Speaker 1: My customer wants me to break down my bid. Should I? We'll answer that question right now on Successful Contractor. A lot of people that are new to contracting often wonder if they should be breaking their bids down. And when I say breaking a bid down, should they be providing one lump sum proposal and saying, here here's a turnkey project? Or should I be listing out materials, labor, markup, whatever else you want to do? And I'd like to share my take on all that based on my 30 years of contracting experience. I'll tell you how we do it and some of the pitfalls if you do decide to break a bid down that you can fall into with your customers that maybe irritate them. So, the way we do bids here at SWI is we do lump sum and lump sum only. I will not break anything down. And this isn't to deceive anybody, this isn't to hurt anybody. Basically, all we're trying to do is keep it simple so that they can wrap their head around it because not everybody understands all of the costs associated with doing a project. When they see a lump sum price, they know that my fence is going to cost me $5,000. They can either mentally say that's okay or they can say that's too high, I want to get some more bids. But it makes it really easy and simple for them to compare, especially if I've given them a good description of the work that I'm going to do for them. I've told Mrs. Johnson that we're gonna do 200 feet of aluminum fence and it's gonna cost her $5,000 and for that she's gonna get a couple of gates as well. Makes it super easy, we have a diagram, we basically spelled it out. She has no questions about what we're going to do for her. Now, what we have seen in the past is we've seen customers come back and say, that's great, I like the price but could you please break this down for me and I'll tell you where I think that's typically headed. One of two different places. The first reason that somebody might do that is the more innocent of the two. Maybe they got the bid from you and it's just too expensive and they could be wondering how they can save some money. Maybe they were looking to spend $3,000 and you handed them a bid for five. They might be looking for ways to cut the cost and get it within their budget. Rather than immediately giving them a cost breakdown, the question I would ask is, what has caused you to request this bid breakdown? What are you trying to gain by doing so? And you'll get a better understanding and very quickly understand what they're trying to do. So if they say, well it just came in a lot higher than I wanted it to and I was trying to look for some ways to save money, that gives you an opportunity to say, okay, well we could maybe do this, this and this that would impact your bid favorably to your budget. The second scenario is what we've run into a ton of times and that is people that want us to break down. They want to see how many labor hours we have. They want to see all the materials that we have and this can go many different ways. So when it comes to materials, they could be looking at, okay, well if he can tell me how much the materials are and especially if I can get him to give me a list, I'll just go down to the local big-box store. I'll pick up all the stuff and then I'll expect him to still do the job for what his labor cost is. Well, it doesn't quite work like that because a lot of people don't understand that we have markup on materials and that helps us cover all the overhead. Not to mention, we've got to go to Lowe's or Home Depot and we've got to pick all that stuff up. There's a lot of costs associated with handling that material, planning all that stuff that people don't understand and if I don't get it from the material, typically going to have to raise my labor rate to recover those same amount of costs. My costs don't change. My cost of doing business every day don't change just because now I didn't have to go get the material or because the customer provided the material. In our company, we have a policy. We just don't use owner provided material. We don't and if there is a case where we did ever do that, I would have a higher labor rate to cover that owner provided material because what usually happens is they're going to be missing things. It's going to be wrong and you're going to have to go chase it down. You're going to have to wait for them to chase it down. So, it just opens up a whole host of problems including you not being as profitable on the job which that's not acceptable. That's not how we become successful contractors. The other thing I've seen happen and we've had this happen and this is how we've gotten to the place where we are today is they say, well, I need a bid breakdown showing me what you're using and all your stuff and so it gets to the end of the job and we handed them a bid and they say, you know what? You had 21 posts but I only see 20 out here. I need credit, okay? That happens. That's what people do. They don't understand the difference between a bid and an estimate. At the top of all of our sheets that we hand into our customers, it says bid. Now, a bid is a firm fixed price for doing a certain scope of work. That means that it will not go up and it will not go down unless there's a change order. So, if I bid 50 posts on your job that only takes 35 and somehow I can figure out how to get it done appropriately and that's a terrible example but if I can get it done without cutting corners and do the scope of work that I've promised you using less material or maybe we bid some extra because we weren't sure how we're gonna lay some stuff out. You don't always get a full section or a full eight feet out of a two by four. Our sections might only be spaced seven and a half feet. So, we have a certain amount of waste. So, we kind of build that into the project knowing that we're gonna have waste or we're gonna have coal boards or coal pickets and so they don't understand that and they go out there and they count everything. They're like, well, you owe me a credit because you didn't use 200 pickets. You only used 176. Now, I need a credit. So, that's one thing that we've seen where customers will actually go through and look at that at the end of the job and expect a credit. They really don't understand that there's a huge difference between a bid and an estimate and we only do bids. It's all we do. That means at the end of the job, if we went out there and we fought it the whole time and maybe there were some unforeseen variables that we didn't know about, we eat it. On the same hand, if we go out on that same job and it went way better than we've anticipated, maybe we thought it was gonna be super rocky and it was nothing but butter and we get it done in 20 hours instead of 30, guess what? You're not getting a credit. That's the agreement we had. We had an agreement for a firm fixed price to do the scope of work regardless of