Why You Shouldn't Bid Electrical Jobs Too Low
Bidding a project too low, even when times are tough, can damage your company’s bottom line. Instead, learn how to add value to your services so customers see that quality is more important than saving a few extra bucks.
By: Laura Schlereth
Issue Date: January 2010
Desperately trying to gain business and retain employees, electrical contractors are bidding much lower than their normal prices. However, bidding too low can have many negative long-term consequences says Adam Messner, CEO of electrical supply company LiveWire, based in San Francisco, who says he often hears from contractors who are trying to pinch pennies wherever they can because they bid a project lower than they should have.
"It's usually, 'I just bid this job because I have so many people on staff, and I need to keep them busy,'" he says.
It might seem that any type of work is beneficial, but bidding too low will not only drain your resources while giving you little to no profit margin, but it can also damage your business because your customers will grow accustomed to the low prices, and then you’ll be stuck with them.
Luckily there are steps other than low prices you can take to make your company stand out:
Emphasize the service; not the commodity
Check out the Federal Trade Commission’s Web page to get an idea of the kinds of questions your customer might ask so that you’re prepared. Educating your potential customers about the value and workmanship that’s going into the products and services you’re providing will make them feel confident about their investment.
Add value
Messner strongly recommends going the extra step any way you can. If possible, buy parts in bulk. It’s less expensive, and it will give you the opportunity to give the customer some spare parts, scoring you extra points.
Also, customers always appreciate additional free services. Assess what services you can offer for free that won’t set you back too much. Messner suggests offering a free warranty or follow-up visit to make sure the customer is satisfied with your work. This gives you more time with customers, which will increase their loyalty since you’re showing them that you are a trustworthy professional who cares about keeping them happy.
Know your competition
You’re never sure about the kind of job you should be bidding until you know who you’re bidding against. Keep tabs on your competition so that you’re aware of the presentation and services you’re being compared with. Messner says that usually, you are only given five minutes to prove why you’re a better choice over another electrical contractor, so it’s important to know if you can compete with their prices. And if you can’t, then you’ll know to emphasize your quality of service instead still presenting yourself as the better candidate.
If you’re still considering lowering prices slightly in order to remain competitive, there are important things to remember if you don’t want to end up in the red.
Beware of fluctuating prices
It’s not uncommon for the prices of commodities to vary after you’ve quoted them. Messner says they can fluctuate as much as 5 percent in any given month. He mentions it’s very important to get a written estimate that’s good for 30 days from suppliers in order to lock down prices. That way you can give your customers a 30-day estimate and won’t have to be contending with price fluctuations.
Research parts and availability
If you’re bidding a project that’s three to six months away, Messner highly recommends checking with your supplier to see if there’s a chance the part will become obsolete. Typically, manufacturers can give a 6-month notice if a line is being cancelled. Otherwise, a canceled part can cost you thousands of dollars down the line if it goes with an elaborate electrical system that would need to be entirely re-designed.
Increase efficiency
"If you're bidding thinly, triple check your list materials," says Messner, who says he often gets calls from contractors who overlooked a part in the original bid and are looking for a cheap price because they’re the ones who have to make it up. Ensure that your material list covers everything you need.