Am I Terribly Underpricing Myself?

What are you target profit margins for camera install jobs?

I realized recently that I may be terribly underpricing myself. To give an example, there was a 30 camera install to cover the exteriors of 3 apartments buildings. I priced it out with a (hopeful) profit margin of $6k. In the end I didnt submit the bid as things were too busy at the time. However, I found out later that the winning bid was bout $10K more than mine and they used the same cameras I was going to use.

My problem is finding the proper mix between making enough profit that it is worth it (especially if there will be a trouble call) and not going to high to lose the job. But when I hear that someone successfully bid much higher than me, makes me think I am just losing money.

So how do you calculate what your profit margin should be? Do you do it per camera? And what is your target margin for a job (large and small).

Thank you


In my average winning bid, and in end user design bids, my normal markup is about 50 percent on all materials and product and 80 percent on labor. Target margins are usually mid to uppers 30s.

It certainly sounds as though you're undervaluing yourself. Are you finding yourself winning a large percentage of the projects you bid? If you don't have a competitive leg up with relationships that are in your favor skewing the results your price may be too low.

On the flip side are you losing projects, but then like the example you give up above you would have won on price? Maybe your pricing is so low that people are scared. The reason most companies solicit a wide range of bids is to determine a realistic, qualified vendor's price and toss out the insanely low and insanely high bidders.

A, good question!

These references should help:

Like B's example above, the typical approach to evaluating margins is as a percentage of inputs (products, labor, etc.).

A, question: What was the total proposed quote for those 30 cameras? $30,000, $50,000?

For example's sake, let me say it was $30,000. If you were targeting $6,000 profit margin on that job, that would imply the direct cost of the job was $24,000 and your target profit margin would be 20% (6,000 / 30,000). That feels too low to me but it depends what your overhead is (office, admin staff, sales, etc.) and how completely you factored in all costs in the quote.

Given that the winning bid was $10,000 more than yours, it hints that you are under-pricing yourself.

A, how often do you find yourself bidding significantly less than others?

Thank you for the links.

The total proposed for the 30 cameras was $38,000 (by the winning bid). The cameras that were used were the standard 3mp hikvision bullets with a hikvision DVR.

My bid was going to be along the lines of $25K.

The funny thing is that I am constantly finding out I was going to be bidding much lower. For example I was going to bid on a job to add one additional camera across the street by a building complex. The run was going to be about 150ft and would have to cross a street. There already was a support wire running across so I was not going to need to put one in. The camera that was spec'd out was a $550 hikvison. I was going to put in a bid for $1200 which I felt was pretty high. I then found out that a different integrator had put in a bid for $3k which the customer felt was too high, but he would be happy with a price of $2k, so that is what I did and I one it.

Thanks

The good thing is that you are getting more experience and that will help you adjust for your market / competitive situation.

At this point, you seem to have enough data to increase your overall pricing in the 20-30% range.

I deal with this issue quite a bit. In my humble opinion, I'd resist the urge to 'keep up with the Jones' ' by charging what I consider to be exorbitant prices on camera mark-up and labor. $6K seems like a nice profit on a 30 camera job. I try to separate myself from other integrators by saving the customers thousands while still making a fair profit.

That is what I usually try to do. But it is hard when you keep on finding out that you could have gone $5k more and still would have gotten the job.

Ben if you want to keep supporting your legacy customers you'll need to raise your prices... or charge service contracts.. either way (raise your prices)

What mark up do you use on equipement and wire? We vary from 50% down to 30% if we really want the job. Labor is different markup. What is your hourly rate? Do you have different rates for install vs service? How do you figure installation? We have x for running the wire, x for mounting the camera / foucs and then x programming. Differnt for Inside and Outside Cameras. IP Cameras have been changing our equations. Then you look at the building drop celing, hard ceiling, conduit. I always have to look at my jobs or jobs i design. Have you been an installer or always sales? Also you have to figure a % in every job for warranty and call backs.

The big problem is that am an installer so I dont have any sales experience. I dont have any hard forumulas as to mark ups. Usually what I do is I factor in my cost, and then figure out how much I want to walk away from the job with including any potential headaches.

Usually when we price it out, we dont split the different aspects of the labor, it usually is lumped into one fee per camera which inculdes wireing and setting it up. If something special is requested then we would break it down.

My normal forumla for the rate for old construction and nothing really hard (slab, conduit, etc...) is $100 per run and $50 for mounting. So we price it out at $150 per camera. And this is actually only more recently as I started raising the prices because I was so under the going prices.

Finding the right price point is a bit of an art.

Obviously, your local market will dictate a lot of this. But in almost every market there are segments of customers that want high-end, value, and budget solutions.

