How to Start Your Own (Electrical or Plumbing) Business

Are you ready to open your own business so that you can sit on top of your own totem pole?

Are you ready to start your own electrical or plumbing business? You’ve spent years mastering your profession, making it to the point where you know all the ins and outs of your trade. During that time, you may have worked under the commands of a boss who dictated your schedule and undoubtedly made all kinds of decisions with which you didn’t agree. After spending years working under your boss, knowing that he’s raking in the spoils of your hard work, you suddenly have an epiphany. You think to yourself, “What if I started my own company? I could finally take control of my own destiny and do things the way I think they should be done.” But then doubt whispers into the dark recesses of your mind. “What do you know about running a business?”

After much thought, you decide that you do have what it takes to start your own electrical or plumbing business. You’ve done your research and found that there are software programs available that will help you with your estimating and accounting needs. You feel confident that you have the skills to do the work in the field. You understand that there will be long days in the beginning but you’re okay with that. You have the audacity to believe in yourself. After all, this is America, where you have the ability to pursue your wildest dreams and achieve whatever it is that you want.

You put in your two weeks’ notice and go down to your local courthouse to register your new contracting business. Now you’re official with your new business license in hand.

Congratulations, You’re a Business Owner! Now What?

Taking that first step and starting your own electrical or plumbing business takes a lot of courage, but your journey to a successful electrical or plumbing contracting business has only just begun. The next step is ensuring you have all your fiscal ducks in a row.

Financial planning plays an enormous role in the failure or success of businesses. This is especially true for new startups. Getting a firm handle on operational costs and overhead will help keep you on the path towards profitability. For example, you should account for current and future business expenses while keeping constant tabs on cash flow.

Electrical & Plumbing Contracting Financial Analysis

When you’re just starting off, you may be your only employee. If you want to grow, you should always be on the lookout for reliable people you can add to your team. You don’t want to turn business away because you’re stretched too thin.

Besides employee wages, payroll taxes, insurance, and other assorted burden expenses that will be incurred once you win a job, electrical and plumbing businesses have overhead expenses that are incurred simply because you’re in business, regardless of the jobs that you’re awarded. You’ll need to account for your company’s overhead expenses such as vehicles, software, office supplies, business insurance, marketing, etc. These costs can fluctuate throughout the year. Many companies either lose jobs or lose money because they are not including the correct overhead numbers into their estimates.

You and any team members you employ will need the essential tools and equipment for their work as well as a vehicle that can carry it all and get them to job sites. Tools, equipment, and vehicles aren’t one and done expenses either, so make sure you account for operating and maintenance expenses such as insurance, gas, and vehicle wear and tear when factoring in costs of business operations. These expenses can vary depending on whether you buy new or refurbished and how well you maintain your equipment.

Use Current Burden & Overhead Costs in Your Estimates

Your business model won’t be a fixed-cost operation since you’ll hire and fire employees as needed. One thing to keep in mind is that if your overhead expenses stay level, whenever you hire a new field employee, the overhead cost per hour that you use in your estimates actually decreases. Inversely, whenever you fire a field employee, the overhead cost per hour that you use in your estimates will increases.

For example, if you have overhead expenses of $30,000 per year, and you have a single employee that will work 2,000 hours per year, the overhead rate per hour that you use in your estimates would be $30,000 divided by 2,000, which equals $15.00 per hour.

Now let’s say that you hire a new employee. This employee did not cause your office overhead to increase. Remember, the costs for field employees in your estimate is a direct job expense and is not included in your company overhead. Now you have 2 field employees working a combined total of 4,000 hours per year. $30,000 divided by 4,000 hours equals $7.50 overhead cost per hour.

If you continue to use the old $15 overhead cost per hour in your estimates, your break-even cost will not be accurate. Your bid price will be higher than it should be and you won’t win the job. Take the same example but in reverse. Let’s say that you fire an employee but continue to use the old overhead cost per hour in your estimates. While you might win more jobs, you’ll lose money on all of them.