how good or bad the project went. Now, an estimate on the other hand is what you get at the auto dealers. When you go and you get your car fixed, they say, oh, it's gonna be about this. But then if they get in there and they find out there's other things or if it took them longer, they're gonna charge you for it. It's just an estimate. It means, hey, we think it's gonna cost about this, but good luck. We don't do that to our customers. But on the same hand, when things go extremely well, we don't give credits either. We take it on both sides. Whether you break out materials and labor, one thing I would definitely suggest you not do is break out your labor. So we have labor at a firm fixed price for the entire project. If we have bid 30 hours and we only get it done in 20, we keep the extra labor to ourselves. That's a bonus for us for being extremely efficient. And the customer got a job done even faster than what we'd hoped. So, they should be happy. And it didn't cost them any more than we agreed upon. Another reason to be happy. And on the flip side, if it goes really bad, they didn't get a bill for more. What happens in the labor situation is very much like the material side of things. Let's say you bid it for 30 hours and you write down 30 hours on the bid. And then they... I've seen customers actually try and track how many hours you're on the job. Well, you were only on my job for 20 hours. They didn't see the time that you spent at the shop loading up or pulling materials to get ready for their job. Or if you did have to go pick stuff up from the lumberyard, they didn't see all that time. They're only going to track the stuff that's actually on their job and then try and ask you for a credit at the end of it. I would definitely say that's never a good idea to do. Lastly, one of the things that we've found is if we break down labor and we tell them it's... You know, let's say arbitrarily our labor rates $50 an hour. And we tell them it's 40 hours at $50 an hour. We've actually had a lot of pushback. People don't think we're worth it. And I don't know what trade you might be coming to us from. But people seem to think that we aren't worth our money. I can give bids out all day long and tell people that it'll be $10,000 for their fence and they're like, okay, that's great. I love it. And some people think that's too expensive and that's no big deal. But you know how many people would freak out and have freaked out when they see how much we think we're worth? And it's because we don't think we're worth that. We know we're worth that. We get that every day, all day. For some reason though, people just don't want to pay contractors like us what we're worth. They don't understand the costs that go into it. They'll go pay the auto mechanic down the road where you actually have to bring all your stuff to them. They'll pay them a good rate. You know, they're worth 125 bucks an hour. But a fence builder that has to train for this stuff, has to work out in the elements, not in a nice shop. And that we actually come to you with our, you know, sometimes $100,000 worth of equipment for your job. For some reason, we're not worth the same as a mechanic. We're not worth the same as an electrician. In our field, what we found is we found a lot of pushback because people just think we're not worth it. And so, we've eliminated that altogether. We don't tell them how much our labor rate is. It doesn't matter because it's a bid. And you can either take it or leave it. So today, if somebody asked me to break out material and labor and give them an itemized breakdown of their project, my answer is $5,000 to do the job, it's $0 not to. That's your breakdown. We have in certain circumstances with federal projects needed to disclose some costs. And after the contract signed and everything, if they want to see some of that stuff, that's fine. But this is a bid. They need to understand. Again, I think a lot of customers don't understand the difference between a bid and an estimate. The other thing I've done in a case where somebody says, hey, could you break this out for me? I say, okay. So, do you want to work time and material in this job? And that means that every single nut bolt piece of material that I bring into this job, I build them for. And maybe I only charge them 10% markup, whatever it is. We have that agreement up front. But every single hour I put into the project, I also build in. And that's how we do all of our repair work for gate operators and stuff. So, our gate operator people understand that. But our fence people probably don't. But when I tell them like that, you know, if this thing takes 50 hours and we only bid 40 in our estimate because at that point in time, it's an estimate, then you'll be responsible for that additional money. And then they're like, okay, no. I want to work on a bid. I just want to know. Homeowners really appreciate that firm fixed price. So, I feel like a lot of times they're trying to get the best of both worlds. They're trying to hold you to a firm fixed price because no customers ever going to come to you if they go out and they count up all the material. And all of a sudden, now there's 25 posts and you only bid 22. They're never be like, oh, I owe you some extra money. It's always the other way. So, they only ever... It only ever hurts you. Never ever benefits you. I can assure you of that. That's just the way it works. So, that's my take on whether or not you should be breaking down your materials and labor. I'll say one last thing though. There might be that crowd out there that says, you know, that's just not dishonest. You're just... You're screwing people over. You're just too expensive or whatever the objections may be. Understand again. This is a firm fixed price. I provided them with a proposal. They looked at it and said, for the work you're getting ready to do, I feel like that's fair. And they accepted it. We entered into a contract and both parties agree. I had didn't coerce them into accepting that contract. I haven't told them that they had to use me or I'm going to bust their kneecaps. There was no part of that that was forceful. Had I done any of that stuff, it would have been... It would have been... What's the word? Unethical. That's the word I'm looking for. That would have been unethical. But everything we're doing is above board. We both agreed on what we're doing. So, with that I say to all those people that say, you're just being dishonest. You're trying to hide stuff. That's not true. I'm just trying to eliminate problems because I've seen it all before. I know exactly where they are. And all these objections are things that have come up for my 30 years in contracting. So, take it for what it's worth. I hope you got something out of this. Till next time, I'm Mark with Successful Contractor and I hope you have a good dang day and make tons of money.