Built from your recording. The argument, the stories and the phrasing are yours. Mark anything that does not sound like you.
You win high-value building contracts through relationships first and the tender process second. But before any of that, work out whether you should be chasing one at all.
When a builder or a subbie tells me they want to win bigger jobs, my first question is “Why?. What do you think that is going to bring you?”
On the face of it bigger jobs sound great. Bigger jobs mean more revenue, which means more profit, right? And once you have won one you can settle in without the pressure of finding another. Big numbers are sexy too. “I won a $1 million job” is more fun to say than “I won a $10,000 job”.
But most trade businesses chasing bigger work would make more money getting more of the work they are already good at.
KEY TAKEAWAYS
- Bigger jobs are not automatically better jobs. There is a right size of job for your business
- Relationships beat tender submissions. One client’s win rate and margin both roughly tripled on jobs where a relationship existed
- Big businesses want to deal with businesses big enough. If they think you are too small you will spin your wheels quoting and never win
- Ask “can I fund it” before you ask “can I win it”. Big clients can take three months to pay
- A 10% discount on a 30% margin takes a third of your profit
There is a right size of job for your business
People assume bigger jobs bring bigger money and fewer of the frustrations they have with the work they are getting now. That is not necessarily true.
There is a sweet spot when it comes to the size of jobs you do, and it has four parts.
Can you actually do it?
If the job is much bigger than what you can comfortably handle with the resources you have, you will need to build capacity fast.
Can you carry it?
Bigger jobs need more working capital. They take longer to pay, so you are paying wages before your invoices get paid.
Will you make anything on it?
Bigger jobs are often more price sensitive, or you feel pressure to trim your margin to win. It is common for people to win bigger jobs and not make much on them. What is the point in that? If margin is already your problem, start with how coaching lifts builder profit before you go chasing scale.
Are these even your customers?
The customers change as the jobs change. Different people with different expectations of a tradie, or different businesses with different expectations of a supplier.
Big businesses want to do business with businesses big enough. I might happily engage a one-man-band handyman at my house. But if I am spending $500,000 on a renovation, I want an organisation with a bit more going on.
A bit bigger than you are used to is probably fine. Loads bigger rings alarm bells for people.
What “too big” actually costs you
It costs you either way, whether you win it or not.
Jacob runs an electrical contracting business working with commercial builders on fit-outs, usually winning jobs between $50,000 and $200,000. He got an in with a much larger building company through a mate in estimating and started quoting jobs three times his usual size. He did not win any of them.
Other people in that business had ruled him out for being too small, and his mate did not know that. So he spent months pitching for work they never considered him for. The cost was not money. It was the relationships he did not build and the jobs he could have won instead.
Corey runs a commercial refrigeration maintenance business, roughly $2 million, looking after supermarkets and food manufacturers. He got excited about a refrigeration construction project, quoted it and won it. It was around $1.5 million to $2 million and took his revenue from about $1.5 million to about $3 million.
It took most of his attention and most of his stress for about nine months. He can do the work, but his business was not set up to run a construction project profitably and had no systems for it, so they were winging it. It brought cash flow stress and months of heavy losses followed by big profits, which is also stressful to manage.
Revenue much higher than last year. Profit a bit less. Stress a lot more.
They will not do it again. They are focusing on maintenance, which is where they shine.
How big jobs actually get won in Australia
Formal tenders or who you know? The answer is both, usually both on the same job.
There are two things people mean by a formal tender. The first is that the bigger the project, the more formal the selection process, because there is more money at stake. North of $50,000 or $100,000 there is usually a process where the customer or builder invites several bidders, compares them and picks a winner.
The second is platforms like EstimateOne, where a business posts a tender and invites responses. Very little relationship happens there, it is a written response to written requirements. Government agencies often work this way, mostly to ensure procedural fairness and avoid accusations of giving work to their mates.
Both are valid. But relationships are king. Any buyer, government or business or builder or private person, favours people they know and like over a stranger who submits a tender response.
The more formal the process, the harder it is to show why you are good. Tenders are designed around meeting the scope and assume you will meet it. Plenty get submitted that do not meet the scope but say they do. I have seen jobs lost to cheaper businesses when my client has said “I could not do it for that price, that is less than my costs”. Either that bidder made a mistake or they bid low intending to claw it back in variations.
