Getting Beat by Low Proposals 21

[bigmig]

Forgive me for raising a subject that would appear to be pretty common. I tried finding some threads that address this, but they seemed to branch off into other topics.

My problem is that I work for a company that operates with great intentions from a professional standpoint. We subscribe to trade journals, go to continuing education seminars, keep our software updated...in essence we try to stay up to date with our industry so we can offer our clients the real picture of where things are at.
The added expense of maintaining the overhead associated with this “keeping up to date” stuff, combined with buying the latest codes, employing a secretary etc. puts our overhead up to a healthy amount. This in turn sets our hourly rates in the $110-$150 per hour range.

When we go to price our work, our proposals are suddenly too high and we can’t get work. After interviewing the owners of our lost jobs, I have found that we are getting beat by the sole proprietorship engineer who is characterized by years of experience, works out of a home office, has little to no overhead, works off of a code that is 4 years out dated, has no professional membership ….you get the picture. The sad part is that these guys where sitting right where I am, 4 years ago. They layed off all their employees and downsized to survive and now win jobs by under pricing everyone.

After pondering how they can price themselves so low I began to realize that the plans they produce are not at all like the plans we produce. Overly simplified, blanket design methods etc. But unfortunately the owners who review the proposals don’t know that. How do I convey to the typical economy stricken owner that trying to save money by using an out of date engineer will not save them money? For some reason the most common response I get is "why would I pay you twice what I will pay this guy for a stamped set of drawings?"

I have thought about doing a short flier, or a blurb on our website trying to shed light for an owner that they are really not saving money by using these guys. Should I put it right on the proposal? Any thoughts?

 

[patprimmer]

Just on an ethical note.

It is supposed to be a free competitive market. Anyone is allowed to charge what they like. I believe in the USA there are Anti Trust Laws to ensure this. Most of the rest of the developed world has similar laws which outlaw the practice of fixing prices or deliberately reducing competition by various methods.

If you are uncompetitive you will most likely fail. You do not necessarily need the lowest price to be competitive, you need the best value for the specific project. Many factors influence value, but price is the easiest to sell.

If you are not the lowest price you need to effectively justify your price premium with added value to the client.

If your business model is flawed, you will fail and be replaced by companies or people with a better model.

An example.

A large department store puts all the Ma and Pa corner stores out of business because of range and bulk buying advantages.

20 years on, an online company with no shop front overheads makes the department store uncompetitive.

When the department store owner cries foul, it's hard to have any more sympathy for him than he had for all the Ma and Pas.

Look at what you offer, what the market will bear and if that is more than your costs. If not, cut costs or find another market or pack up and move on.

As to denigrating opposition, that is a slippery slope that must be traversed with great caution as it can very likely backfire, although presidential election campaigns might indicate the contrary.

I sold industrial raw materials for many years. One competitor constantly undercut me by about 3%. This was enough to entice many of my customers away for a while.

It was later discovered that his bags where 5% underweight.

When I found my prospects using that brand I simply asked what yield they got and said we could deliver a higher yield. If pressed for why I said just weigh the bags. I never said they short weighted. I let the customer find that out for himself, after a gentle nudge. Worked every time.

Regards
Pat
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[SteelPE]

zdas

I'm not saying that they are going to go away. I'm saying that given the profession and economic climate have given rise to some unique circumstances. As/If the economy gets better some of the problems will go away. I'm probably one of the problems..... I'm doing my best and I'm sure other companies are unhappy when I win projects.

Your story is interesting. In my story above it was opposite. The client awarded the project to the larger engineering company. We were ready to go on the spot and told the client we would have the job ready for foundation construction in 4 weeks with steel drawings ready 2 weeks after that. I lost the project and when it popped back up it was 6 months later, the drawings were incomplete and wrong. It took them two extra months to get the drawings complete..... and they were still wrong.

 

[TheTick]

I worked for a manufacturer that seemed to be in a bit of a downward spiral due to high and increasing overhead. As less business came in, the calculated overhead was increased as less business was averaged out over the same fixed costs.

I think they could have attracted more business by lowering their rate to match what overhead would be if they didn't lose so much business to high overhead.

 

[TheTick]

Oops... stike that! I meant to say "Suck it up! This is America! Be more capitalistic!"

 

[RobertHale]

Can I ask what your current market "njche" is and the typical contractual arrangement you find your company in? (e.g. subcontractor to an Arch. in a Design-Bid-Build arrangement, etc.)

 

[IRstuff]

"I think they could have attracted more business by lowering their rate to match what overhead would be if they didn't lose so much business to high overhead."

That's a bet on the come; if it doesn't turn up, you fold anyway. Most companies are too chicken to try that.

TTFN
faq731-376

 

[patprimmer]

Oh, and in this particular case I have to defend Mike

Welcome to the real world.

Blunt but true and by itself one line.

SOMEBODY will always "low-ball" the price

.

True and by itself one line.

It is up to you and your firm to quantify and jusify your costs - however you do it!!

True, undeniably sound advice and by itself slightly more than one line.

That makes 3 lines containing useful advice in my books.

Your rebuttal while of excellent quality in literary style and very polite language was actually quite a bit longer (time wasting) than necessary and wrong in relevant facts. Mikes one liners with no useful advice to others on previous occasions is actually irrelevant to his comments here.


Regards
Pat
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[bigmig]

patprimmer,

With all due respect, your books aren't my books. Thanks for the compliment and advice for future postings.

 

[KBeitel]

This reminds me of a story I heard of a small barber losing most his clients to the new quick cuts that offered $5 haircuts... He hired a consultant to evaluate how he could possibly compete. The consultant advised him to erect a sign up and invoiced him. The owner put up the sign and business has picked up and was surprised as to how much a simple sign could affect business.

The sign read "We fix $5 haircuts..."


Take care & have fun!

Kevin
"Hell, there are no rules here -- we're trying to accomplish something." - Thomas A. Edison

 

[beej67]

Sounds to me like your firm's problem isn't your competition, it's your overhead.

The world of engineering is changing. In the 1990s, everyone wanted a x3 multiplier on their work. That was back when every firm had to have a print shop in their office, had to have secretaries to type memos, had to have a marketing department, accounting department, IT department, big office, yadda yadda. And the x3 multiplier was to pay for all of that extraneous stuff that didn't go directly into the engineering effort.

Well that stuff is stupid, and it's now getting automated. Your firm is stuck in the 20th century. Tell them to get rid of their office entirely, switch their corporate IT to Google and Dropbox, and pass the savings half to your clients and half to you. You'll be able to make more money at $90/hr than you did before at $110/hr, and you still get to go to trade shows. That's what your competitors are doing.



Hydrology, Drainage Analysis, Flood Studies, and Complex Stormwater Litigation for Atlanta and the South East -

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[patprimmer]

bigmig.

My books are the books of life in the real world. Studied for 65 years.

What books are yours?

Regards
Pat
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