Contract Bidding—Hitting the Bullseye

If you’re going to be a successful contractor, you must become a business person. You must know your numbers. You must update your employee burden costs and your company overhead expenses in real time. If you are not using accurate data in your estimates, you will flounder around for a couple of years, wondering why you’re not making the money that you should, and eventually go out of business.

A significant portion of your time will likely involve bidding against competitors for the jobs that are available. You want to price your bids competitively to entice clients to hire you, but it’s imperative you never price yourself out of business by working at low rates that will keep you in the red. Calculating bid prices requires you to have a firm grasp on your overhead costs as well as your employee burden.

Regardless of the number of employees you have, it’s imperative that you accurately analyze employee burden (how much a worker costs per hour of work factoring in all expenses such as pay rate, insurance, taxes, healthcare, and vacation time) so you can make job bids that are low enough to be competitive while also charging enough to ensure you don’t lose money.

TurboBid includes step-by-step wizards for calculating your employee’s burden cost, as well as your company’s overhead expenses. If you ‘re going to correctly determine your break-even cost to do a project, it is imperative that you have these numbers right. If not, your bid price will be higher than it should be and you won’t be awarded the project. Even worse, your bid price could be lower than it should be and you’ll end up losing money on the job!

Please feel free to Contact TurboBid to discuss any issues that you might have regarding starting your own electrical or plumbing business.

William Ruffner

TurboBid Founder & CEO

The Importance of Knowing Your Break-Even Cost in Contracting

Before you can determine how much to sell a job for, you need to know exactly how much the project is going to cost you to complete. This is called your break-even cost. Only after you have calculated your break-even cost are you in a position to determine your bid price.

Profit is only possible if you know your break-even cost

Please allow me to tell you a little story about my own experience back when I was an electrical contractor.

I was the type of person that desperately wanted to win every single job that I bid on. Once I took off my “Estimator” hat and put on my “Sales” hat, I was determined to convince my customer that they would be crazy to award the job to anyone else. Even if my price was a bit too high, no problem. I would enter into negotiations that would make any diplomat proud.

It’s important for you to understand that my electrical contracting company used to do a lot of work for many of the big home builders back during the housing boom. I’m talking about communities consisting of hundreds of homes that would take a few years to build out. These were incredible contracts for my company to be awarded.

I was fortunate enough to be able to develop strong personal relationships with the contract managers for these builders. They were very important players in my universe. After all, they had the sole discretion to award these really lucrative contracts and, right or wrong, having a good personal and professional relationship played an important role.

Not to say that these guys were pushovers. Just the opposite. They were tough. They liked their jobs and wanted to keep them. Why wouldn’t they? They had a bunch of chumps like me that would wine and dine them while treating them with the utmost respect and deference.

Their job performance was based on their ability to keep construction contract costs down. So much so that there was a saying at the time that “If they’re a buyer, they’re a liar“.

While this may sound a bit harsh, the truth is that some of these guys took great delight in squeezing the lowest price out of their vendors. I don’t know how many times I heard the following: “Come on Bill, you’re killing me. Out of the three proposals that I’ve received, yours was the highest! If you want this job my friend, you’re gonna have to sharpen your pencil!”

I’m pretty sure that I was told this more than once even though I wasn’t anywhere close to being the highest bid. Don’t get me wrong, I truly appreciated the opportunities that I was given to negotiate my price in order to win jobs.

What I didn’t appreciate at the time was that my old estimating system didn’t give me confidence in my numbers. Truth be told, that’s one of the reasons that I created TurboBid. I needed a systematical method of identifying and accounting for ALL of my costs. The only thing I disliked more than losing jobs was losing money!

Please keep this in mind. When you’re estimating a job, it is of the utmost importance that you know exactly what the project is going to cost you to complete. If you sell a job for less than your break-even cost, you will lose money.

How do you determine your break-even cost?

Many contractors end up losing money on jobs because they fail to accurately identify their break-even cost. This has been the cause and reason for the demise of many contracting companies.

Business is no place for guessing.