The numbers on this
Anthony is a friend and a one-time client who ran both at once. He had salespeople building relationships and he submitted tender responses on EstimateOne.
Where there was no relationship, he was running about a 10% margin and winning about 10% of what he bid on.
Where there was a relationship, even going through EstimateOne, he was running about a 30% margin and winning between 30% and 50%.
Roughly triple, on both.
Investing in relationships takes time, but it beats churning through tenders. A lot of tradies put all their energy into submissions and neglect the relationship work.
Just pick the right relationships. People and businesses who consider you valid. There is more on marketing and sales for tradies and builders if you want the wider picture.
Getting onto government and council panels
A number of my clients do work for government or council clients. I have a painting contractor doing work for a department of education, an electrical contractor who regularly does defence work, a builder who has built fences for schools and government facilities, and property maintenance for police stations.
Getting to the point where you can bid is painful. First you have to get onto the panel of contractors authorised to tender.
The names and conditions vary, but the requirements are things like:
- Police checks for your staff
- Security clearances
- Work health and safety and employment standards
- Union memberships
- Quality assurance programs
- Financial stability
They want to be sure you are legitimate and able to meet whatever regulations they are governed by. It is time-consuming, a big investment, and plenty of tradies decide it is not worth it.
That is exactly where the upside is. The barrier to entry means that once you are through it, your competition is much smaller. The low-ballers did not get in. Your margins are higher.
Once you are in, it is a good place to be.
Each state runs its own. Queensland has the PQC System, with tenders going out through QTenders. Victoria has the Construction Supplier Register. New South Wales runs prequalification schemes through buy.nsw, banded by contract value. Civil work runs through the Austroads National Prequalification System. Being on one makes you eligible to bid. It does not win you anything on its own.
Do not drop your price to win it
When a client tells me they are thinking about dropping their price to win a job, I usually cannot help myself and more or less shout “no, do not do that”.
Then, while they are wondering whether I am having some sort of episode, I explain myself.
It is really costly to you. If your margin on a job is 30% and you give a 10% discount, your margin drops to 20%. That is down by a third. Ten per cent sounds small but it is a big chunk of what you were keeping.
It probably will not make them buy anyway. If cost is what is holding them back, a discount is a valid move. If it is something else, it will not do a thing. Ask questions and understand what your customer is actually weighing up. Stop focusing on price and do some sales instead.
It damages your credibility. Dropping your price, especially before they have pressured you, says “I had plenty of fat in my first price and I still want the job at this much lower number”. A savvy buyer will push harder and you will find it hard to say no. You have taught them your price has room to move, so they will ask again next time, and on every variation.
I have written about price versus risk before. When two quotes for the same job come in miles apart, something usually gives, and it is a risk for the customer and the winning bidder.
If they are asking for a reduction, ask why. Some people are just askers and a no is enough.
And once the job in front of us is sorted, I want to know why it happened at all. What is going on in your sales process that you are reaching for a discount to close?
Can you fund it?
Once someone has won a big job, or thinks they are about to, my first question is whether they can pay for everything they are going to have to pay for before the client starts paying them.
Bigger companies take longer to pay. Trading terms like 30 days end of month, or 45, or even 60. So you might be waiting up to three months from the day you start the job to the day your first invoice gets paid, and that is if they pay on time.
If you are used to 14 or 30 day terms, that is a long wait. If you are on 30 day terms with your suppliers, you pay their bills before you get paid. You might pay wages for three months before you get paid.
Can you cover that? What is your plan? It usually means a cash flow forecast for the job, then working out how to cover the shortfall. How much is in reserve, can you borrow, will your suppliers extend their terms? Working that out is a big part of what construction business coaching actually involves.
Progress claims, variations and retention
The bigger the job and the more experienced the tradie, the fewer problems I see. Lawson and Toby have never raised an issue. Progress payments are written into the contract, variations are managed and all captured, and retentions are known and anticipated, even if they hate them.
