Welcome to what we hope to be a regular series of articles about quoting, the good, the bad and the ugly of it. Let us know if you like what we have to say, or even if you don’t - we want to hear from you! Links to other articles at bottom.
Moldmakers, Those ‘FREE ESTIMATES’ You Provide – How Much Are They Costing You?
By Jeff Lambing, Cost Estimating Specialist at JDL Technical Services - Feb 2016, published to LinkedIn and Facebook
We’ve all seen it advertised on the side of trucks, in newspaper and magazine ads, and business cards – Free Estimates! Seems every service provider, electrician, plumber and home handyman makes the same offer these days. Weren’t they always free? If not, when did this change?
Having been in the tool & mold business all my life and heavily involved in estimating for many years now, I really got thinking about this recently when I called upon a local big box home improvement store to give me a cost for a new garage door. I was told that there would be a $50 charge to come out, measure and provide an estimate. That took me by surprise as I had built my house and know how to measure for a door. But they insisted that it was a standard charge.
That got me to start thinking about how many times they get asked for a price and how often that homeowner is going to check on every other big box store for a price. Fifty dollars really doesn’t cover their cost to have an experienced person come all the way out, advise on the options available, show some samples, measure properly and provide an estimate.
Then I got thinking about how this relates to mold builders.
If they were anything like a mold maker or other custom manufacturer that might only win 3-5% of the quotes they submit, you can see that for a possible $1500 job for that garage door installation, they will lose a big portion of any profit potential even if they get 25% of the doors they quote if they quote for free and they have $250 invested in those quotes.
I talk to many small business owners in many industries who spend a great portion of their day providing free quotes and hardly anyone seems to give this any thought about what this costs their company. Sure it can be said that if you don’t quote, you don’t work, but we are all getting very used to ‘shopping’ quotes around and then going with the lowest offer. Human nature I guess anymore.
So why is it that we in the moldmaking business or any other custom manufacturing company are so keen to use a highly skilled workforce, quoting very complicated tooling, using the latest and likely with very expensive machines and software, coupled with long payment terms and extensive warranty coverage for a very small chance at winning work that may require a couple thousand hours of labor? And we do this all for free! It is common knowledge that OEM’s and Tier Level suppliers will ask upwards of 10 companies to quote a program, throw out the very lowest and highest number, and have it re-quoted again. And then do it all over again. It’s not uncommon to quote the same part or program with differing levels of data 3 or 4 times.
If companies were to really start looking at their costs to provide these ‘free’ quotes, they’d be surprised at just how much this is costing them. My experience working with many companies is that while some of them may be very efficient in their quoting process and may only have costs in the $40-$80 range to produce a quote, others are well into several hundred dollars for every quote they produce. Turn that into the cost per awarded job and that number can now be $1500 or much, much higher even.
So for that shop that is building a $50,000 tool and has spent $2000 to get it (not including the cost of your salesperson), you’ve already got 4% taken off the top. Compound that with the fact that most jobs are awarded because they were the lowest bidder and you’ll be lucky if you’re getting 10% profit on the tool before you take the 4% cost of the quote off.
So what can we do about this? As an industry that is being beaten down to have the lowest cost for a chance to win the work, how does a company change this? It would be wonderful if we could do like that big box store did with me – pay up front, get a quote. Imagine trying that with your customers! That wouldn’t go over very well. But why is it that we SME’s are taking the brunt of the cost burden by providing a free service to large companies that are quite often using their suppliers as a means to develop their target costs and then using us against each other to get an even lower price?
When did it become OK that we provide this free service to our customers? What if we started doing like many lawyers do and call it a consultation fee! After all, you’re not just providing a quote, you’re providing a service where you’ve dissected and analyzed the data given, done feasibility and developed strategies on how best the project should proceed. Sounds like something any other business would get paid for, doesn’t it?
Don’t you think your time is valuable too? Time is money everyone says, yet we throw it away at an alarming rate by quoting for free.
While it’s probably not realistic to think that we’ll ever be in a position to charge our customers for the pleasure of quoting to them, you can at the very least improve your quoting methods, learn to be more efficient without losing accuracy and you could possibly work towards an additional profit of $500 or more per awarded job by improving your method of quoting. And that is something that we can help you with.
We have a Software Quote ROI Calculator available for anyone who asks that will not only show you what your average shop cost per quote is, but also such things as average cost per winning quote, cost to quote all jobs not awarded, cost savings by simply improving your quoting method or by using our mold quoting software that we peddle.
I'd be interested in hearing from others if they feel there was a possibility that they could or would like to 'charge' for estimates and how it could affect their business. Send us an email at ToolQuote@JDLTech.ca
Follow-up article by Clare Goldsberry at Plastics Today (Feb 2016) What those free estimates are really costing moldmakers
MoldMaking Technology Blog - March 24/16 by Christina Fuges: How Much Are Those Free Estimates Costing You?
Putting Trust Into Your Mold Quotes - Downloadable presentation from AMBA Chicago Chapter Dinner meeting.
Send Out Quotes using ToolQuote with Only 2 Hours Training! REALLY??
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