Unfortunately, in our industry, many new companies don’t have the required knowledge needed to accurately calculate their direct and indirect costs.

Following are some examples of what should be included when calculating your break-even cost.

Material
  • The cost of material to be installed
  • Waste
  • Theft
  • Sales tax
Labor
  • Material installation time – How many man hours the job will take to complete
  • Direct labor cost – This is simply the number of hours that the project will take to complete, multiplied by each field employee’s hourly pay rate.
  • Burden cost – This is the additional costs that your company incurs on behalf of your field employees.
    • Payroll taxes
    • Workman’s compensation
    • Liability insurance
    • Health insurance
    • Paid time off
    • Paid holidays
    • Bonus’
  • Future pay rate increases – If you will incur a payroll rate increase during the project, you need to calculate the additional labor cost for the job
  • Skill Level Adjustment – If the job includes an employee with a lower skill level that reduces his productivity, you must account for the additional time that the job will take to complete.
  • Additional Labor
    • Material handling
    • Meetings
    • Paperwork
    • Job setup and breakdown
    • Sweeping
    • Drive time
    • All additional tasks that the crew will perform other than installing
  • Labor Hour Adjustments – Different types of work require labor hour adjustments. For example, you can’t use the same labor units to estimate commercial and residential projects.
Miscellaneous Expenses
  • Miscellaneous Direct Job Expenses
    • Permits
    • Inspection fees
    • Equipment rentals
    • Service mobilization fees
    • Trash
    • Anything and everything thing that you’ll spend money on to complete the project
  • Subcontracts
  • Tools and tool replenishment due to wear and tear
Overhead

Overhead consists of the costs that you incur to run your business.

  • Office staff
  • Vehicles
  • Advertising
  • Physical business location expenses – Lease, repairs, trash, maintenance, etc.
  • Financial – Accounting, loans, tax preparation, etc.
  • Insurance
  • IT, website, email, etc.
  • Legal fees
  • Office expenses – Ink toner, paper, postage, software, etc.
  • Owner salary
  • Tools
  • Training
  • Utilities

What are the benefits of knowing your break-even cost?

  • Before you can determine how much to sell a job for, you need to determine exactly how much the project is going to cost you. This is your break-even cost. Once you know your break-even cost, you can determine your bid price by adding the profit that you need to make on the job.

Are you missing the final piece to your success?

  • You’ll be in a position to negotiate your bid price without the risk of losing money. If it comes down to it, you’ll be able to tell your customer with conviction that as much as you want to do their job, if you lower your price any more, you will lose money. At that point, tell them in no uncertain terms that they need to be very careful about awarding the job to anyone that claims they can do it for less.
  • If you’re bid prices are consistently too high, and you are including a reasonable profit margin, chances are that you need to reduce your costs. By having a detailed break-down of your costs, you have the ability to look for areas that you can reduce costs. Overhead costs are usually a big surprise to most people and can usually be reduced.
  • If you have a high degree of confidence in your break-even cost, and you really need to win a certain job, in theory (as strange as it sounds) you could take a job for zero profit if…..
    • You have a project winding down and you need a new job for your key field employees.
    • Work is slow and you need cash flow to pay your company’s bills.
    • If you work with the tools, you are not just an owner. You are an employee. If you’re not out working with the tools, you’re not earning a paycheck as an employee.
    • You want to develop a relationship with a new customer that could lead into a lucrative long term relationship. I’ve been known to “buy jobs” in the past.

In conclusion, building a profitable business is really hard work. While you may be the world’s best electrician or plumber when working with the tools, becoming a business person is a whole different matter. If you want your business to prosper, you have to know your costs.

Best regards,

William Ruffner
Founder & CEO
TurboBid

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“You’re going to have to get estimating software.” – Mike Holt

For those of you that are not familiar with Mike Holt, he is a well-respected author and developer of software, books and video training programs for the electrical industry. Click here for more information.

TurboBid is the only estimating software that Mike recommends. He has worked closely with the folks at TurboBid to ensure that it follows the same terminology and principles that he teaches in his estimating course.

