April 2008: Business Building

Words: George Hedley

How is Your 'Bid-Hit' Ratio?

altBy George Hedley

Bid-Hit ratio is the rate at which you successfully bid or propose on projects. For example, a 5 to 1 Bid-Hit ratio says for every five jobs you bid or propose on, you are awarded one. Do you know what yours bid-hit ratio is? Do you track it? How do you use it, and what should it be?

Whenever I present my "Estimating and Bidding Strategies That Work" program at conventions or companies, I ask everyone what their Bid-Hit ratios are. In almost every case, including estimators, sales people and business development managers, most don't have a clue what their ratios are. In a survey I conducted of more than 2,000 construction and design-build companies, less than 6 percent knew and tracked theirs ratios. To me, this is like driving a car blindfolded without a clue where you are headed.

Keeping track To determine how many jobs to bid, what type of jobs to go after, and which customers give you the highest percentages of their work, you must know your bid-hit ratio. Track it monthly, quarterly and yearly. Track it for all types of projects you bid on and each customer you bid to. Also, track by job type: large versus small, local versus out-of-town, commercial versus industrial or residential, bid versus negotiated, plans and specifications versus design-build, or new construction versus remodel. Another item to track is the number of competitors you bid against on each project.

As you study your bid-hit ratio trends, you'll find certain customers who give you more work than others. You'll find certain kinds of jobs you handle better. You'll also discover, when competing against too many competitors, that your success ratio isn't the best it could be. Simple tracking will help you determine which jobs and customers to bid to. It will also help you determine when to eliminate a project type or customer from your plate, and when to seek out better opportunities to invest your estimating dollars.

The right ratio I have surveyed and asked more than 5,000 construction and subcontracting companies to determine what a good bid-hit ratio should be. The results vary from 1.5 to 1, to a worst-case of 35 to 1. Which is the best ratio for you? Obviously, you want the lowest the ratio possible. But, the right ratio is what works for your company.

Companies who negotiate lots of work tend to have lower bid-hit ratios. They also require additional overhead expense, marketing, pre-construction services, customer development and public relations. Companies that obtain most of their work from public works or bid against a long list of competitors tend to have higher bid-hit ratios. But, they usually have more estimators, which offset the marketing dollars needed. The trade-offs usually balance out at the bottom line.

'Bid-hit' ratios revealed See how you compare to the averages observed around the country:
General Contractors Bid-Hit Ratio
- Public Works   6 : 1 to 10 : 1
- Private Bid Work   4 : 1 to 6 : 1
- Negotiated Work   2 : 1 4 : 1
- Design-Build   2 : 1 to 4 : 1
Subcontractors Bid-Hit Ratio
- Public Works   7 : 1 to 11 : 1
- Private Bid Work   4 : 1 to 6 : 1
- Negotiated Work   3 : 1 to 4 : 1
- Design-Build   3 : 1 to 4 : 1

The right bid-hit ratio is what works for your operation. A ratio of 35 to 1 is too high, and 1 to 1 is nearly impossible in today's competitive market. The highest reasonable ratio for public works should not exceed 10 or 11 to 1. A ratio that is higher than 11 to 1 will cost your company too much in estimating expenses and won't provide a reasonable profit. For private work, I recommend striving for a 4 to 1 ratio or less. This can be accomplished by pre-qualifying your customers before you bid, to insure you are on the right bid lists.

The key is to track and know your bid-hit ratio. With an accurate history of your results, you can determine which road you want to take. Keep your eyes open and focuses on your destination, look for ways to improve your bid-hit ratio, and hit your target, every time.

Best-selling author and professional speaker helps entrepreneurs and contractors build businesses that work. He is the author of the "The Business Success Blueprint Series," available in eight workbook and audio CD sets. Contact him to present to your organization on his proven system to build profits, people, customers and wealth. Construction company owners are invited to attend his two-day "Profit-Builder Circle" boot camps. Email George at gh@hardhatpresentations.com to receive a free copy of his book, "Everything Contractors Know About Making A Profit," or sign up for his free monthly e-newsletter. For more information call 800-851-8553, or visit www.hardhatpresentations.com.      
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