CONSTRUCTION Accounting ARTICLE - bid-hit ratios are The Secret to your successTarget Audience: Construction Industry Professionals, Business Owners, Contractors, Construction Accountants, Construction Office Managers As a contractor, you may equate success with the number of bids you win or perhaps simply with the number of jobs on which you’re bidding at any given time. But a more accurate and useful gauge lies in your bid-hit ratio — the rate at which you successfully bid on projects. In fact, your construction company’s bid-hit ratio may be the key to discovering the secrets to your success. It also can help you identify project types where you consistently fall short. Strengths and weaknessesLet’s say, over the past month, you’ve bid on four projects and won one. Well then, your bid-hit ratio for the month would be 4:1. By tracking and analyzing this ratio monthly, quarterly and yearly — and breaking it down into job types and sizes — you can gain insight into the types of projects you should pursue and those that may not be worth the effort or cost of estimating. For example, if you have a bid-hit ratio of 9:1 on private construction projects and 3:1 on public jobs, you may want to consider channeling your time and effort into pursuing public projects, where you’ve been three times as successful. These ratios may also be a cue, however, to examine why your new-construction bids have fallen short. Such analysis can help you determine whether you can make improvements to increase your success in the private sector or if it truly makes more sense to simply focus on public jobs. The lower, the betterWhat is a good bid-hit ratio? Ratios can vary depending on project type, but a lower ratio is always more desirable — as close to 1:1 as possible. It’s important to remember that the higher your bid-hit ratio, the more you’re spending on estimating without a return on investment. After calculating your bid-hit ratios, work with your management team and professional advisors to target ideal ratios for your construction company. Also keep in mind, however, that your ratios won’t give you insight into how much you’re actually making on the projects you win. You should also track the profitability from each job, because even a 1:1 bid ratio doesn’t guarantee that you’re actually making money. Informative trendsBid-hit ratios are most useful when tracked over time, because you’ll begin to see informative trends emerge. Ultimately (and ideally), being familiar with these valuable indicators can help you tailor your bids to the projects that suit your construction company best while forgoing those you aren’t likely to win. Find out how our expertise in construction accounting can add value to your business. Email us or call us at 1 (888) 875-9770.
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