Knowing what to quote and how much to charge is one of the great unknowns in the construction industry. It’s never been easy but with material shortages and rapidly increasing costs, it’s particularly complicated at the moment.
So how do you know how much you should quote?
We have 5 tips to help you.
Tip 1: Check the Terms & Conditions on your quotes and contracts
Part of the issue in construction is the potentially long lead times between quoting a job and delivery. If this is your situation, then it’s important to include clauses in your quote and contract that pass on any price increases to the customer.
This will work with material price increases but you won’t be able to pass on labour-hire increases to customers. These increases will come directly off your profit margins if they change between quoting and project commencement.
Tip 2: Buy materials in advance to lock in pricing
Once a job has been booked and the deposit paid, look at whether you can purchase the materials in advance to lock in current pricing. This can tie up your cash flow and may add extra warehousing/storage costs onto your overheads, but it is definitely worth considering.
Tip 3: Know the cost of your overheads
Overheads are the expenses incurred in operating and marketing your business. They include things like:
- Interest and repayments on your finance
- The costs of keeping vehicles on the road
- Equipment and tools for staff members
- Transportation costs (if they apply to your operations)
- All the costs associated with your premises (such as rent, power, water)
- And so on
Every business has overheads and unless you know and understand what they are, you will risk losing money on every job.
Tip 4: Review! Review! Review!
Analysing your overheads is not a set-and-forget task – especially in the current environment. They need constant reviewing to ensure increasing costs aren’t eroding your profit margins. We recommend you analyse every completed project so you can truly understand what’s happening in your business.
Tip 5: Be prepared to lose some customers to gain higher margins
While it may seem counter-intuitive, it can be more profitable to do fewer projects with a higher margin, than trying to win more jobs that have lower margins. The important thing is, that you need to understand your costs, overheads and actual profit so you can determine the best strategy for your business.
Is it time to take a different approach to quoting and managing your construction business?
CFO@Call offers an exclusive flagship product, the Construction Business Navigator Growth Program. As part of the program, we’ll help you understand how to quote for-profit and abundance.
Interested?
To learn more, book your FREE no-obligation 15 Minute Construction Growth call. After the call, you may be invited to participate in the Construction Business Navigator Growth Program.