Problems happen when things are not documented and agreed beforehand. I have seen a developer’s quantity surveyor disagree with where a builder says the job is up to and cut the claim down. I have seen the bank paying a customer’s mortgage decide to delay. And if a subcontractor’s claim does not line up with the head contractor’s claim to the client, the subbie waits.
Variations are where I see the most money lost. A $20 million commercial roofing contractor I know had this pattern. The builder’s project manager would say “I need you to do that”. They would say “it is not in scope”, then do it anyway without prior written approval. At the end of the job they would submit $100,000 of variation invoices. The PM would say “what are these? I did not approve these”. They would argue and settle for $50,000.
Just because a job is big, it does not mean you are dealing with trustworthy professionals who will keep their word. Follow the procedure and get everything in writing before you do the work. The same discipline applies on smaller jobs, which is what I mean by managing a fixed price quote.
It is the unwary who get caught.
I teach a basic project management structure for this, and I often push clients towards formal project management training. It is worth the investment. And whatever you plan for, payment always comes later than you thought it would.
Do not build your business on one big customer
Lawson and Toby are electrical contractors on large commercial construction projects. They worked closely with two large clients, a big builder and a big property owner. When those two had a lull, or picked someone else for a few jobs, Lawson and Toby were left with a big hole and a lot of people with nothing to do.
Partly bad luck, partly the nature of large projects. Miss out on two or three and you have a problem. But the mistake was relying on two majors for the bulk of the work, and doing what a lot of tradies do and assuming the relationships. They did a great job and knew the key people, but took things for granted and maybe got taken for granted in return.
What they have done since, and they deserve credit for it, is double down on the relationship work with both majors and with new ones. They will not win everything from either, but a bigger share is worth the effort and work from other builders makes them less dependent. It is a journey, and building relationships with large businesses takes time these two do not have much of.
Here is what it looks like if you do not do that work. I met a bloke recently with almost half his revenue coming from one customer of about 15 years. A new manager came in, ran a tender, and he did not win it. He loses half his revenue in a few weeks.
Before you quote anything
If you are feeling dazzled by a big opportunity, slow down and evaluate it first. The temptation is to launch straight into quoting, and that is a lot of time to waste if you do not win it, or if you win it and make a mess of it.
Ask three questions, and if you do not know the answers go and find them out:
- Are you a business they can work with on a project this size?
- Do you know the right people?
- Can you do the job, profitably?
That works for every job opportunity, not just the big ones.
FAQ
Are bigger building jobs more profitable?
Not automatically. Bigger jobs are often more price sensitive and you will feel pressure to trim your margin to win them. It is common for people to win bigger jobs and not make much on them. They also need more working capital, because they take longer to pay. Work out the profit before you get excited about the revenue.
How much bigger is too big?
A bit bigger than you are used to is usually fine. Loads bigger rings alarm bells, both for you and for the client. If a job is much bigger than you can comfortably handle with the resources you have, you will be building capacity while you deliver, and that is where it goes wrong.
Do relationships matter if there is a formal tender process?
Yes, more than most people think. One client of mine ran both approaches side by side. With no relationship he was making about 10% margin and winning about 10% of his bids. With a relationship, going through the same formal channel, it was about 30% margin and a 30% to 50% win rate.
Is it worth getting on a government or council panel?
It is a big investment of time and a lot of tradies decide it is too hard. But that barrier to entry is the whole point. The low-balling cheap competitors do not get through it, so once you are in, your competition is smaller and your margins are better.
Should I discount to win a bigger contract?
No. A 10% discount on a 30% margin takes a third of your profit. It usually will not change their decision anyway, because price often is not what is holding them back. And it teaches the buyer that your pricing has room in it, so they will push again on the next job and on every variation.
How long will a big client take to pay me?
Longer than you expect. Bigger companies often run 30 days end of month, 45 or 60 day terms, so you could be three months from starting the job to your first invoice being paid, assuming they pay on time. Work out how you will cover wages and supplier bills in the meantime.
Next step
If you are looking at a big opportunity and you are not sure whether it is right for your business, book a Money Call. It is ten minutes on the phone and I will tell you straight what I think. You can also read more about our coaching and mentoring services.