In my personal experience across a few different things, targeting the higher-end customers is better overall *if* you can properly sell to them. This means being relatable, positioning yourself in a manner that they see you as something more like an equal (entrprenuer, business person, solution expert) and less like a "contractor". These customers will have higher expectations of service and overall job quality, but are often willing to pay for it. There are also a LOT of people who don't like buying the cheapest of anything, and you'd be surprised how much premium they will pay for basic stuff positioned well.

It's hard to say if you are underpricing *yourself* or not, because YOU are the biggest variable in all of this. Are you articulate, highly knowledgable of your product and market, dressed well, able to think on the fly and solve problems? If so, you should probably be priced at the higher end of your local market, regardless of what specific hardware/product you are using.

If you prefer to be more of an "everyday" guy and you see doing sales/quotes as the neccessary evil to getting to the fun part of hooking up and installing things, then you should probably be priced square in the middle of your market (assuming of course that you do quality work).

Also, it might be helpful to offer customer Good/Better/Best options or Good/Best options if you're unsure of the going rates or price tolerance in your area.

I actually try to target the higher end customers as they usually are going to be less trying to save each penny.

The Good/best options is actually something I started doing recently and I think it has been very helpful.

Gentlemen,

I am getting a sense that you calculate your cost, and add some profit to it; what you deem a reasonable amount. Tell me that is not what you are doing please.

Mark, are you a 'value' based pricer? :)

No. I have done it a few times John, but for the most part, we are cost based.

What is the difference?

John was poking some fun at me. In quick fashion; you add up all of your cost and you decide how much to charge to pay all of the bills and make some profit. Lets say your cost is 10K, and you decide you need 30% to pay your bills and make a 12% profit margin. 10/.7 -> you should charge 14,200 dollars. If you need 35% you would take your cost and divide it by .65 (35% + 65% = 100%).

Are you leaving money on the table. Sounds like it to me.

Lol, gentle ribbing. As I mentioned in the comment below, value-based pricing can be challenging when one has direct competitors. It's not a bad ideal to strive to, it can just be tough to implement.

Cost based pricing is what you and most people do.

Value based pricing is when you figure out how much value your task delivers and charge based on that.

Example - a new security system will prevent $50,000 in insider theft over the next 5 years plus will solve X number of auto thefts and altercations. Total value of that will be $80,000. Convince end user of value of your offering, then charge a percentage of that. "My work will save you $80,000, but I am only going to charge you $50,000. It's a great deal." Meanwhile, it might only cost you $20,000 to do this.

The big challenge with value-based pricing is competition. If you have direct competitors who can or will bid, the price gets competed down to (near) the cost.

Sounds like you hardly have to put any line items on the value quote:

(1) Theft prevention system, new in box: $50,000

I like how you split the profit evenly between buyer and seller: $30,000/$30,000

This is a fascinating conversation my family has shared many times since at one point three of us brothers had competing alarm companies, just not against each other. We positioned and priced across the board from a sub-contractor attitude of cost plus to value based. Entry level to a $465,000.00 house alarm with a repeat customer with a competutor offering a "similar" solution for $135,000.00 and losing. Two of us would tell the third to raise his prices and when he did, business fell off slightly but he was still successful. When work was too much we would gently raise pricing, if it slowed we would get more aggressive. Always conscious of what we had previously charged someone to "stay in line", and although they all got the same 24 hour / quality service.....some valued paying more and some needed/insisted on paying less. I don't miss those days but it was an education in reality and perceived value.

Entry level to a $465,000.00 house alarm.

No need to rub it in by adding the cents, it's plenty impressive anyway. ;)

If you don't mind me asking, what is the 'vig' on $465,000.000?

"Two of us would tell the third to raise his prices and when he did, business fell off slightly but he was still successful. When work was too much we would gently raise pricing, if it slowed we would get more aggressive."

Lol, that is the first time someone has admitted to collusion on IPVM...

John, I know your sense of humor but before you allude to a criminal act, albeit well beyond any atatute of limitations I would read the post against the definition. I stated we had different customers and did not directly compete. We did not set prices or restrict access. So your post is funny but not factual.

Then I am not sure what you did or how it related to the other two when you say, "Two of us would tell the third to raise his prices."

We (two brothers operating two different companies with different markets in a highly populated and largely competitive area) simply told him he was not charging what he was worth. No competition or setting of price. Never bud against each other intentionally or accidentally.

...at one point three of us brothers had competing alarm companies, just not against each other...

Three brothers each casting their own net in three different locations...

Great discussion. What about loaded burden rates? How many of you use that to determine labor profitability on a job?

I have seen it before where the individual thinking they made $12K "profit" on a project isn't completely factoring in their full burden rate--and that can skew any comparisons to competitors, not to mention company profitability.

Generally, materials are closer to "apples to apples" comparisons against your competition. If you both put in 30 Hikvision cameras in similar locations with the same general infrastructure, your materials cost will be similar....and comparing material profits to a competitor should be accurate.

