How Much Are Those Free Estimates Costing You?

Everyone says that time is money, yet many mold builders throw it away at an alarming rate by quoting for free. Check out what Jeff Lambing, a cost estimator and automotive lighting (reflex) specialist, has to say about this industry challenge.

"We’ve all seen it advertised on the side of trucks, in newspaper and magazine ads and on business cards: 'Free Estimates!'  It seems every service provider, electrician, plumber and home handyman makes the same offer these days. Weren’t they always free?  If not, when did this change?

"Having been in the mold and tool industry all my life and heavily involved in estimating, this concept got me thinking recently when I called a local big box home improvement store to give me the cost for a new garage door.  I was told that there would be a $50.00 charge to come out, measure and provide an estimate.  That took me by surprise, as I had built my house and know how to take measurements for a door. But they insisted that it was a standard charge. I thought about how many times they get asked for a price and how often that homeowner is going to check every other big box store for their price. Fifty dollars really doesn’t cover the cost to have an experienced person come all the way out, advise on the options available, show some samples, measure properly and provide an estimate. Then I realized this actually relates to mold builders.

"If they were anything like a moldmaker or other custom manufacturer that might only win 3 to 5 percent of the quotes they submit. For example, for a possible $1,500 garage door installation job they will lose a big portion of any profit potential, even if they get 25 percent of the doors they quote.

"I talk to many small business owners in many industries who spend a large portion of their day providing free quotes, yet hardly anyone seems to give any thought to what this actually costs their company.  Sure, it can be said that if you don’t quote, you don’t work, but we are all getting very used to ‘shopping’ quotes around and then going with the lowest offer. 

"So why are mold builders so keen on using a highly skilled workforce, quoting very complicated tooling, using the latest technology coupled with long payment terms and extensive warranty coverage for a very small chance at winning work that may require a couple thousand hours of labor?   And we do this all for free! 

"It is common knowledge that OEMs and Tier level suppliers will ask upwards of 10 companies to quote a program, throw out the very lowest and highest number, have it re-quoted, and then do it all over again.  It’s not uncommon to quote the same part or program with differing levels of data three or four times.

"If companies were to start looking at their costs to provide these ‘free’ quotes, they’d be surprised at just how much this is costing them. While some companies may be very efficient in their quoting processes and have costs only in the $40-$80 range to produce a quote, others are well into several hundred dollars for every quote they produce.  Turn that into the cost per awarded job and that number can now be $1,500 or much, much higher. 

"So for the shop that is building a $50,000 mold and has spent $2,000 to get it (not including the cost of your salesperson),  4 percent is already taken off the top.  Compound that with the fact that most jobs are awarded because they were the lowest bidder and you’ll be lucky if you’re getting a 10-percent profit on the mold before you take the 4 percent cost of the quote off.

"So what can we do about this?  It would be wonderful if we could act like that big box store did with me: pay upfront, get a quote.  Imagine trying that with your customers!  I bet it wouldn’t go over very well.  However,  why is it that we are taking the brunt of the cost burden by providing a free service to large companies that are quite often using their suppliers as a means to develop their target costs and then using us against each other to get an even lower price?

"When did it become OK that we provide this free service to our customers?  What if we started doing like many lawyers do and call it a consultation fee!  After all, you’re not just providing a quote, you’re providing a service where you’ve dissected and analyzed the data, performed feasibility and developed strategies on how the project should proceed.  Sounds like something any other business would get paid for, doesn’t it? Don’t you think your time is valuable too?  Time is money everyone says, yet we throw it away at an alarming rate by quoting for free. 

"While it’s probably not realistic to think that we’ll ever be in a position to charge our customers for the pleasure of quoting to them, you can at the very least improve your quoting methods, learn to be more efficient without losing accuracy and you could possibly work towards an additional profit of $500 or more per awarded job by improving your method of quoting.  There are software calculators available that will not only show you what your average shop cost per quote is, but also average cost per winning quote, cost to quote all jobs not awarded and cost savings by simply improving your quoting method."

So, do you believe there is a possibility that you could 'charge' for estimates, and if so, how do you think that would affect your business?