TurboBid’s founder, Bill Ruffner, was invited by Mike to come down to Florida and take part in filming his new estimating DVD. During filming, Mike made the following comment that made a lot of sense. The truth is that most guys that open their own shops are coming out of the field. While they might have been great electricians, running a successful contracting company takes a whole different skill set. You’re going to have to decide to become a business person.

Mike said “You need to make a decision. The reality is that if you’re going to be a business person, you’re going to have to get estimating software. You need to make the decision that, ‘I’m going to be a business person’. Once you’ve made that decision, that’s your goal. Then number two is, ‘What’s your plan? How are you going to get there? What are you going to have to do?'”

Following is a video excerpt from Mike’s Electrical Estimating Deluxe DVD Package.

 

 

The concepts that Mike goes over in his video are very important to the success of your company. Every day that passes by without taking action is a wasted opportunity. You owe it to yourself, your family and your business to take a few minutes out of your day to see for yourself how TurboBid can help you win more profitable jobs and improve your professional image.

Give us a call at (888) 417-2458 x102 or click here if you would like to schedule a specific time for us to call you so that we can have a brief chat or live demonstration.

Estimating for the Electrical Contractor

Success2Construction estimating software has evolved over the past 40 years. It first ran on large, costly mainframes and then moved to other technology platforms as they were developed, decreasing costs dramatically. Most of the larger electrical contractors have been using software for many years to help them save both time and money. They use the software to get every edge they can over their competition. These companies know that estimating affects every aspect of their business. They understand the value of using the right tool to get the job done.

So you have to wonder – Why are so many electrical contractors still not realizing the benefits of using a formal estimating process and software solution?

To understand this, you have to look at some of the attitudes that contribute to smaller contractors not implementing an estimating discipline. Here are the most common ones that I hear:

  • Estimating software is too expensive: The cost of TurboBid is a fraction of other leading estimating programs. In fact, when used properly, TurboBid is capable of an ROI measured in just a few weeks. If you think about it, if it helps you win just one profitable job, it has paid for itself. Or, just one avoided mistake on the right job would pay for the program.
  • The software I’ve looked at does not address my specific type of work: Everybody knows that you can’t use the same labor units to estimate commercial, residential and service work. TurboBid’s unique Type of Work feature automatically adjusts the material labor units to reflect the selected type of work.
  • I’m afraid of new technology: TurboBid is arranged in a user friendly format that guides you through the estimating process. We also make it easy to learn how to use the program through our large library of detailed video tutorials. There is also a live chat icon within TurboBid so live help is always just a click away.

Bill Ruffner, the founder and CEO of TurboBid, is an electrical contractor with over 24 years of experience. He knew using a computer to help estimate electrical jobs was the fastest and most accurate method. The problem was that he couldn’t find a software program that met the unique requirements of his contracting company. That’s when he decided to take the extraordinary step of creating his own estimating software program. After a few years of developement, TurboBid had turned out to be so good that Ruffner figured that there had to be other contractors that could also benefit from the program. In fact, TurboBid is recommended by industry expert Mike Holt who has designated TurboBid as the “Best Buy” of all major estimating software programs.

One contractor, Geof Gratny of GSS Electric, out of Kalispell, Montana, realized early on after starting his business that there was a strong need to do things correctly. Gratny says “I started my business two years ago. I have been wiring for over 30 years so I knew the industry from an employee’s perspective. Facing the challenges of being a contractor left me with much to learn. I realized that if I was going to succeed, I had to really understand what was involved in the estimating process.“

Gratny states. “In a visit to MikeHolt.com, I discovered TurboBid. Being the perfectionist that I am, and wanting to keep startup costs low, I found TurboBid to be a very attractive program. Other programs that I researched were two to six times the cost of TurboBid.” Gratny knew several small electrical contractors that had purchased these other programs. “I was appalled to learn that they didn’t use the software anymore because of its complexity and lack of support from the company. They told me that the software was overkill for the type of work they do and the learning curve just wasn’t worth it.“

TurboBid employs a unique wizard format that allows users to easily identify and account for all possible labor and material costs. Additionally, material and assemblies are automatically assigned the correct labor unit based on the estimates type of work. The software also helps the estimator identify all direct and indirect costs by utilizing specialized calculators. This allows the estimator to set-up the program to accurately reflect the cost structure of his own company.

