Last week I was having lunch with a client who owns a substantial construction firm. His phone pinged during our conversation. He apologized for looking at it, but he was waiting to hear on a couple of large bids.
“Dammit!” he exclaimed when he looked at the screen. I assumed a big one had gotten away. He went on to explain. “This job is going to be a bear. The schedule is tough, and the type of work is filled with hidden traps. I estimated high on the work, higher on the labor, very high on the overhead, and then tacked on some more just to make sure I’d be out of the running. The competitors who bid the job loaded even more onto it than I did! Now I’ll have to do it.”
Before you feel too sorry for him <grin>, he lost another large contract that day to a competitor who’s estimate came in 30% lower than any other bidder’s. Clearly, not everyone feels they can be aggressive in their pricing yet.
South Texas may be growing faster than the nation as a whole, but we are seeing acceleration in many sectors across the nation, and especially in financing and acquisition activity. For some small business owners, the relief of being busy is enough. They think that they can worry about increasing margins later. They are happy just to have the phone ringing. It seems premature to risk the uncertainty of pushing returning customers for a price increase.
Small business owners thrive by reacting instantly to changes in their markets. Those who survived the last five years of moribund growth and high unemployment did so by getting lean and mean quickly. Most saw their reserves dwindle and their margins tighten.
If the warm winds of increasing activity are reaching your company, it is time to develop a plan to increase your profitability. Talk to vendors to find out what your competition is doing. Determine whether new or resurrected customers are calling because they are busier, or merely because you are becoming their low-cost supplier.
The race goes to the swift in both rising and falling economic cycles.
Hunting in a Farmer’s World: Celebrating the Mind of an Entrepreneur, is an ownership book, not a management book. “John Dini’s writing is crisp, peppered with good data and concise, pointed stories, revealing how deeply he knows the head, heart and guts of entrepreneurs.”
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