Just because your competition’s pricing may make it seem like they are a bunch of monkeys throwing darts at a wall, this does not mean you cannot improve your bidding methods. It is very simple and can be proven using a spreadsheet and past orders’ actual labor times versus their true GMs. The key to garnering better profits is to win the bids that have higher GMs per man-hour instead of a cost markup.

Each order that you manufacture is essentially renting your company’s production time with GM dollars. Some orders provide greater GMs per man-hour than others. However, most are clueless about this concept because they do not track each order’s actual labor time, let alone on a GM per man-hour basis. Too many are satisfied with monthly averages without ever knowing that some orders are consuming far too many man-hours for the amount of GM dollars earned. These high labor orders with low material cost drastically reduce the total GM for any time period when the cost markup method is used. It is far better to use this simple GM formula:

Yes, I understand that cost markup has been used for decades, but it is a seriously flawed method. Every time people test the GM per man-hours against a cost markup to establish a baseline for the sales price, GM per man-hours wins hands down every time, no exceptions. All who have embraced it swear that it has garnered tens of thousands of dollars in additional net profits.

Now that you understand why accurate time standards are so important, you should find that the purchase price for TDC’s time standards is far cheaper than the flawed methods of trying to derive your own based on historical data or trial and error. TDC’s time standards can easily be proven in the manufacturing area and then quickly applied in the bidding process after confirmation. (Web page - Time Standards)

To summarize, one needs to accurately estimate the labor time for each order and then use it as a baseline to establish the minimum gross margin. Once you pay attention to expected GM per man-hour, it is very easy to understand why it makes perfect sense to lower the GM when your company is only experiencing spare capacity. Your company will begin to earn tens of thousands of dollars in additional net profits using this proven bidding method. For more about this proven bidding method, contact me for a spreadsheet that proves this concept.