As for the learning curve, Gratny not only found the video tutorials to be very helpful but took advantage of TurboBid’s live training. “The support staff of TurboBid was willing and able to walk me through the startup phases of TurboBid. They graciously took the time and led me through several live web based tutorials, numerous personal phone calls and emails to get me up and running. That sold me. I knew if I didn’t get a program with the right support, I’d be wasting my money.” Gratny said.

TurboBid offers electrical contractors the opportunity to test drive the software program for 14 days. During this period of time, TurboBid’s support staff places an extremely high value in helping contractors learn how to use the software. They even take the time to assist contractors in completing their estimates.

Drew Garza of Templar Electric, an contractor in the outskirts of Houston, couldn’t agree more. “I have used four other estimating software programs only to be let down or disappointed. TurboBid is hands down, the most efficient and user friendly estimating program I have used and for the price, it can’t be beat.” Garza added, “TurboBid’s customer support is top notch.”

Eugene, Oregon’s Antone Electric owner, Shelby Antone says, “The folks at TurboBid allowed me to select training times that fit my busy schedule. They have a convenient scheduling calendar where I could schedule my web based training sessions. I really appreciate the effort that TurboBid puts forth to accommodate my business.”

Gary Gomez of Dakota Electric in Sioux City, Iowa simply put it “Follow up and training is most excellent. TurboBid’s support hours are for the working class blue collar owner and beats all. I suffer no working time lost by being able to take training classes in the evening. This is really important to me because I am out in the field working on the residential, remodel and light commercial jobs that I won by using TurboBid.”

Geof Gratny also wanted a program that was capable of importing material pricing updates. “I found out that our three local distributors have pricing formats that are compatible with TurboBid. So I have thousands of prices at my finger tips that I use for reference in addition to bidding. It’s extremely valuable for me to have a program sort and index 60,000 items for easy pricing.” TurboBid is set-up to easily import material pricing updates from TurboPricer, Trade Service, EPIC and NetPricer. There are also a growing number of national and regional suppliers that have agreed to provide price files to their customers that use TurboBid.

The ability to quickly create accurate and consistent estimates is especially important to the small contractor that relies on a single person to do the estimate, submit the bid, negotiate with the customer and then strap on the tools in the field. There is very little time to do it all. As North Florida contractor Shaw Electrical Services’, owner Steve Shaw states “I have 20 years of experience as an electrician, but now that I own my own business, I realized that I needed help estimating. I looked into several different estimating programs. I chose TurboBid not only because it was tailored specifically to my types of jobs but also because I was impressed by how quick and easy it was to produce incredibly accurate estimates, as well as being able to automatically generate professional proposals to give to my customers.”

Geof Gratny says “I’ve used TurboBid to win jobs including small remodels, service work, large residential, medium commercial and several mid sized industrial projects. I really enjoy knowing exactly what my costs are, which enables me to negotiate more confidently. It has been very interesting hearing from general contractors and customers about how they were astounded at the clarity and accuracy of what my proposals included. Recently, a general contractor called and told me that the other bids that he received were 2 pages long and he really didn’t know what they included. The twelve page Room by Room Quantity Take-Off report that I printed from TurboBid gave him perfect clarity. He was able to relay to his customer exactly what I was including, instead of a verbal assumption. He used words like “Comforting”, “Confidence”, “Confirming” and “Clarity” in describing the proposal.“

Drew Garza adds, “The reports are absolutely amazing and they definitely give me a winning edge over my competition. I smile while I think to myself how it only took me five minutes to create it.”

Gratny concludes, “I am convinced that my success in this tight economic time is largely due to being able to produce a professional looking bid package, be accurate with the numbers and know my boundaries for pricing. I am very happy with TurboBid, the support and the flexibility that it gives me.”

