Tips on Quoting for Business in Pursuit of Gross Margin
What is gross margin? Gross margin is the difference between the price you sell something for and what it cost you to buy or make it. The cost of making something usually includes the cost of materials and other direct costs like wages.
Here are some tips on how to improve your quoting process:
- What is your quote success rate, that is, how many quotes are accepted by a customer? Having a high percentage is not necessarily a good thing, it may mean your prices are too low so check out the following points to make sure your quoting process is robust.
- Get familiar with your costs – have you worked with your accountant to calculate your cost of making something? You need to be constantly reviewing your overhead and wage costs.
- Do your quotes include the most up to date costs from your suppliers?
- Have you double checked your calculations in terms of meterage / area / quantities?
- Have you made it clear that your prices are ‘plus GST’ or if they are inclusive of GST, have you taken that into account when calculating your gross margin? The GST portion is paid to the IRD so shouldn’t be factored into your gross margin calculations.
- Does the quote explain exactly what work you will be doing? A detailed quote ensures both parties are clear at the start as to what will be provided for the price quoted.
- Are you sticking to the task that you have quoted for? It is quite common to get requests from your customers for variations to the initial job, but you must ensure that you charge for the extra time and materials.
- Have you included an expiry date on the quote? An expiration date creates some time pressure for the customer to accept or reject the quote. It also ensures that you are not having to honour a quote six months down the track when costs may have increased. Do you have a reminder system in place to follow up quotes as they get close to the expiry date?
- Are you back costing after completing the job? Back costing means keeping records of the actual materials used and actual time taken (even though the job is quoted). You then use this information to compare to the original quoted amount. Although you can’t change the price you quoted on, at least this will help you see where any gains or losses have been made so you can fine tune the process for future work.
Achieving an appropriate and stable gross margin can be hard to achieve consistently. If you think your business could do with some insight into its Gross Margin, then please contact us.