers to specific team members. On a white board we would list upcoming opportunities that fit our "sweet spot" and obtain as much information as possible so we could prepare the best most responsive bid possible. We were able to raise our hit rate from under 10% to more than 20% while increasing profitability to best of class levels.
What about me?
You are probably saying, "That’s easy to do in good times, but I can’t imagine doing this now, with too few projects, too many competitors and too little time!" That is why you need to bid smarter, bid to get the work and bid to make a profit. Please take time to use your knowledge to get the edge, not just to bid work to keep busy. Think of the lost opportunities when you were a "bidding machine," and remember we are in business to make a profit, not to churn out bids.
F. James McCarl was president for more than 30 years of McCarl's Inc., a family business that became one of the top 50 mechanical contractors in the U.S. McCarl's became a wholly owned subsidiary in 1999 of electric utility PPL Corp., Allentown, Pa. In 2003, McCarl became chairman of The McCarl Group, mccarlgroup.com, which helps family-operated businesses, mechanical contractors and nonprofits maximize their potential through strategic planning and risk management.