For more information, please visit www.TurboBid.net

How Do You Find the Right Estimating Software?

Invest1How Do You Find the Right Estimating Software?

It can be a daunting task when you start to look for an estimating software program that is best suited for your own particular needs.  Every company is saying the exact same thing: Our software is easy to use, it is the most accurate, it is the most consistent, it will help you win more bids……… In fact, you might even start to think that they are all pretty much the same.  This couldn’t be further from the truth.

TurboBid is quickly becoming well known for both its estimating software’s capabilities as well as it’s stellar customer service.  All you have to do is listen to what our customers are saying and you’ll understand why.  But as a contractor who is not currently one of our customers, you have had very little contact, if any, with our company.

So how do you know if what we are saying is true?  Doesn’t every estimating software company make the claim that they are better than the next?  Sure, you could do your research and peruse the various blogs and forums on the internet and see all the positive press for TurboBid. While it would certainly help, would you truly be 100% convinced?  Or you could even go to Mike Holt’s website and see that TurboBid is listed as the “Best Buy” among his listing of major estimating software solutions. You might even discover that TurboBid was designed around the principles taught in Mike Holt’s Illustrated Guide to Electrical estimating.

Again, how do you know which is the best estimating program for you?

Just remember: Without using the software in real life situations, on real bids, you are just making a decision based on what others are saying. Instead of casually looking at a limited trial version, we want to help you really use the software and prove that TurboBid is a winning solution.  We are offering you the opportunity to utilize TurboBid for 14 days, performing actual takeoffs. This isn’t just a trial where you download the software and find out that you’re left on your own to figure things out. This trial includes the full support of our company.

Download today and learn first hand why contractors across the country are so excited about TurboBid.

www.TurboBid.net

Why square foot pricing is not a good idea

The ultimate goal of any company is to make money. What determines if your company makes money? You simply have to sell jobs for more than what they cost you to do.

Contractors that use square foot pricing run the risk of losing money on jobs because they neglect to identify and account for all of their costs.

The description of neglect in Websters dictionary is “to give little attention or respect to”.

If a company’s ultimate goal is to make money, why would any contractor use a method of estimating that gives little attention to or respect to identifying and accounting for all of their costs? I have to believe that it’s simply because they don’t know any better.

Producing highly accurate estimates in a timely manner is not at all difficult if you know how to do it.

TurboBid provides a simple step by step process of estimating and bidding that allows you to systematically identify and account for all of the costs involved in a job.

We take great pride is our ability to personally help contractors become better business people. We have a passionate desire to help our customers succeed. Honestly, there is no better feeling in the world than receiving a letter from one of our customers thanking us for helping them provide a better life for themselves and their family.

Following is what needs to be considered when estimating and bidding on a job. Would you prefer to do all of this manually or would you prefer to use the power of TurboBid?

Material costs and labor hours

  • The fastest and most accurate method of estimating is to use assemblies. An assembly should include your material costs and the amount of time to lay out and install the assembly. TurboBid currently includes over 45,000 per-built assemblies.

Assembly maintenance screen

Material Cost

  • Your material pricing needs to be accurate. TurboBid allows you to easily keep your material prices up to date.
  • If applicable, add a percentage of the material cost to account for misc. material.
  • If applicable, add a percentage of the material cost to account for material waste and theft.
  • Add material sales tax.

