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View Full Version : Do you show profit as a bid item?


terracare
04-06-2005, 02:36 AM
Hey everyone,

This has been a topic of discussion at some recent seminars that I've attended. We have been showing profit as a bid item on each one of our estimates given to our customers and it has been working wonderfully! I have found that most people appreciate the honesty and straightforwardness, and definitely thought that I was pocketing a lot more money than I really am.

Keep in mind, if you are considering pricing your jobs like this, make sure you have all your ducks in a row. You need to know absolutely ALL of your costs of doing business to price jobs out this way. I'm sure there are still a few dollars floating around somewhere that I'm ignorant of, but it is important to hit on 99.9% of them.

I don't know, what do you guys think?

Todd

sheshovel
04-06-2005, 02:48 AM
I don't think it is necessary to inform my customers of the profit I make on the jobs.But I do show labor
charges on my bills and estimates.Is that what you mean??

GreenQuest Lawn
04-06-2005, 07:09 AM
I think its the dumbest thing I ever heard.

I do not want the customer to know how much profit I make, seems it would just end up as one more thing they could argue.

will never be in my contracts.

Mudmower
04-06-2005, 09:55 PM
I will show them my profit margin right after they show me last years tax return................... :dizzy:

Why on EARTH would you want to do this????? How does it help YOUR bottom line??? Something (work, labor, etc) is only worth what ever someone else is willing to pay.

I hope you show a HANDSOME profit, because if not, you are leaving money on the table. Money they are willing to spend, but you are not willing to take. If they balk at your original estimate, then start the negotiation.

Bad Idea Me thinks................................

Jim

kootoomootoo
04-06-2005, 10:04 PM
Does GM show profit on each car they sell at the dealership....?
Hell do they show labor hours?

Its 10 grand..this is what you get, this is the size, this is the quantity,
this is the design etc .....nothing more nothing less...if you are selling labor thats your way but I am selling a commodity called landscaping. They want it .....this is how much it costs.

JimLewis
04-07-2005, 01:38 AM
I agree with the others - I don't see any reason to do this.

That being said, I am fairly certain that if I did employee this method of bidding, I'd probably still land just as many bids as I usually do. Most of my clients come from word of mouth or from our website, and they are already very impressed with our company. When we talk, I give off the impression of being a knowledgeable professional and from there it's easy. I've usually already landed the job (mentally) before I ever give the customer my bid sheet.

Regardless, I still don't see any reason to give detailed bids at all. I don't break down my bids into materials, labor, profit, anything. I have a very nice, professional bid sheet that describes what we'd do and a total price. That's it. Simple. I don't think anything more is really necessary.

sheshovel
04-07-2005, 01:56 AM
I tried that at first .Then I kept getting questions like"How much of this is your labor?"
"What's it gonna cost me for materials alone?"
"How much would it be without the split rail fence"
"How much without the Drip system?
"What if we try to get this amount lower by useing less plants?
"How much if I do some of the labor involved like doing the clean-up and picking up the mulch in my truck myself?"
That's why I break it down to materials and Labor.

JimLewis
04-07-2005, 03:08 AM
I guess we're just in different markets or pitching to a different class of clientele or something.

I get those questions occasionally. But not too often. Probably less than 5 or 10% of the bids I give, do I get a question like that. And when I do get those questions occasionally, I know the answers (because on MY copy of the bid, I worked out all those things) and so I answer immediately like this;

"What's it gonna cost me for materials alone?"
I'm figuring $750.00 in materials.

"How much without the Drip system?
It would save you about $600 to just irrigate the lawn, and not do the drip system for the plants.

"What if we try to get this amount lower by useing less plants?"
That's certainly an option. I am willing to work with you guys according to your budget. If you want to stay inside a certain budget for plants, I can probably accomodate that. We have two choices; reduce the SIZE of the plant materials or reduce the AMOUNT of plant materials. I'd probably recommend reducing the size. You'll have to wait longer for a mature landscape, but you'll still get it all done in one shot.

ETC.....

sheshovel
04-07-2005, 02:19 PM
Gottcha Jim.Sounds good

Lawnworks
04-07-2005, 06:42 PM
I break it down to materials,labor, etc. Labor is far from profit. But I try to itemize so the customer can modfy the plan.

Randy Scott
04-07-2005, 10:49 PM
Profit? Yeah, that's a good one. I own my own business. I try not to show anyone profit.

sheshovel
04-08-2005, 12:06 AM
Hope that dosent include the good ole IRS Randy LOL! :eek:

terracare
04-08-2005, 03:03 AM
Does GM show profit on each car they sell at the dealership....?
Hell do they show labor hours?

