Contractors, as a rule, appreciate precision and predictability — the work goes best when the measurements are accurate, everything fits and there are no surprises. Of course, part of the reason contractors appreciate these things is that jobs sometimes don’t work out that way. Unknowns and the unexpected are part of the deal from the bidding and estimating process up until the moment the customer signs the invoice and the payment is processed.
That isn’t defeatism; it’s a fact of life. But it’s also true that contractors who take steps to minimize their vulnerability to jobs that go sour are likely to run more efficient and profitable businesses. For electricians, there’s no foolproof way to eliminate bad breaks, but there are several strategies that will insulate your business from suffering the full effects of a job gone wrong.
Know What You’re Bidding On
Electricians know when they’re not operating profitably — when they’re stuck working on a difficult project, one with a long commute, numerous delays and over-runs, and where nothing turns out to be as easy as it seemed. Instead of just lamenting your bad luck, though, mentally back up to the bid process and think through how you could have modified your approach to recognize that it was a bad job in the making.
James Duff, owner of JDE & Associates, an electrician-consulting business in Fort Collins, Colo., recommends that electricians make a detailed pre-bid evaluation that rates each job according to criteria ranging from travel time, to whether you’ve worked previously with the architect, to the specifics of each aspect of the job — cash flow considerations, competition, job schedule, bid documents, etc. Then, take only the jobs that score above a certain threshold.
Know Where You’re Bidding From
There are two components to this: Know your overhead, and know your capacity. Many electricians choose an overhead percentage seemingly at random to factor into their bids, and it can lead to unprofitable jobs. Take a moment to add up your staff and capital expenses (e.g., office space). For most electricians, overhead is around 18 percent, Duff says. Assess your costs and then, if necessary, adjust your bids.
If your assessment revealed high overhead, you can address that separately. “If your overhead is too high, there are ways to bring it down — increase your volume or decrease your costs,” Duff says. “You may have too many employees, or you may need to move your office to a location where rent won’t be so expensive. But be cautious of the strategy of taking on more work.”
That’s because the other component of knowing where you’re bidding from is capacity. The fastest road to profitability would seem to be taking on more and bigger jobs. But Duff says that getting the “wrong kind of work” often is a mistake. He worked with one electrician who entered into a $1.5 million contract even though his largest previous project was $300,000. The electrician didn’t have access to enough capital to pay his workers, and not only was the job not the financial boon he had hoped for, but he lost business as a result of the project.
“All projects aren’t meant for all contractors,” Duff says.
Bid Smart and Learn the Business
Most estimators use a commodity-pricing service to figure out their materials expenses. Duff likes to look at quotable items first — light fixtures, switchgear, cable tray, etc. — and get those out for quote as quickly as he can. Then he tries to finish the rest of the estimate a day or two early and get precise quotes from vendors for the commodity materials. “This often saves me a large amount of money, making me more competitive while also reducing my risk,” he says. “I will treat this material just like fixtures or switchgear and issue a purchase order for the entire amount once I am awarded the contract.”
There are plenty of other strategies that can help an electrician run a more profitable, efficient business. But you have to know them and implement them to reap the benefits. One potentially helpful program is the Electrical Project Management Institute, sponsored by the trade association Independent Electrical Contractors.
“Today’s electrical contracting industry is so complex and so competitive that it is not good enough to just be a great electrician,” says Mike Kallmeyer, an electrician in Columbus, Ohio. “The skills and strategies gained from attending the Electrical Project Management Institute will immediately impact the electrical contractor’s bottom line.”
An experienced electrician knows that, on the job, it’s not possible to account for every variable. But reducing as many variables as possible will help you work more effectively and profitably.
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