Rules of thumb? I don’t trust them. Sure, they can help you come up with a rough estimate, if you’re asked for a ballpark figure. But they hide a deeper problem. One which can keep your business stuck in the slow lane, if you’re not careful.
Mind you, I must admit that rules of thumb can be useful. Sometimes, but not always. I have clients in the building trade. A skilled estimator can quickly whip up a quote for painting, for 50 square metres, allow so much for prep, so much for materials, so much for each coat.
But there’s a problem I’ve observed with my clients. When they price a job, they often base the quote on the time they’d take to complete the work themselves. Trouble is, they often work faster and more efficiently than their staff. Plus, there are oncosts to factor in for each employee. So it’s easy to bid too low using established rules of thumb.
In addition, rules of thumb are usually based on the industry’s average pricing. Average will kill you if you let it.
There’s plenty more for an estimator to consider before finalising the quote. Here are my top three.
Number one: who’s the client? The building industry can be cutthroat. If you bid on a large project, a quantity surveyor might review your work after you’ve finished. Say, ‘You didn’t do enough to warrant your price,’ and trim your final payment.
Don’t believe me? Check the contract you sign if you’re working with a major construction company. You’ve agreed to it, and they’ll take advantage of this if it’s in their interests to do so.
So my clients in construction work with bespoke builders who value quality and timeliness above price. Yes, there’ll be some negotiation. But the ongoing relationship matters more to these builders than squeezing the last drop of blood out of a subbie.
Which means my clients aren’t keen on quoting for people they don’t know. There are plenty of cowboys out there in the building industry. You don’t want to be owed hundreds of thousands by a company teetering on the verge of bankruptcy. My clients value stable relationships with stable businesses. If they must quote for some rando, they’ll add a premium surcharge to cover their risks.
Number two: the law of supply and demand affects the price. The basics are obvious: during hard times your price follows the stock market down. In boom times, everyone’s charging more. But you can create your own boom times if you have plenty of work in the funnel.
Here’s a rule of thumb that I like. When your calendar’s full for the next few months, and your clients are clamouring for more, it’s time to raise your price.
Number three: some jobs are far from average. Imagine a painting project involving feature walls, custom paint effects, a foyer with a ceiling eight metres high. The customer expects high quality work to wow visitors for the next ten years.
You’re not going to follow a basic formula to cost this job. You’re going to consider a heap of other factors, with client management at the top of the list!
In each case, the devil is in the detail. Building sustainable trusting relationships, navigating the ups and downs in your industry and the broader economy, and meeting the expectations of high-value clients, these all demand our full attention. Rules of thumb won’t help us here.
This is why I developed Strategy to Cash, and our 24-month rolling forecasts. They help my clients identify the business partners who want to build long-term, trusting relationships. They give them the tools they need to plan for dramatic growth, and to forecast problems if things turn pear-shaped. Most importantly, they give them the confidence they need to negotiate a premium price for premium work.
So if your business feels like it’s caught in the slow lane, give me a call. We’ll work out where your opportunities lie. I’ll show you how to finesse those rules of thumb, and accelerate your business into the fast lane!