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Question and Answer

Maximize Profits with Accurate Estimating

by Mark Porter, Dienamic MIS

May-June, 2014

The estimating process is so much more than seeing how fast you can get the price the customer wants to them. Estimating is maximizing your opportunity to bring work into your shop, ensuring you maximize your profit on the work if you win the job, presenting a professional and positive image of your company to your prospects, starting the information flow that occurs from estimating to billing, and tracking and analyzing information about your customers, products and pricing.

What is the difference between estimating and selling?
A large majority of postpress companies use selling prices in their estimating process. They say, “I can get $100 per hour for this binder in the marketplace and apply that to the hours required to produce the job.” This may be true, but estimating and selling are different. You can put your selling rates into the software, but a good estimating system should allow the option to input the true costs of running a machine and then allow a cost markup at the end.

The cost of the exact same binder can be different for two different companies. The cost per hour for a binder is determined by how much you paid for the binder, how many shifts you run, your factory overhead, your office administration costs, how big your plant is and much more. If you calculate the true cost to run your equipment, you can generate an estimate that gives you an accurate cost to produce the job. This can be very important in making more educated sales decisions.

Let’s say we did the quote, and our true cost was $1,000. Now you can look at this job and decide what you want to charge for it. What you charge can be based on many factors, such as how much risk you’re taking with the job (i.e., if there is a high percentage of expensive material in this job). If there is a lot of risk, the sales price may be higher. Is the shop busy or slow right now? What is your competitive advantage in the marketplace? All of these factors influence the price you set.

Let’s say you decide to mark the price up to $1,200. Once you present your price to the customer, the market will determine the selling price. If a competitor is desperate and giving work away or if another company specializes in this product, the market may dictate that you can only get $900 for the job.

You now have the information you need to make an educated selling decision. You can sell the job for $900, but you will know you are paying $100 for the privilege of doing the work.

Educated selling decisions increase profit because you know which jobs are profitable.

Why automate estimating? I can get quotes to my customers in three minutes.
There are many reasons to automate the estimating process. Computerizing the estimating process ensures that the standards you have preset consistently are applied to each estimate. Consistent pricing no matter which estimator does the estimate and no matter what mood you are in is good for both you and your customer.

By automating the estimate process, you eliminate all the calculation processes. This leaves more time to try alternative methods of running the job and/or providing the variations the customer wants to increase your chances of getting the job. In addition, when the customer calls to make revisions, you quickly can retrieve the estimate and make the changes they require. The estimate history module allows you to simply enter the customer name to get a list of estimates done for that customer. Then, the estimator can click on the specific estimate to pull it up on screen for changes.

The software can convert the estimate to a letter that can be sent to the customer as a pdf or fax – this gives your company a more professional image. A customer may think that if you don’t care about your own corporate image, you may not care about their work. An unprofessional estimate appearance also may give the impression that you are a small company, and the customer may be reluctant to award you the larger, more desirable work.

Estimating software will allow the estimate to be converted to an order, a packing slip and an invoice in the event you win this job. Without an automated system, each of these steps in the flow of data represents re-keying, which takes time and increases your chances for mistakes when using a manual estimating process.

Can I track my estimates?
By automating your estimating process, you not only can track your estimates, but also analyze them to provide valuable information about your estimates, customers, products, estimators and sales reps.

As you do estimates, the software will record the estimates in an estimate history module. The data in the estimate history quickly can be searched and analyzed. Analyzing the estimates can provide valuable information.

First, the quantity and type of estimates done can be a predictor of future activity in the plant. Start each morning by looking at the number and type of estimates performed yesterday. Every shop has a win/loss percentage – if it's three jobs per 10 estimates and you only did two estimates yesterday, that can be a problem. You do certain types of work better than others. If you did 1,000 estimates yesterday, but they were all saddlestitch estimates and your company doesn’t produce saddlestitching economically, you will have a problem with future activity in the plant.

A listing of estimates each day also will allow you to see desirable estimates that you want to stay on top of to ensure you don’t lose the job for a stupid reason.

Win/loss over a longer time frame can track good customers and competitive advantage. Follow the 80/20 rule for the information generated. Eighty percent of your revenue comes from 20 percent of your customers. Anything you can do to strengthen the bond and monitor these good customers is in the best interest of your company. If your good customers have a higher than normal conversion percentage of orders from estimates, you can monitor this percentage. If this percentage drops, get on the phone and find out why before it is too late.

Same goes for products of which you feel you are a market leader. If you normally have a higher than average win/loss ratio with these products, monitor this rate. If it drops, find out why – maybe someone else is trying to get into this market segment.

No Recent Estimates – Again, if your good customers request estimates at least once a week, then run this report weekly. If a good customer shows up on the list, get on the phone and find out why. Also, your best source for more business is companies that you have done work with in the past. Run this report quarterly and get on the phone with companies that appear on the list. Ask them if there is any work you can quote.

Estimates to Follow Up – An estimating system should allow you to track the follow-up date on estimates. Each day, you can get a list of estimates to follow up on. You may not be able to follow up on every estimate, but quickly sorting the list and finding all estimates over $10,000 (or whatever number you choose) provides a valuable list of potential jobs that you can use to ensure you don’t lose potential work for a stupid reason.

Estimating is much more than just getting a price to a customer. The estimating process should maximize the benefits you can bring to your customer, but also maximize the benefits you can bring to your own company.

Mark Porter is president of Dienamic MIS Software Inc., a company that produces and markets estimating, management information, online software and apps specifically for the postpress industry (binders and finishers). For more information, call 800.461.8114 or email mark@dienamicmis.com.