Labor

  • Manpower: In order to calculate your labor cost, you need to identify the manpower that will be used on the job. Your manpower costs should include the following:
    • The employee’s pay rate per hour.
    • The employee’s burden cost. Burden is the additional cost that you incur on behalf of your employees. This is typically in the form of payroll taxes, workman’s compensation, general liability insurance, health insurance, paid vacations/holidays/sick days, benefits, bonus’, etc.
    • View our manpower selection screen
    • View our labor burden calculator
  • Pay Raises: You should account for any employee pay raises that are incurred in the middle of the job and add the prorated cost to the estimate. TurboBid does this automatically.
  • Skill Level Adjustment: The material labor units used in TurboBid are based on a typical journeyman doing the installation. If you have employees that produce at a lower rate, they will cause the job to take longer to complete. You must calculate the effect that this lower productivity has on the entire crew and add it to the estimate. TurboBid does this automatically.
  • Additional Labor: This is where most contractors leave money on the table. Your estimate needs to include all of the additional time that you’re paying your employees for. This can include things like job set up in the morning, packing up to go home at the end of the day, material handling, meetings, paperwork, sweeping, travel time, etc. These tasks can be for one-time only, per day or per week. TurboBid automatically calculates these costs and adds it to the estimate.
  • Type of Work: You can’t use the same material labor unit to estimate all types of work. For example, residential typically has a faster pace and more repetition than commercial work. You need to be able to quickly adjust your labor units to accurately reflect the type of work that you’re estimating. TurboBid does this automatically.

Misc. Expenses

  • Misc. Direct Job Expenses: You must take the time to identify and account for all of your misc. direct job expenses.
  • Subcontracts: You need to add any costs for work that you’re paying a subcontractor to perform.
  • Tools: You should not only account for the cost of new tools that a job will require you to purchase but you should account for the cost of using your existing tools as it relates to tool replenishment. TurboBid automatically calculates this cost and adds it to the estimate.

Direct Cost Detail

Your estimate should clearly display the calculated values for all of the above.

Overhead

It is vital that you know your true overhead costs. Overhead is what it costs to run your company. It includes costs such as office personnel, vehicle expenses, advertising, office supplies, utilities, cell phones, etc. It’s basically all of the costs that your company incurs simply because you are in business. It has nothing to do with direct job expenses. TurboBid includes a calculator to assist you in determining your overhead expenses. It also includes the ability to break down your overhead cost into a rate per hour. In our opinion, this is the most accurate method of adding overhead to your estimate.

Profit

The are two steps in determining the price to provide to your customers.

  • Estimating: Estimating is the process of calculating how much it will cost you to do a job. This is also known as your break-even cost.
  • Bidding: Bidding is deciding how much to sell a job for. You simply need to decide how much profit to add to your break-even cost.

When I was contracting, almost all of my customers wanted to negotiate a lower price. If I only had a dollar for every time I heard the phrase “you have to go back and sharpen your pencil”, I’d be a rich man.

When negotiating a job, you have to decide, how badly do you want the job?

  • Maybe it’s for a new big customer than you want to develop a relationship with. This is also known as buying a job.
  • Maybe things are slowing down and you need the job to keep your key employees.
  • Maybe you need cash flow to cover your overhead expenses.
  • Maybe you need a paycheck.

Before I created TurboBid, I have to admit that, for whatever reason, I wanted to win every job that I bid on. What used to drive me completely out of my mind is that I didn’t know how low I could go before I would lose money on the job. At the time, I relied on my gut instinct but in reality, when I look back today, I didn’t have a clue. I’m cringing right now thinking about how many jobs I probably took at below cost.

One of the biggest benefits you’ll find in using TurboBid is that you’ll know your break-even cost. You’ll be in a position to negotiate your bid price without the risk of losing money. If it comes down to it, you’ll be able to tell your customer with conviction that as much as you want to do their job, if you lower your price any more, you will lose money. At that point, tell them in no uncertain terms that they need to be very careful about awarding the job to anyone that claims they can do it for less.

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Estimating Large Residential Developments

 

Tract3We would like to share a post that we previously responded to on Mike Holt’s forum. Click here to view the entire thread.

Question
“I’m looking at going into wiring new residential developments. Do any of you know of any websites or have any information as to how I can bid on these large developments? Any help would be appreciated”

Our Answer
Toll Brothers, Pulte Homes and Centex are some of our customers. They are typically good to work for. Their superintendents are usually qualified and know how to run a smooth project. We usually don’t have any major problems with payouts.

Large tract projects have certain benefits. When you bid on a project, you are actually bidding on a lot of homes. You can sell one job and have work for a multitude of years.

