Bidding Wars in Perspective

Seeing another company's low-ball bid starts a cabinetmaker thinking. December 26, 2006

Question
I'm a one man shop. Building paid for, most tools paid for, pay cash for most materials... no debt at this point. Here's my dilemma - I just bid a new construction church job, which I got. I was told that another one man shop bid $6,000 higher that me. He is retiring and I assume he didn't want the job. I think I would have been close to the other big shops around except for one. The one I'm speaking of insanely underbids everyone around. I just bid a small spec home kitchen for 6,600. Cheap, according to my standards, because I wanted to get in with this particular contractor. When I showed him my bid, he showed me the bid from the other one for 4,700. I can't pay my bills for that, let alone eat! They can't possibly be making more than 1,500 on that particular job, after paying all their expenses. This shop is probably 100,000 square feet and would probably turn that job around in two days… It would take me a minimum of two weeks.

I am always right in the middle of two bigger shops when bidding, but always way higher than the lowballer. Any suggestions on what I can do? Keep bidding this way and hope they don't find the lower one? Adjust my prices? Sub more out to turn more jobs?

Forum Responses
(Business and Management Forum)
From contributor M:
Welcome to my world. I bid what I need to get. Sometimes I have more than I can handle, sometimes I get a little hungry. So in the end, I do okay. I have been changing my client base and things get a little better every year. You sound like you have a handle on the money, so do what I do - I bid what I need to get and I do not care about the other guys. When I am told I'm too high, I tell them to give me a call when the other guy screws up and I will see if I can help him out. When this happens, I go in, fix the nightmare, and charge them twice the price. They are almost always mad as hell, but they almost always listen to me the next time. Cheap is not the best way to go. Stand tall and hold your ground. Those guys that don't pay as they go almost always go down the tubes. Just ask the fellow near me who dropped like a fly. I worried about him for 5 years. Man, was that a waste of time and sleep. Now I don't worry anymore - I build the very best I can and each time it gets better. My client base is getting better, and I have money in the bank. I must be doing something right.


From contributor K:
In my opinion, the people who lowball to get the jobs never do a good enough job to get referrals. I've bid jobs that I lost, and that same customer referred me instead of the guy who did the work. Why? Because they realize they made a mistake and feel bad about it. We always do the best we can and are referral based. My prices go up a little each year because our abilities go up, too. More experience, more growth, higher prices. The guy who lowballs will be running around like a mad man trying to get work. He is probably running an illegal business and probably doesn't care who he hurts along the way. When he's done running, he will be out of business and out of the way. Businesses come and go all the time. The ones who stick around are the ones who care about their work and the people they work for. Like I always say, I build like it's for me, which is better than most people could do for you.

Good luck and stick to your guns. You don't need the moocher customers who only care about price, anyway. Besides, if you really want to keep your pricing and be able to raise it, you should target the areas the guys twice your price are targeting. They obviously don't have any problems getting people to pay for them, so you shouldn't either.


From contributor E:

You may want to consider changing the way you're looking at your business. You're looking at the problem as competing with other shops; instead, you may want to think about being in a niche market where you provide an excellent product and service to folks willing to pay a premium for it.

I have a small one-man custom furniture and cabinetry shop in which I do just that. I market to folks willing to pay a premium price for a quality job which is supported by a hassle free customer experience. This allows me to "qualify" my prospects, take only the jobs which have a high profit margin, work at my own pace and keep my production schedule booked months in advance (currently I'm booked through November).

The big shops can do it faster and the novice is willing to do it cheaper (and more power to them), but for my customers, they want quality work and a quality experience. So, they are willing to pay more for it and wait to get it.

The trick to finding your niche is developing a clear and concise approach to marketing your business to the specific "niche market" which suits you best. And then become proficient in selling your business to that market.

Sales and marketing is the only part of your business responsible for bringing in revenue. The better you become at it, the stronger your business becomes. Think about it; this may be something that will work for you, too.


From contributor D:
Around 2 ½ ago I was the man around here who gave the lowest bids. Like you, my equipment is paid for and I pay as I go (I do pay rent for my shop). I did it because I needed the work and since I was the cheapest, I got plenty of it.

I was killing myself trying to keep up with the workload. I tried subbing work out… but when you bid low, you can’t afford to pay what the subs want. I tried hiring more help so I could get more work done. I did more work in that year than ever before, but the problem was I made very little money (go figure), certainly not worth the time and effort spent. Since then, I decided to charge for what my work is worth. I am no longer the lowest bidder and I don’t get as many jobs as I did then. But I find that I am making more money and I am doing jobs that I have fun doing. There are still people out there that are willing to pay for quality work. And I find that they are easier to deal with than the deadbeats that want something for nothing.

