Does this sound familiar?
- “It’s impossible to compete in this tight construction market.”
- “There’s always too much competition.”
- “I can’t find any profitable jobs to bid.”
- “The only way I get any jobs is when we leave too much money on the table.”
- “I get tired of cutting our bids to beat the competition.”
- “How can we ever make enough money to survive?”
I have heard these same complaints about the construction business for over 40 years. It seems as if nothing changes as contractors continue to compete against too many low-price competitors.
Choose projects to bid on like you fish
Before fishing, you decide where you’ll likely catch the best, biggest, and tastiest fish. So, you set out to find an abundant fishing hole and cast out your bait—hook, line, and sinker. You wouldn’t waste your time fishing in areas where the right fish never bite. When looking for great projects to bid on or companies to propose to, you also seek opportunities to give you the best chance to win and make the most money. When you finally catch a fish, reel it, weigh it, and decide if you want to keep it. After you submit a bid and get the call to cut your bid or match a better price to win the job, it is your choice to accept their offer.
What do you do when you go fishing, and they aren’t biting? You try different fishing techniques, change your bait, or move on to other fishing holes. This is not what contractors typically do when they don’t land enough construction contracts. Most contractors repeatedly bid on the same job types to the same customers, using the same bait and proposal strategies they’ve always used. Contractors often think that if they bid enough jobs to the same companies the same way, eventually, they’ll get their share. This effort won’t get you the positive results you want. Like fishing, you must change estimating and bidding strategies to get good customers to bite more often. You must use the right tackle, different techniques, and tastier bait to get the fish to think your bait is better than your competition or look for better fishing holes.
Bid-hit-win ratio
When presenting at construction industry conferences, I often ask everyone about their bid-hit-win ratio. This ratio is the rate at which you successfully bid or propose on projects. For example, a 5-to-1 or 20 percent bid-hit-win ratio means you are awarded only one for every five jobs you bid or propose on. Most business owners, estimators, and project managers don’t track or know their ratio. In a survey I conducted of more than 2,000 construction general contractors, builders, and subcontractors, less than 10 percent know and track theirs. To me, this is like fishing anywhere and not caring if you catch any fish! Do you know what yours is? Do you keep track? What should it be?
I also asked what they think an excellent bid-hit-win ratio should be. Their responses vary from a perfect 100 percent to 25 percent to very poor ratios of 10 percent or less. Which is the best ratio for you? Obviously, a higher ratio, like 33 percent versus 20 percent, is better, but the right ratio is what works for your company.
Companies with loyal customers, negotiate lots of work, or have competitive advantages tend to have higher bid-hit-win ratios. They also might require additional overhead expenses for marketing, sales, pre-construction services, customer development, and public relations. Companies that procure most of their work from public works jobs or regularly bid against a long list of competitors have lower bid-hit-win ratios, around 15 percent. To bid more on additional projects, they generally have more estimators on staff, which offsets the fewer marketing dollars they spend. These trade-offs usually balance out at the bottom line.
The right bid-hit-win ratio is what works for your operation. A 25-to-1 ratio is too high, and 1-to-1 is nearly impossible. The highest reasonable ratio for public works bidding should be at most 10- or 11-to-1. Higher than 11-to-1 will cost your company too much in estimating expenses and will not provide a reasonable profit. I recommend you strive for a 4-to-1 ratio or less for private work.
Track dollars bid versus dollars won
You can also track your bid-hit-win ratio by dollars bid versus dollars won. This win ratio can help determine if you are winning more of the larger or smaller projects you compete on. You’ll discover you might not win many larger jobs, so don’t waste your time bidding on big jobs. Why? Larger contractors generally have much lower overhead as a percentage of sales revenue than small contractors.
Keep track to determine the right jobs to bid. So, what factors can affect your bid-hit-win ratio?
- Number of competitors
- Your mark-up
- Project location
- Project type
- Project size
- Subcontractors or suppliers
- Contract type—bid versus negotiated
- Customer relationships
To determine how many jobs to bid on, what type of jobs to go after, and which customers give you a higher percentage of their work, your bid-hit ratio must be known for these different categories. To get a copy of the bid-hit-win ratio tracking system, email gh@hardhatbizcoach.com. Track it monthly, quarterly, and yearly for all projects you bid on and each customer you bid to. Also track by job type: large versus small, local versus out-of-town, commercial versus industrial or residential, bid versus negotiated, plans and specifications versus design-build, or new construction versus remodel.
As you study your bid-hit-win ratio trends, you’ll find certain customers give you more work than others, do better with certain kinds of jobs, and discover that when competing against too many competitors, your success ratio won’t be as good as it should be. This simple tracking system will help you determine which jobs and customers to bid to. It will also help you determine when to eliminate a project type or customer and seek better opportunities to invest your estimated dollars. You can catch more fish and win more work by tracking your bid-hit-win ratio.
George Hedley is a certified professional construction business BIZCOACH, consultant, and popular speaker. He helps contractors build better businesses, grow, profit, develop leaders, improve estimating, field production, and get their companies to work. He is the best-selling author of Get Your Construction Business To Always Make A Profit!, available on Amazon.com. To schedule a free introductory coaching session, get his monthly Hardhat Hedlines BIZ-TIPS e-newsletter, download his templates and tools, or watch his webinars or online video courses at Hardhat BIZSCHOOL online university for contractors, visit HardhatBizcoach.com or email GH@HardhatBizcoach.com.
