Issue link: https://read.dmtmag.com/i/465691
30 • MARCH 2015 • WORLD FENCE NEWS Bidding and estimating in the fence industry BY TOM LUBY, PRESIDENT, PROFIT BUILDERS INTERNATIONAL Another winter has almost come and gone, spring is in the air and Punxsutawney Phil has predicted an extended winter. According to folklore, on Febru- ary 2 in Punxsutawney, Pennsylvania, a groundhog appears from his winter nap and on that day if it is cloudy when a groundhog emerges from its burrow, then spring will come early; if it is sunny, the groundhog will supposed- ly see its shadow and retreat back into its burrow and the winter weather will persist for six more weeks. Either way, spring and good weather are on the way, depending on where you live, and spring in the fence industry is usually an indicator of an onslaught of work (hopefully) and a backlog of bids to proliferate. At FENCETECH last month I spoke about estimating and bidding and some tips and it is on that note that I would like to pontificate a bit. Why is the fencing industry plagued by a plethora of residential customers who never seem to be sat- isfied and are always looking for a lower bid? Why do we seem to have ultra-competitive commercial bid openings, with 20%, 30% and even 40% spreads on the same job? How can this happen and why? Sadly, we live and work in a rela- tively unsophisticated industry. Other related and non-related in- dustries may not be this competitive… why? If someone is planning to build a new home, install a pool, or buy a new car, these things never have a 40% spread. There may be 5% or 10% vari- ance in price from company to com- pany for the same product, but not much more. Why not the same in fencing? There are many reasons, but atop the list in my opinion is that fencers notorious- ly don't know their true costs, and many, many times they bid too low! Many also have a tendency to "race to the bottom" to try to secure every job instead of setting a price and sticking to it. OK, that being said, what are some components of a fair bid? First, when bidding, ask this ques- tion: "Are your customers comparing apples to apples; are you on a level playing field with your competitors? Do they have the same costs of doing business as you do?" You need to know your competi- tion! What is their respective overhead and how does your company stack up? Another suggestion I would have is to be firm, stick to your price and be willing to walk away rather than lose money on a job. Again, the key is planning and knowing your true costs. OK, that be- ing said, what are your true costs and how do you calculate them? There are actually three components to your true costs of doing business – direct or variable costs, indirect or fixed costs, and semi-variable costs or a combina- tion between direct and indirect costs. What are your direct costs? They are any costs directly attributable to the cost of the job. Most obviously there are the materials to complete the job, the labor to complete the job, but then there are also other costs, like rental equipment used for the job, travel time to and from the job, and the cost of change orders for the job. Other direct costs could be fuel, incidental materials and supplies like nails, bolts, screws, welding supplies, etc., direct shop and yard costs, re- pair to broken tools and equipment, shrinkage and material damage and/or loss, job tear down, clearing and trash removal, additional trips to the job and labor burdens. Next there are fixed costs. Fixed costs would be all indirect labor costs, management, sales, office staff, rent and/or mortgage payments, adver- tising and marketing expenses, in- surances – workers' comp, bonding, etc. – bank charges, including interest paid on loans and LOC (mortgage), and utilities, as well as all direct and indirect labor burdens. We also need to include office supplies, all sales costs, commissions, fees, fines, permits, maintenance, damage and repair, and depreciation costs. Don't forget some employee benefits like coffee, water, and sanita- If someone is planning to build a new home, install a pool, or buy a new car, these things never have a 40% spread. There may be 5% or 10% variance in price from company to company for the same product, but not much more. Why is it not the same in fencing?