Its 10 grand..this is what you get, this is the size, this is the quantity,
this is the design etc .....nothing more nothing less...if you are selling labor thats your way but I am selling a commodity called landscaping. They want it .....this is how much it costs.

Labor is also a bid item listed on my estimates. I am talking about profit; money in the company bank account after everything is paid for. My overhead recovery takes care of my salary. I do believe we are all in the business to make money, and I have yet to hear a customer refute that with me.

Look, I'm not saying its a bad idea or a good one, but we are trying it. The results so far have been better than when our customers thought we were making 90% of all the money they wrote their checks for. I feel no reason to hide the fact that my company is in business to make a profit.

One of the main points these discussions bring up is that sometimes under the "flat price, no itemized costs" pricing structure is that the customer will try and talk you down to below what the job actually costs your company to perform the work. I have sold $10,000 jobs before where the customer will try and talk me down to $7500 when the job actually cost us $7900. Ever since we implemented this new profit item to the bid, the customer quickly realizes that everything else on this sheet but profit is a cost of doing business. These situations where we have been asked to perform work for under our cost have been eliminated.

Todd

JimLewis
04-08-2005, 12:52 PM
Labor is also a bid item listed on my estimates. I am talking about profit; money in the company bank account after everything is paid for. My overhead recovery takes care of my salary. I do believe we are all in the business to make money, and I have yet to hear a customer refute that with me.

I hear ya. But I think at a certain point your customers just trust you so much that they just trust that labor is a big part of the job and that you're not ripping them off.

Look, I'm not saying its a bad idea or a good one, but we are trying it. The results so far have been better than when our customers thought we were making 90% of all the money they wrote their checks for. I feel no reason to hide the fact that my company is in business to make a profit.


Hey, no apologies needed. This actually IS a good idea and a fairly common method of bidding. In the book "Landscape Construction" by Sauter (one of the best books on landscaping ever written, by the way) he mentions three main methods of bidding. The way you do it is one of them, where you itemize all of the expenses and labor and profit. That's a great practice and very professional. And from the customer's viewpoint, it makes it easier to compare contractors (if all the contractors submitted detailed bids.)

Anyway, this is a very common practice and nothing to be afraid of. I just happen to feel it's not necessary for me. Like I said before, most of my clients come from referral or have been to our website or have seen us working across the street. So they already have a very favorable impression of us anyway, and that impression alleviates the trust issues that make such a detailed estimate necessary. But I think this method of bidding is a good one and useful for a lot of people.

One of the main points these discussions bring up is that sometimes under the "flat price, no itemized costs" pricing structure is that the customer will try and talk you down to below what the job actually costs your company to perform the work. I have sold $10,000 jobs before where the customer will try and talk me down to $7500 when the job actually cost us $7900. Ever since we implemented this new profit item to the bid, the customer quickly realizes that everything else on this sheet but profit is a cost of doing business. These situations where we have been asked to perform work for under our cost have been eliminated.

I hear ya. And I get that once in a while too. But I do so many bids I really don't care if a customer tries to talk me down. That's a big sign to me that they are a person who doesn't understand my industry and how contractors work. And I probably don't want to work for them anyway. So I just tell them I am sorry, but that would be doing work for under my cost and I can't come down in price. One phrase I learned here on Lawnsite from someone that I love and still use is this, "Sir. If I could discount my price by that much and still make a profit, that would mean I was ripping you off with my first price. But I wasn't. That was a fair prices considering all the expenses and labor. I can't come down on price......."

You know, I should also mention that one of the other methods for doing bidding (according to Sauter) is to include profit as part of your hourly rate. That is one of the other common methods of bidding. So then the customer doesn't see a line item saying "PROFIT" they just see labor and expenses. It's a really good book. Check it out. Especially that section. It gives detailed examples of every bidding method.

pagefault
04-08-2005, 01:39 PM
I don't know about landscaping, since I have no experience in the business, but I know that in other businesses where I do have experience, I would have as much (if not more) problems from my employees seeing my profit.

When I did computer work, our employees got $25-30 per hour. The profit for the owner (after his salary) was about $15 per hour, per technician. Between salary and profit, he was pulling down about $650k per year.

Without getting into whether he was showing the "right" profit and taking the "right" salary, from a business standpoint, I know he did not need his employees thinking "We do all the work and he gets all the money!"

