EP 5 - How to structure your pricing

Have you ever wondered why a client raises so many queries about your price?

Or why there’s back and forth with them on your allowances and valuations after you’re in contract?

Let’s take a look at how changing the way you structure your price will help you convert more work and stay on top of project cash flow.

Before we get stuck in, let’s look at the documents the client has given you. Have they provided you with a BoQ or Pricing document? If so, you MUST use this document! It’s completely understandable why you may want to use your own document; however, you will frustrate the client if you don’t use theirs as they’ve spent time and money getting this document together, and they will want to use the excel document for their analysis.

You can, of course, have your own document to straddle the client’s pricing document, and this is good practice, particularly if you want to summarise your allowances and proposals.

Breakdowns – you need to provide them, so do it before the client asks!

Estimators can be overly cautious about providing too much information when it comes to pricing as it can be viewed as being disadvantageous and leave you open commercially. I see price breakdowns as a huge opportunity – here’s why:

Tender comparisons: If you structure your price with a detailed breakdown showing both quantities and rates, the client will be able to easily analyse your offer, which will also help them get to a decision much more quickly. More importantly, the client can pick up on errors and anomalies which may put you out of the running.

For example, you may have over-measured on a certain item or, on the flip side, under-allowed on a particular rate – the client will be comparing your price with others, so any outliers will be easily picked up by them and communicated back to you.

Valuations: the agreed quotation and price breakdown essentially sets the method of valuing the works. So, with that in mind, you can use this to your advantage and ensure your costs are split out sufficiently, so they work positively for your cash flow, and there’s less opportunity of things being undervalued later down the line.

An example of this would be design, drawings and mobilisation – most subcontract packages will include at least one of these items and its work carried out and paid for by the subcontractor early in the project. By breaking these elements out, you can claim for this as soon as it’s complete, and there will be no questions from the client.

Another example could be first fix and second fix. One of the most common disputes when it comes to valuations is how much money is applied to the first and second fix during a project. If you split these two phases out in your agreed price, there will be fewer questions about you overapplying, and therefore you’ll get the right amount you asked for.

Your image: The main but subtle positive in a breakdown is that you’ll look totally transparent with the client, as you’ve been very thorough in your approach to pricing. If you present your price in a way that’s comprehensive and easily digestible for the client to analyse, they will view you as being comprehensive and the less riskiest contractor to work with – and this will be a big green tick for your business.

Four things you’re doing in your pricing that are working against you:

Here’s some tips which, over the years, I’ve seen many subcontractors fall short because they’re making these simple mistakes.

• VAT: Stop adding VAT. It’s unnecessary and not required, and you may make yourself look artificially 20% more expensive if the quote isn’t read correctly. Unless your VAT-deducted price is the cheapest, it’s hard for the client to get this figure out of their head, and they will always associate you as being more expensive.
• Additional items: if you identify additional items, include them below the line as extra over items to your price. This way, your price will look as competitive as the others, and it won’t put you completely out of the running against someone who has just priced the minimum scope.
• Provisional Sums: There’s a fine balance of what to allow as a provisional sum, and a lot of us choose to be cautious and make sure there’s enough bunce in it. Try to be as realistic as possible, but avoid arbitrary lumpy figures which you’d struggle to substantiate.
• Quantities: Stop hiding your quants – you look like you’re hiding something (because you are), and most clients will ask you to provide them anyway. Also, by giving quants, the client will be able to tell you if anything looks drastically under or over-allowed.

Takeaway:

Structure your pricing, so it’s efficient for both you and your prospective client to digest. If they have to ask less questions about your quote, then they will consider you as the more diligent comprehensive contractor - this means you will be viewed as the less riskiest option and, therefore, will be able to proceed with your offer much more quickly.

Don’t forget that your quotation effectively sets out the agreed method of valuing your works, so avoid hiding lumpy upfront costs which may get questioned when you come to apply for them.