But how you compute your labor costs can vary widely among contractors so a competitor stating they made 12K on a job to your 6K may actually be closer to your profit than you know if they don't fully figure their loaded burden rate.

I tell my mostly hospital customers that I charge a profit margin(not mark up %) of 20%. I may be low, but at least steady work for the last 10 years. And then sometimes an occasional large bump up.

My problem is finding the proper mix between making enough profit that it is worth it (especially if there will be a trouble call) and not going to high to lose the job.

Question for everyone who's responded so far: how do you determine when a customer is no longer "worth it", and just bid up your price without particularly caring if you don't get the job?

We have one long-time customer that, over the last few years has become more and more of a pain to deal with. Corporate has given the more lucrative segments of their business to a competitor, much to the chagrin of the individual sites who have always loved our work and are now regularly frustrated by the new provider's poor service. The intermediary who subcontracts this service has even tried to move into the same field and do the service directly.

Meanwhile, we continue to get calls for other types of service that we've always handled for them... but we now have no interest in trying to be "nice" in saving the parent or the intermediary any money, and frankly, the jobs we do get from there are so few and far between, that losing the customer entirely would barely be noticeable to the bottom line.

So our quotes have gone up accordingly - call it an "annoyance fee". If we're going to do work for them, we're going to MAKE it worth the hassle... and if they decide to go elsewhere at this point, well... no great loss.

The only ones we feel sorry for are the managers of the individual sites, who still love it when we come around and even try to get us to look at other service issues that the current provider is taking forever to get to...

H, sounds appropriate to me.

The best you can do is try to convince / motivate the individual site managers to go to bat for you. If they won't or unable to convince corporate, no point in you losing money to support a customer that does not support you back.

We always tell the sites, they have to complain about the other "disservice" providers and ask for us... they all say they do, but nobody listens to them.

Sadly, it's not even a money loser... far as I know, we still make a fair margin on serving them. Those calls are just so few and far between, and they've become so... "persnickety" when it comes to paperwork and the like. It's just toeing that line between being worth the money and NOT worth the headache.

I have 8 years into my company and I have always worked by myself and with a helper or 2. We have always done a great job with minimal service calls required even years later. When I first started I took all jobs big and small and priced my self way low. Now that I'm a little older and slightly wiser I have focused my self into specialty areas like properties requiring wireless networking to make the camera connections. If your doing the stuff everyone can do be prepared to get slaughtered by the trunk slammers working out of their family mini vans.

I have been working my prices up gradually but now I'm ready to start another crew. Unfortunately I never even thought about service contracts of even offered them. I was always enjoying the next big hit. I didnt have time to waste on RMR. The lesson is be carefull what you do today because it can effect your tomorrow. I dont want to be 50 hanging off the sides of buildings. As far as pricing my lowest deal is double the cost of the product. Target price is product x 3r plus labor 120.00/hr. The time you waste working for cheap is better spent working on getting better clientel. If your not making money, you will end up caught on the hamster wheel. Leaving no time to prospect better clientel.

I have learned the cheaper someone is in the begining the bigger the head ache they are in the end. No matter how cheap you are there will always be a trunk slammer working out of his or her family van even cheaper. Make yourself different that everyone else in your market and you wont have to hoe yourself out. Word of mouth is important do every job like its your business card and stick to it. If you install cheap stuff to hit a price point for a cheap customer that job still has your name on it.

It may takes years to reap the rewards but your efforts will catch up. If you install garbage equipment and do shoddy installations you can cheap yourself right out of business.

Dont waste too much time on the bid jobs. I have found most bid jobs are decided before you get in the door. Sell some value in what you are doing.

I hope that makes some sense. I have been in sales 23 years so maybe it comes easy for me.

Get out of your comfort zone and bang some doors if your do a good confident presentation most people will go with you without the competitive bid. This usually applies more to smaller privately owned companies. Larger corporate companies play the 3 bid game.

Good Luck.

Happy Selling

The time you waste working for cheap is better spent working on getting better clientel.

So true...

I have learned the cheaper someone is in the begining the bigger the head ache they are in the end.

This is an almost universal truth.

One question for everyone here: Do you formally track your history? If not, I highly recommend doing so. Yes, burden rates vary, so labor cost can swing one way or the other by a fair percentage, but material costs can be figured out fairly simply.

I used to keep details of bids and quotes in a spreadsheet, with my cost for labor and material, our sell price, and competitor's sell prices. It allows you to figure out pretty quickly what other competitors are averaging for their percentages, and helps you price against specific competitors.

True, you're not going to get this information for every single job, but given time, you'll get enough. Require your salespeople to find out who won and what they proposed, and how much you were off by. They should want to know, anyway.