I love the adage “If you can’t measure it, you can’t manage it” by Peter Drucker. It’s an important message about defining what success means for your company. What is the difference between a winning and a losing bid? I wish the answer were as simple as just “pricing”. The truth is more complicated. Let’s discuss some of the areas to look at and measure.
Do you track the types of bids you win and lose? More importantly, how do you categorize your business: Service, new construction, remodel, commercial, or residential? And do you bid outside your area of expertise, and if you do-do you know your win loss percentages? Tracking where you win and lose customer bids is important to understand customer losses. Do you win more public projects but lose more private ones? The expertise of your estimator may have to do with where you find success and more importantly where you are losing. Tracking the types of bids your company responds to and where you are succeeding is a good indicator your company understands that part of the market. And if you are a subcontractor it is a telling way to understand what your generals perceive your expertise to be.
Let’s look at a possible scenario of where to increase your win/loss bid ration. If you are a remodeler and you are winning commercial TI bids but losing on residential kitchen and bathroom remodels, do you know why? Start by tracking the types (categories) of bids you win and lose. This will give you areas to do a deep dive to find out why you are losing some types of bids. Maybe your estimators have a great understanding of commercial projects but don’t have detailed understanding of residential projects and over bid out of an abundance of caution. You don’t know until you start measuring and tracking your bids.
Win/Loss Rate, Speed Is Of The Essence
Many contractors have around a 10% win rate, meaning that of all the bids they respond and submit a bid/quote they win roughly 10% of the work on those bids. In one way the more bids a construction company responds to the more work they will likely get. For every 100 bids/estimates they submit, they will win 10. That’s a lot of estimating and pricing work. The most common digital tool companies use is Excel; a wildly flexible business digital tool used by nearly everyone. You can reduce the time it takes to create a customer bid in Excel by using templates like everyone else , however it’s easy to make formula mistakes that could end up costing you a bid or under estimating the work required. And if first impressions through your estimator count then it’s much harder to differentiate your company using everyone else’s template. But speed is important, the faster you can create an estimate the more bids you can respond to. Focus is important as well, if you’re winning bids in some areas and losing them in others, you may want to look at focusing on the areas you are winning in or increase your understanding in the areas you’re losing at.
What’s more important, accuracy or speed? If we are talking about service work, speed may be more important than accuracy because of how small the jobs are and the flexibility of defining hourly work in a customer estimate. Even then, accuracy is king for setting customer expectations and accurate scheduling. More importantly accuracy in your bidding process is the only way to make more money both in the bid and in the project work. The real need in today’s crazy pandemic environment is improving accuracy, something that only comes with experience.
It’s harsh but true, some people play favorites and don’t like you. I have heard this one before: “Whenever we give Joe a bid we always lose, it seems like he uses our bid to shop around to his favorites”. If this has happened to you, you’re not alone. It makes sense to track your wins and losses with your customers. If you keep giving ‘Joe’ bids you will most likely lose, why waste the time. If you can focus your efforts on customers you are more likely to win, you can improve your win/loss ratio.
Reviewing Customer Bids
Are all customer bids/estimates reviewed by at least one other person? If not, they should be. Your customer bid is the beginning of a contractual agreement, one that binds your company to the customer. Reviews are essential for improving accuracy and serve as an ongoing training tool. Some review requirements may include:
- New estimators that need training
- Tiered bid value amount, larger bids require multiple reviews to ensure accuracy
- New resources (people or equipment) that may need additional reviews for accuracy
- New types of work, if your company traditionally bids on commercial but are now bidding residential projects, you may need additional reviews for accuracy
- Tight schedule, some bids may be required tight deadlines that include penalties for schedule delays
Improving your win/loss ratio with customer bids/estimates can make a huge difference in the work you win. For example, if you are bidding on 400 projects a month (100 per week) and you are able to increase your win ratio from 10% to 12% (a 2% difference), that’s an additional 8 projects per month or close to 100 projects more per year. If you average $50,000 per project (keep the math simple) that’s close to a $5 Million increase in annual revenue. That simple increase is worth investing time and effort into.