How to make 44% more profit this year without working any harder

Snapshot:

• Maximize Profits in Construction Bidding: Implement a 7-step strategy to increase net income by 44% without additional work, focusing on analyzing and optimizing bid strategies.

• Stop Leaving Money on the Table: Highway contractors typically miss out on 8% potential profit in DOT projects. Adopt data-driven bid optimization to capture this lost revenue.

• Learn from Other Industries: Utilize practices from sectors like ride-sharing and online advertising to enhance pricing strategies and outperform the industry average.

• Simple Yet Effective Method: Analyze 2023 bids by size, type, and geography to identify margin capture opportunities, leading to significant financial gains with minimal additional effort.

“What gets measured gets managed” - Peter Drucker

Highway contractors leave a lot of money on the table. It’s a mathematical fact. Industry average dollars left on the table (money between first and second place bidder) on DOT work hovers around 8%. For a contractor doing $100 million in revenue per year, that’s $8 million in lost profit every year. Consider that for a second. $8 million. Other industries spend hundreds of millions per year to optimize their pricing. Think Uber pricing on Friday night in downtown Nashville, a Delta nonstop to Orlando, or GoogleAds. They’re all about maximizing price efficiency.

In construction, we love to trust our guts, and that's great. Experience is invaluable. But let's face it, bidding on prime highway projects is a different ball game for two big reasons:

1. You typically only get 1 shot at each bid.

2. The downside of losing key bids is huge. You have to win work in order to meet breakeven and keep crews, equipment, and maybe even plants running. Losing a key bid can mess up the whole year. This downside is often over exaggerated due to our natural human bias to fear loss more than we appreciate potential gains. No one wants to be the "add-a-little-extra-and-lose-the-bid" guy, right? So, we cut our margin.

This is a hard problem with lots of pressure on the decision-maker(s).

So, what's the game plan? How do we minimize leaving money on the table without losing our market share? And what's this about a 44% increase?

Here's a straightforward 7-step strategy to extract 2% more margin on your work in 2024 with minimal effort:

1. Gather all 2023 bid results.

2. Categorize each bid by size (small, medium, large).

3. Assign a work type to each (like paving, grading, utilities, mix).

4. Define the geography for each bid (like the Franklin market).

5. For jobs with multiple bidders where you had the lowest bid, calculate how much extra profit (1% to 10%) you could have made and still won. This is your "margin capture opportunity."

6. Analyze yearly trends across job types and sizes. Where did we excel, and where did we miss?

7. Share these insights with your team for smarter 2024 bidding.

This can be done by hand, in excel, or using other tools. Whatever works. Edgevanta automates this but you don't need fancy automation to get started.

Remember, bidding low is like playing blackjack. A small edge, like 2%, can make a huge difference over time.

Real-World Example:

Let's talk numbers. Using publicly available data from a top buyer (some might say a “buyer of choice”) in the Southeast, I crunched the numbers. Here's a peek:

Revenue: $100 million to $102 million = $2 million increase.

Gross Profit: Up from 12.5% to 14.22%, a $2 million jump.

Net Income: Boosted from 3.38% to 4.78%, that's a 44.44% increase!

HCSS:

Even HCSS boasts about their customers' 7.5% average. But why settle for average?

Stoic Wisdom Quote

“Don’t worry about being the most interesting person in the room, just try to be the most interested” - James Clear

Reflect on this as we embark on another week of bidding and building!

We changed up the newsletter this week based on some feedback from readers. Keep the feedback coming!

Warmly,

Tristan

About the Author

Tristan Wilson is the CEO and Co-Founder of Edgevanta. We make software that helps contractors win more work at the right price. He is a 4th Generation Contractor, construction enthusiast, bidding nerd, ultramarathoner, and paving nut. He worked his way up the ladder at Allan Myers in the Mid-Atlantic and his family’s former business Barriere Construction before starting Edgevanta with his Co-Founder Matt in Nashville, where the company is based. Reach out to him at [email protected]