Don’t chop your margin!!!
It’s not a bargaining chip!
Why is it that every time I hear a builder trying to make the budget of a project work for the client, the first thing they do is offer to chop their margin???
So let me get this straight, you have gone to the trouble (time AND cost) of pricing a job for a client, and the client comes back to you and says look its about $20k over what our budget is, if you can make it work for $20k less then we will go with you…… and the first thing you think of is to take a chunk of your margin off the price to secure the work? So instead of getting say, 12% margin, you offer 8% instead?
I get it, you want to win the work, work means keeping your guys fed and the cash coming.
However, when you consider the definition of margin being offsite overheads plus profit…… by reducing the margin you charge, what do you really think is happening?
Well, you are either partially or entirely removing the profit percentage of your margin, and potentially even eating into the offsite overheads percentage of your margin. So if you are eating into the offsite overheads percentage, how are you planning on clawing that back? Fingers crossed you get plenty of variations? And what about the profit you were planning on making? Are you just going to work for free?
There are other ways to achieve savings for a client WITHOUT cutting into your margin.
Next time you get asked to help reduce a budget, have some of the following conversations;
Value engineering – builders are GREAT at it. Have a good look over the specs and the plans and see if there are areas where materials could be swapped out for cost savings. Perhaps small design changes could be made to achieve the same thing for a lower cost? How about completing the build in summer rather than winter to save the need for the engineered wrap of the scaffolding? What about completing the garage at a later date? Could the owners do the internal painting work instead of a sub contractor? Veedeck profile instead of Eurotray?
Bring in the architect – they designed the building, if you facilitate a meeting with them to look at possible design changes of a more in depth nature that could be enough to show your commitment to the job and it coming in on the clients budget…. Got to love proactiveness!
Chat to your sub contractors, see if they are able to bring in some cost saving, and if they cant then it might be worth doing a bit of shopping around to see if there are others that are able to complete the job for a bit less.
Do the same with your merchants. I bet if you go to them and let them know the sort of cost savings you are after and tell them the winning of the job depends on it, they will be able to open up a different tier of pricing for you and come to the party! At the end of the day, its in their best interests if you win the job too!