The key is that you really need to be confident that your estimate is correct. You have to know what your true costs are. To win these type of projects, you need to go in on your base bid very, very tight. It is the cost of admission.

You will make your margins in the options that the home buyers select. You will need to provide the builder with a standard option price list that contains the standard options that a home buyer will add to the base model. Our margins on options ranged between 60 to 360 percent. It’s really an illusion. It’s a matter of taking the prices as high as you can while keeping them under the point of pain. It’s not taking advantage of the home owner. They are either going to pay for it in the base price or in options. Since the builder is more interested in being able to keep the base price of the homes low, it is expected that you are going to make higher margins in the options.

If possible, you need to help the sales people with selling electrical options. We provided them with electrical option catalogs that they give to the home buyer. This makes a HUGE difference in revenue.

You also need to keep in mind that these projects consist of a hand full of models that will be built over and over again. Because of the repetitive nature, your crew will become very fast at the rough. Also, when your crew finishes work at a certain lot, the next house is just right down the street. This helps minimize down time. You can also keep your van on site. This reduces your fleet cost. We utilized small trailers that we backed up to the house. The tools and material are right there. If you give two of your employees keys to the trailer, work can still continue if your foreman can’t make it to the job.

You can make good money on tract projects. It’s just a different way of thinking.

You asked about how to estimate these types of jobs. We actually developed our own estimating program. It turned out so good that we decided to offer it to other contractors. The program is called TurboBid. (www.TurboBid.net) Mike Holt has sent out numerous newsletters regarding TurboBid. You can download the free trial and judge for yourself. We have also made the electrical options catalog available through our website.

Candels Estimating Classes

Candels Training Room

I recently had an opportunity to be invited into an estimating class via video conferencing so that I
could provide a demonstration of our TurboBid estimating software.

The company providing the class was Candels. They have a new state of the art training facility located in Southwest Florida.

The main reason that I’m writing this is to share just how impressed I was with the concepts that I saw being taught by Mr. Candels, and how they mirror the same concepts that we use in TurboBid.

While most estimate training classes will focus on the obvious aspects of estimating, it was refreshing to see Marc Candels taking the time to dig down deeper and help his students learn how to calculate their company’s operational costs, and then how to apply those costs to their estimates.

I was delighted to see that Marc had developed an Excel spreadsheet that basically matches the same context as the manpower burden calculator that we include in TurboBid. Both tools assist users in identifying and accounting for the additional cost, above and beyond the employee’s pay rate per hour, that their company incurs for each field employee that will be working on the job. The calculated annual burden cost is then divided by the employee’s annual billable hours. Annual billable hours are basically the number of hours that the employee will be on the job working each year. The result is an accurate manpower burden rate per hour that can be plugged into their estimates.

Mr. Candels also developed an Excel spreadsheet that follows the same concept as the overhead rate per hour calculator that is included in TurboBid. Both of these tools are designed to assist users in identifying and accounting for all of the costs that their company incurs simply because they’re in business. These costs have nothing to do with a project’s material, labor, etc. They include vehicle expenses, office supplies, office staff, utilities, etc. These overhead expenses must be paid each and every month regardless if their company is awarded 100 projects or, heaven forbid, they are not awarded a single project. The second step in the process is to calculate the company’s total annual billable hours. This basically represents how many hours all of their field employees will actually be working on projects over the course of the year. Once these values are determined, the annual overhead expense is divided by the annual billable hours. The result is the company’s overhead cost per hour. This overhead cost per hour is then plugged into their estimates.

When it comes to estimating, I constantly preach that a company must know all of their costs before they can decide what to sell a job for. Unfortunately, I’ve seen that far too many estimators don’t accurately account for their burden and overhead costs. This is why I was so pleased to see that Candels training classes dig deep into these subjects.

I am often asked where someone can receive estimate training. Candel’s will certainly be high on my list of recommendations.

For more information on Candel’s, please visit their website at https://www.candelsoncall.com.