5 reasons why you are underbidding your projects
No matter the level of experience, underbidding a contract has happened to the best of us. Some of you might be thinking, what is underbidding? Underbidding is simply the strategy of bidding lower than other bidders on a project. Practically that means that the project will cost you more than you bid for.
Most of you may have contracted an underbidder or even underbid yourself. No matter the case, we have some useful insights and tips for you. But first, let’s look at 5 reasons why underbidding even happens in the first place.
Big ole’ Uncertainty
No matter what industry you’re in, it is always difficult to foresee how events will lay out in the future when uncertainty is always around the corner. Those in the construction industry know this feeling very well. You take on a new project only to find out that it’s going to cost you way more than expected. You want to renovate the floors, but suddenly the old pipes in the house creep up and drive your costs up.
It happens. There are certain costs that you truly can’t see coming. When bidding for a project, don’t forget to account for the unexpected!
Well, Other Bidders
It is competitive out there. Big companies take on big projects for cheap because they have the resources to remain profitable. Smaller companies have a hard time keeping up. This is why it is so tempting at times to underbid so that your company can keep taking new projects and growing. The more projects coming in, the more likely it is that you can afford to bid lower in the future.
If you’re following, I believe you already know what problems arise because of this. Adopting this strategy to bid out competition is smart for as long as you’re not hurting your business. If you can’t complete the project within the budget, then you may be putting your business at risk. You might also want to watch out for developing the reputation of serial underbidder.
In fact, the court in a New Jersey case decided that the bidder bears the risk of underbidding, and may even risk being sued under the Consumer Fraud Act.
Sometimes you may not be underbidding on purpose to win a contract. We’ve had gardening and construction companies share stories with us about simply being unable to keep track of costs. Sometimes it’s not as straightforward as it seems. Your usual supplier falls short, your best man on the job falls ill and you suddenly need two employees to replace him - we’ve heard it all before.
Sounds all too familiar? On the bright side, this is something that you can control. Although you can’t control whether your employee falls ill or not, you can keep track of every little project-related expense and gather data on it. When you take on your next project, you will have a more accurate representation of costs by looking back at past projects. Apps like Atto go a long way in helping you keep track of labor costs.
Because You Can
Underbidding is not always at the cost of your company. Sometimes you underbid simply because you can. If your company can afford to underbid and keep those profit margins just a tad lower to keep the show running, so be it. Just make sure that you are charging the right amount of money for your work.
Dan, a handyman, realized he was losing a lot of money by undercharging for his services at the beginning of his career. For as long as you’re charging the right amount and can still afford to underbid, you are on a good track!
Not Enough Time
Taking your time to carefully calculate your costs and give an accurate estimate sounds great, right? We both know it doesn’t always happen like that. A client wants an answer and they want it fast. Oh, and what about that discount?Sometimes you’re rushed into a bid and have to make decisions fast. Clients may also add pressure on that restricted time by asking for discount pricing. When you find yourself in this position, take a step back and see if you’re un
When Underbidding Goes Wrong
If you think underbidding is harmless and just the way of the industry, you may want to think again. Companies have gotten in serious trouble by constantly underbidding on projects.
The Connaught disaster is the poster child of underbidding gone wrong. This construction company was on its path to collapse by bidding “abnormally low” prices to keep business flowing in. Three hundred people lost their jobs, and the whole town was affected when the company collapsed.