Acquiring profitable work is not an easy task. It involves dozens of steps to ascertain a good quality work. The more formalized internally and externally the better a work acquisition process. Having a scientific and monitorable approach is key and having an artful approach is not recommended.
There is a harsh rule about pricing or proposing construction work ? ?it is a one way street.?
? Too high and there is no phone call and no chance of winning the job.
? Too low and there is a phone call every time to contract you to a money losing proposition.
Any mistakes in work acquisition affect a company greatly. First, let me define a mistake as a wrong action that is controllable.
Let me illustrate the impact. First, if a price is too high from estimating, no client will buy, and the cost of estimating is sunk with no revenue generated.
So there are two costs:
1. The sunk cost. Labor, material, and other costs to produce the estimate.
2. The opportunity cost. That is, the cost of the business (rent, insurance, vehicles, salaries, etc.) still exists and has to be paid for this month, but there is no billable revenue to pay for it due to this missed job.
Second, let me illustrate the loss problem.
1. The sunk cost. Labor, material, and other costs to produce the estimate and the job that is a no profit or money losing project.
2. The opportunity cost. That is, the cost of the business (rent, insurance, vehicles, salaries, etc.) still exists and has to be paid for this month, but there is no profit to pay for it due to this no profit or money losing proposition.
Use of a formal pricing policy gives sureties and prospective construction service buyers more confidence about a firm?s operations.
Those firms who tend to be very entrepreneurial but undisciplined, don?t build confidence from these same outsiders, as construction is the second riskiest business in the United States.
Undisciplined entrepreneurs in construction will suffer the ?one way street syndrome.?
This is an excerpt from our recent book, The Practical Construction MBA (2011, 458 pages) for more information ? go to : http://stevensci.com/Merchant2/merchant.mvc?Screen=CTGY&Store_Code=SCII&Category_Code=PCMBABook
Builders are just like any other business owners. They are trying to minimize costs and increase profits. Here are three clear-cut ways to increase your bottom line and explode your income. The goal of any business should be to maximize profit in any way. Cutting costs is one way to accomplish this. Increasing production is another. Real Estate Construction is no different than any business in these basic practices. Decrease Cost of Materials and Supplies, Buy directly from the supplier, Decrease Cost of Labor, Increase Production these are the way that a builder can do this for Increase Profits. Thanks for sharing this informative post with use.
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