As the economy gradually improves, one beneficiary in particular is the design/build market. Before making the leap back into the market, get some free advice below.
1. Qualify prospective clients. Weed out the “tire-kickers.” Be especially cautious if a lead is from the Yellow Pages. Explain to prospects what your process is. Many of my clients offer free “conceptual” (pencil sketches) drawings and a free estimate. If a more formal drawing is needed, a designer is brought in at an hourly rate. An estimate is given for the cost of the design and a 50 percent deposit is required to start the design. During the initial phone call, ask the prospect how many bids they are getting (if you are one of 10 bidders, tell them you’re not interested) and if they have looked at your website. Be up front and tell them that you will not be low bid. Also, explain your billing process.
2. Consider design options. As noted above, offer a free pencil sketch that should take no longer than 15 minutes to create. This allows you to compete with the companies that offer free designs. Charge for more formal designs and obtain a 50 percent deposit, up front, to get started. If you sub out your designs, pay the designer a percentage of the design fee once it is paid. Put a time limit and incentive on the design turn-around-time. If it comes in on time, pay the designer 85 percent of the fee. If it is late, pay 75 percent. If it is early, pay 95 percent. You don’t make your money selling designs so use the fee to your advantage.
3. Offer free estimates. Offer the client a free ballpark estimate during your first meeting, if at all possible. One of my clients in Simi Valley, Calif., does this and it helps him zero in on his client’s budget. He knows his numbers and his ballpark estimates are always a little high. If upon seeing the estimated price, the prospect faints dead-away, he moves on. This is not a serious prospect.
4. Focus on turnaround time. Your turnaround time is critical. For smaller jobs, ones less than $10,000, streamline the proposal process by using crew day-rates. For example, a three-person crew with a ¾-ton pickup working a 10-hour day at $50 per man-hour would bill $1,500 per crew-day. Assuming the $50 per man-hour includes a 20 percent net profit margin; you could have three break points for your pricing if you want to be more creative:
a. $1,500 per crew-day with a 20 percent NPM, $500 per man-day
b. $1,425 per crew-day with a 15 percent NPM, $475 per man-day
c. $1,350 per crew-day with a 10 percent NPM, $450 per man-day
Charge a minimum of the retail price for materials and rental rates for any owned specialty equipment (skid steers, mini-excavators, etc.) used on the job. Add a 25 percent markup to any rented equipment and/or subcontractor costs.
If at all possible, present the proposal at your first meeting, even if it is hand-written.
For jobs of more than $10,000, you should use a more formal estimating process. You can still offer a free conceptual design and ballpark estimate. However, you should take more time to think through the project for planning and pricing purposes.
5. Job cost every job. Too many contractors fail to job cost their projects. They are making a huge mistake. Just like the estimating process, job costing should be part of every job. At a minimum you should compare your estimated man-hours to the actual man-hours used on the project. If the crew gets paid for 10 hours per day, 10 hours should show up on the job-cost report. It is easy and should only take five minutes at the end of the day.
Don’t forget. In order to capitalize on the improving design-build market, remember to keep it quick, keep it simple and keep it profitable. Qualify your prospective clients and offer them free conceptual designs as well as ballpark estimates. And don’t overlook smaller opportunities – jobs under $10,000 – as they can be your most profitable projects.
Click to download Huston’s easy-to-use job costing sheet.