Episode Transcript
[00:00:09] Speaker A: Let's talk about something that doesn't get said out loud. Sometimes winning a job can be a loss.
So today's episode is sponsored by Performance Margin Software. I'm here with Tommy P.
And we are going to talk about competitive pressures rising and customers kind of shopping everything. We are firmly decades into the information age so they can gather a lot of information very quickly. And now with AI being able to assimilate a lot of information quickly for people, there is a really strong temptation to drop your margin in order to win a job.
But winning a job can be a loss, right? It can be a loss. So what is the real cost of winning the wrong job?
[00:01:01] Speaker B: Oh gosh.
The cost is almost insurmountable. It's because if you don't know again, it goes back to the foundation. If you don't know what your costs are and then you start cutting costs, that's just.
You wouldn't like double taxation, so why would you like double profit loss?
[00:01:25] Speaker A: Well, there's a financial reality about it. Right.
Your overhead suffers sometimes, your owner pay will shrink. That's never a good thing. Right.
It cannibalizes your cash buffer that you might have for your business.
It can even affect your team morale.
[00:01:46] Speaker B: Right?
[00:01:47] Speaker A: Right. When you take on these jobs that are losses and the most dangerous part is that your revenue still looks strong.
[00:01:55] Speaker B: It's deceiving, very deceiving.
[00:01:57] Speaker A: The job looks really good until you run the math.
[00:01:59] Speaker B: Right.
[00:02:00] Speaker A: Until you actually do the math. So case study, example. We had a client who landed a major contract at an 8% gross margin. They absolutely celebrated and three months later they were borrowing just to make payroll.
Why?
Because their break even point, because their break Even point was 17% and they bid this job at 8%.
[00:02:30] Speaker B: When you win the bid doesn't mean the work is over. The work is just beginning and you need to track these nickels pennies. Watch your cents and your dollars will fall into place.
[00:02:46] Speaker A: Guessing says that we're going to make it up on volume. Whereas knowing says, like you always say, volume will amplify your margin problems.
If you have a margin problem at $1, you're going to have a million dollar margin problem at a million dollars of revenue.
Guessing says we need the cash. Knowing says this job is going to delay the inevitable. It's going to be a drain, a margin leak, bad for my business. So are there any non negotiable margin
[00:03:20] Speaker B: rules that you enforce until your overhead is covered? You need to follow your margin target.
After you've covered all your overhead for the year, then you can be discerning on what jobs you want to take. But I think it's a discipline that I need my overhead cover by my margins and then I can play with the rest and I can keep what I keep.
[00:03:50] Speaker A: So you have a minimum threshold.
[00:03:52] Speaker B: Minimum threshold, that's your overhead.
[00:03:54] Speaker A: What about bid tiering?
[00:03:56] Speaker B: Bid tiering still follows that overhead because all of those tiers fall into one number.
That is your gross profit. That covers your overhead.
[00:04:07] Speaker A: And I would just add no exceptions to those rules.
[00:04:11] Speaker B: Without data, it's discipline. 100%.
[00:04:14] Speaker A: And it's just math.
[00:04:15] Speaker B: Just math.
[00:04:16] Speaker A: It's just math. If you can't articulate your margin floor, you don't have one.
[00:04:20] Speaker B: Exactly. What did Albert Einstein say?
[00:04:23] Speaker A: If you can't explain it simply, you don't understand it well enough.
[00:04:27] Speaker B: It applies to margins as well.
[00:04:29] Speaker A: That's right.
[00:04:30] Speaker B: Margins aren't difficult once you know the equation and how to produce them. They get easy and you get comfortable.
Not lax, but comfortable.
[00:04:40] Speaker A: Right. Winning is not about signing a bunch of contracts. Winning is not about driving a tremendous amount of revenue.
It's about protecting your margin.
So there are people with smaller amounts of margin making just as much money as these huge high volume outfits that have smaller margin and they're doing it with a lot less stress, a lot less overhead and so on. Protect your margin at all costs.
[00:05:08] Speaker B: Their equipment lasts longer, their people last longer, it all falls into place and it's again, we call it weightless.
And when that happens, you're in your groove and it's a lot of fun.
It's not fun when you're under stress. You're under, am I going to make money?
Because that filters into your office, it filters into the field and it's not a good place to live.
[00:05:35] Speaker A: This is what knowing feels like.
[00:05:37] Speaker B: Knowing is a wonderful place.
So instead of angsting or stop guessing, start knowing.
Come to totalprofitmanagement.com book a free consultation.
There's this friendly guy on the other end. He looks a lot like me. And we will help you walk through this and we want you to succeed. We really want to be part of your team.
Just. And at the end of the day, take her cool.
[00:06:06] Speaker A: It's all going to be fine.
[00:06:08] Speaker B: It.
