Construction Owners

3 Things Construction Owners Need to Prepare for in 2023

1. Calculating Operating Cost 2. Bid to Award Ratio 3. Trusting Automation

The construction bidding process can be daunting, even for successful businesses. How much should you really bid to be profitable? What is the best way to maximize your income with the projects you’re awarded?  

Understanding how construction bidding works is just one piece of the puzzle; you can further drive profits and growth by learning how to capitalize on the projects your company acquires through dedicated project management software.  

Before you begin taking on more projects, here are 3 things that every construction owner needs to know about successfully running their business for maximum ROI. 

1. Operating Costs 

The operating costs of any construction firm varies, but one thing is certain — you’ll need expert budgeting skills to protect the best interests of your company and your clients. Overhead expenses in construction are primarily labor and materials, but they also include administrative fees and costs associated with the physical structure of your business. Equipment, tools, and vehicles also come into play. 

Operating costs can be indirect or direct; indirect costs are associated with employee payment, office expenses, bookkeeping, property rental, and general day-to-day operations of your business. Direct overhead costs are related to a project, such as equipment rentals, temporary utilities for staff, and job-specific purchases.  

Understanding how indirect and direct costs affect your budget in different ways is crucial to maintaining a healthy balance. Without careful consideration, your expenses can tilt too far in one direction, causing you to lose funding where you need it.  

2. Bid-to-Award Ratio 

The bid-to-award ratio, or bid-hit ratio, is the amount of jobs you receive vs the number of jobs you bid on. The typical bid-hit ratio in construction is 5:1. So, for every five jobs you bid on, you’re likely to be awarded one of them.  

The construction bidding process varies. Some are invitation-only, given to companies or small groups of contractors through a bid management platform. Others are open to the public, so you can make your best offer along with any other company that’s willing to take on the project.  

Each bid will generally have the following details: 

  • The type of contract
  • Project specifications  
  • Requirements 
  • Outlined delivery method 

When you place a bid, you will likely need to provide some details about your company that helps you pre-qualify as a valuable candidate. Bidders usually submit their qualifications as a construction contractor, along with some examples of previous work.  

If your submission meets the property owner’s requirements, then you will be pre-approved and allowed to proceed to the next step of making an actual bid. Your bid must include details about your estimated costs for labor, materials, any equipment you’ll need, overhead expenses, and your profit margin.  

The best way to place a bid for construction is to bid high enough that you make a profit, but low enough that you’re chosen over your competitors. This can be a difficult balancing act, which is why continually reviewing your bidding process is a good strategy for growth. 

As you learn exactly which bids succeed and which don’t, you can also begin to assess which types of construction projects are likely to yield the highest ROI for your business. 

3. Using Software to Increase Profitability 

Using the right project management software will help you organize all of your company’s bids. You can then use analytics to determine which ones are the most beneficial. You should keep a detailed record of everything from A to Z, and glean important insights about each job and project proposal.  

One of the most useful applications of this software is to keep track of different bids based on type. There are three primary types of construction bids to know: 

  1. Open tendering
  2. Negotiated tendering
  3. Selective tendering 

Open tendering bids are open to everyone, and it is most common for government-based jobs. Because these jobs are widely available, the competition for them tends to be extremely high. Keeping track of your bid, and knowing how to leverage the best rates for your profitability, can help you land better paying open tender bids without sacrificing your company’s bottom line. 

Negotiated tendering is the process of negotiating a contract with a property owner or developer. They work with you exclusively to settle on a rate that is both acceptable for their budget and profitable for your business.  

Lastly, selective tendering rests in between open and negotiated tendering. This type of bidding occurs between a selection of hand-picked contractors who have been chosen by an owner or developer.  

You might also encounter serial tendering, in which a developer seeks multiple bids for a series of projects over a fixed period of time.  

Bidding and project management software can help you keep everything organized and streamlined. You’ll be able to map out your company’s trajectory, all while gaining important details to make the most informed decisions along the way.  

The Importance of Good Bidding for Your Business 

Construction owners that know how to successfully bid for the right projects will naturally have more job opportunities, increased cash flow, and a chance to increase their brand reputation. Word-of-mouth marketing can become much more effective when a business completes projects for big-name clients it acquires through bidding.  

At Entrenomics, we specialize in helping established companies achieve greater success with their finances. Click this link to request a meeting with one of our expert construction business consultants. We would be happy to discuss your company and how our services can help you reach new heights. 

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