Good process is both time-efficient and cost-aware. It can help companies realize greater profitability
without growing sales or reducing staff. But good process is not that easy to achieve. Integrators are regularly challenged to:
1) Produce proposals quickly
2)
Price them profitably
3) Manage the project efficiently, and
4)
Maintain records to assure timely payment for goods
and services provided.
Having worked with hundreds of integrators over the past six years, I’ve had the opportunity to observe best (&
worst) practices and the impact they have on company productivity. This week & next, I will share what I believe are the
keys to efficient and profitable process.
Produce Proposals Quickly
Quick proposal turnaround is a key to closing more deals. To do this successfully,
you need two things:
§
A pre-proposal client interview that clearly defines
scope and cost expectations
§
A database of the products you use to create system
solutions.
You must have an accurately-costed database of products and services to work from. Period.
The interview is an art, and
a topic for another day. But the database issue is straightforward. You must have one, and it must include up-to-date cost
& sell prices.
Worst case is the companies that don’t have a product database. To produce a proposal, they must fumble thru manufacturer
price catalogs & price lists and then keystroke a product list and prices into a spreadsheet. I have seen this in dozens
of companies.
Just.
Plain. Dumb.
Many
integrators use a proposal software program, which mandates the use of its built-in database. This is fast, but – like
any good database – it needs to be maintained with up-to-date pricing.
I have seen Quickbooks item lists used to great effect. Set
up correctly, a QB item list is just as fast, and easier to maintain pricing-wise, than a database in a proposal program.
Remember – this is hugely important – the QB item list is linked to your
checkbook. QB knows how much you are paying for people and product.
Price Proposals Profitably
Before going forward with a proposal, it
is recommended to review proposal pricing for adequate margins and profitable “mix”.
In a vetting process I refer to as “Bid
Nazi”, I divide the bid into three price groups: Equipment, Parts, & Labor.
The “Bid
Nazi” likes to see labor at 20-30% of a bid total, parts at 5-10%, and equipment the balance. Check out the 1-2-3 pricing
formula at http://www.ffbizcoach.com/blog.html (Aug 30 entry)
For most integrators on most jobs, Equipment usually represents from 60% to 75% of the bid total. The
exact cost for these items can be accurately predicted. The aggregate gross margin for equipment should be about 35-40%.
Parts costs are an estimate,
at best. I recommend you minimize the time you spend trying to fine-tune your guess for these
costs. Instead, calculate what portion of the bid total is allocated to paying for parts. If only 5% of the bid is
for parts, my guess is that you are underestimating your parts expense. But if 10% of the bid is allocated to parts, you are
more likely to wind up with a healthy margin on parts, say 55-60%.
Labor makes up the remainder. Again, you can only guess at how many hours you’ll
need to put into a job. Even if your proposal program is attaching labor to items, I recommend you look at your overall labor
allocation. It needs to be at least 20% and hopefully closer to 30% of the bid total.
With a margin of 35% or more on equipment, and healthy
allocations for parts and labor, you’re going to make good profit on the bid.
Once you’ve vetted the bid price, you can OK
the bid for presentation to the client.
In part II we’ll look at project management and administration. Until then…
May you Grow & Prosper!