So I say, don’t worry about being low bidder. Find people who are willing to pay for quality and both of you will he happier in the end.


From contributor H:
If you're right in the middle and you have enough work, then you are doing just fine as you are. If you want to make a little more, then raise your prices on the next job you bid. If you have enough work and don't care if you get it, you probably will. Funny how it works that way sometimes. I recently said to my guys, we are going to quit doing solid surface unless we can really make a buck on it. Well, guess what? Raised my prices... got more work. Raised them again... got more work. Now we are so booked we couldn't take any more if we wanted to.

From contributor I:
Perhaps he is not underbidding you. With a 100,000 sq ft shop, he most likely has a very efficient setup, so as to produce these cabinets in a much quicker turnaround than you. Perhaps larger, more automated equipment. Lower paid employees that don't have or need your skills, but do well sitting at the helm of automated equipment. He doesn't need to make more than $1,500 on a $4,700.00 job (great profit margin - I'd work for that every two days hands down!). If he is doing a large volume, that may just be a small percentage of his production for two days.

No small shop can compete (time wise) with these larger shops. You can only offer higher quality, better service and great installation in a timely fashion. Stop knocking your head attempting to compete with this shop. You will lose every time. Seek a different market, go after the higher paying jobs. With larger contracts come the expectation of better built cabinetry, higher grade materials and better installation practices. These three points don't fit the market that larger shop is seeking (and apparently securing). Unless you want to increase your overhead with a larger building, hundreds of thousands of dollars worth of automated equipment and lower labor costs, you will never be able to compete with these lower cost jobs. This is why the big box stores do so well. They market kitchens that price out below the 8-10K price range. Stop worrying about that guy down the street. He may very well be there for a long, long time. Find your niche and be happy.


From contributor I:
I forgot to ask you the main question! You started out by saying you got the church job. Were you okay with your quote? Or did finding out that someone else bid $6,000.00 higher make you feel you underbid? I don't quite understand your dilemma. Okay, you can't compete with the big shop down the road, but where are you on this church job? Did you purposely bid low expecting the big shop to undercut you? Or did you bid what you felt was fair? If so, forget the higher bid. He didn't get the job; you did. If he bid $200,000.00 more, you would still have gotten the job. Your price was obviously in the ballpark of what the client wanted to pay. Just as with my advice on the big shop, I would also ignore the higher price guys. Know your overhead, pay your bills, take a reasonable profit and be happy. You cannot get yourself all upset with prices higher or lower than yours. You know what you need to work at a profit, so stick to that. Don't get greedy, don't bid low, just bid smart. You will do well, get more work than you can handle, and sleep better not caring what the competition does (price wise). I hope this church job turns out well for you and leads to many more successful contracts.

From the original questioner:
Thanks for the responses. I really feel my bid on the church could have been higher. I am good friends with the pastor and felt I was doing a good thing by this bid. I probably could have gotten another 2-3k, but I'll pick it up somewhere else down the road.

I'm sure the bid that was significantly higher than mine was due to the fact that the other fellow is trying to get out and is backlogged a couple of months. I will make good money, as my overhead is low and I will pay no additional labor, and will at the same time do the church a favor.

I appreciate all the advice and will continue to bid as I currently do. I realize now that that tract home job will not really be worth my time and I may be doing myself a favor by not getting hooked up with this guy.


From contributor J:
I could be totally out of step here, but in my opinion, just because you've worked hard to pay off your overhead and have no debt is no reason to lowball jobs. That should have nothing to do with the prices you charge.

When I first started reading this post, I thought you were complaining about a lowball shop. After reading your response about the church bid, it sounds like you're the lowballer. In any case, I return to my original premise, which is that just because you've paid off the shop, why does that mean you should price jobs lower?

Overhead is a perpetual thing and you'll find yourself staring down the wrong side of a new roofing bill, or machinery repair, who knows what. Now is the time to build up the reserves for those problem times.


From contributor K:
A long time ago, my boss told me he didn't want to make his money doing high quality, high price cabinets, he wanted quantity. I was the very first employee of that low bidding shop 20 years ago. They grew their business over the years, have the CNC, the panel saws, 35 employees, etc. I read an article in the paper about a year ago and they were all proud of finally breaking the 1 million dollar mark in annual sales. We are not in a big city, so I bid against them quite often. I have been told that I am actually about twice their price. I've been in business for about 9 years now and broke the million dollar mark about 4 years ago with only 9 guys and myself. This is what high quality and high prices will do for all of us. I guarantee I am not only making twice as much per job as those other guys, I am taking home at least twice as much, too. By the way, I just heard yesterday that one of the brothers dropped out of the partnership and the other brother is never there. The price of cabinets just went up around these parts.
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