Not only would the customer have something new to negotiate over, but the employees would see it as a reason to try to negotiate a higher salary. Not only that, but some customers and the employees would see it as an opportunity to cut the boss out of the equation; i.e. "I know that the boss makes $200 on this job, why don't you come by on your day off and I'll pay you for the materials and labor on this quote, plus $100."

terracare
04-08-2005, 10:35 PM
I don't know about landscaping, since I have no experience in the business, but I know that in other businesses where I do have experience, I would have as much (if not more) problems from my employees seeing my profit.

When I did computer work, our employees got $25-30 per hour. The profit for the owner (after his salary) was about $15 per hour, per technician. Between salary and profit, he was pulling down about $650k per year.

Without getting into whether he was showing the "right" profit and taking the "right" salary, from a business standpoint, I know he did not need his employees thinking "We do all the work and he gets all the money!"

Not only would the customer have something new to negotiate over, but the employees would see it as a reason to try to negotiate a higher salary. Not only that, but some customers and the employees would see it as an opportunity to cut the boss out of the equation; i.e. "I know that the boss makes $200 on this job, why don't you come by on your day off and I'll pay you for the materials and labor on this quote, plus $100."

I think as we grow in size and in reputation, our method of bidding will revert to what Jim is doing. However, as a small sized company like ours with four employees, this seems to be the method that is best suited for us. This is only speculation at this point because we too are new to this type of bidding. Keep the opinions coming, its very interesting.

Jim: Thanks for the book referral. I'll check that out this weekend :)

Todd

D Felix
04-12-2005, 09:24 PM
We used to give estimates on installs where the final price was derived by markingup the materials by 100%, and charging $40/hour for labor. Equipment was also figured in as well.

Over the last year or so, we've figured out a more accurate way of estimating. It took a while to figure out what we should be charging for labor (overhead recovery, wages, etc.), in our case it's around $65/hour, including a smallish (~10%) profit margin. For materials, we've started charging our cost, plus a handling, warrantee and profit fee of ~15-25%, depending on the job.

By charging a small mark-up, it reduces the amount of sales tax (6%) that the client has to pay, which can add up to several hundred dollars on larger jobs.

One other thing we've started doing, is giving options with the estimate, especially for those that are on a budget. It makes it harder for them to say "No, not this year", when they can see what they get for their $XXX.

Profit really isn't shown anywhere, though it is included.


Dan

bicmudpuppy
04-12-2005, 10:22 PM
I think the customer wants to believe we make an phenomenal percentage of profit. The majority of my work is irrigation. Seperating labor out doesn't save my customers a dime becuase I pay sales tax on my materials and the State of Kansas doesn't require me to collect sales tax unless I am buying those materials tax exempt. As to how much profit I let the customer believe I'm making........I require two upfront deposits on every contract. I collect 40% to schedule the work and order materials. This will include calling locates, etc. The day I set foot on the property to begin work, I get an additional 40%. I tell my customers I don't want the final payment until they are satisfied that we have completed the job. On an irrigation system, this means I have also trained them in the proper use of the product. I always imply that that last check is my money if the project goes according to plan. This reasures my customer that I'm not getting rich of landscaping and installation. On service work, that is an entirely different matter. If major repairs are required, then I may ask for a deposit equal to the estimated equipment to be replaced. None of my customers doubt that I am making a premium here, but by being efficient and experienced, I'm still very economical :)

Freshcut Lawn Care
04-24-2005, 09:01 PM
I bid somewhat similiar to how Jim does it, I guess.

I list it the following way!

1) The (9,10, 12??? Step Process) - Starting at Picking up and Delivering Materials, Physical Labour Components (i.e. Preparation of Site, Building and Leveling of Walls, etc. etc.), Always Finishing with Clean up and Disposal Work.

2) The Materials Required - Wall Stone, Screenings, Lava Rock, Landscape Fabric, etc.

3) Tools to be Used - Trucks, Trailers, Wheel Barrows, Shovels, Rakes, Levels, etc.

I don't break down the cost of anything!

By showing them everything I am using (most of the tools are very basic), they realize that I have expenses associated with their job which they may not have thought about.

I explain what I am about to do for the customers and what it will look like and most think that I am fair, after explaining my __ Step Program.

I belive the __ Step Program makes the work more realistic to most of them, so most do not argue (as they aren't interested in doing the work themselves).

All the Best!

:waving: