Cash Management Secrets

Proven cash management strategies that improve cash flow, collect past due money, and increases profits in tight credit markets.

Build In Burden when Bidding Contracts

Not every contract is a profitable one, especially when you aren't considering the true costs of production. Not knowing a companies burden rate gets more business-to-business firms in trouble than anything else. Why is "burden rate" so important?

In "How to Increase Margins Quickly Without Losing Sales", I discuss how properly costing your proposals puts you in a better position to generate revenue off every contract. It starts with accurate bookkeeping, clear cost calculations, and knowing your numbers.

I found several multipliers that worked for my small consulting firm after a mentor pointed out I was actually losing money on every contract. In your contracts, build in marketing costs, general overhead, and service elements necessary to fulfill the project. Are you accounting for actual costs?

One of my clients had heavy construction contracts, did a large volume of business but couldn't figure out why he still struggling with payroll. He was so determined to stay competitive, he didn't count purchasing overhead for materials, that could take days of effort.

Your burden rate has a lot to do with your ability to market because if not properly determined and built into each contract, you may have less money to find the next customer. Worse, you may be doing a lot of work with nothing to show for it.

Sit down with your accounting staff or bookkeeper, determine what percentage or multiplier is required for each type of work you do. Use this number in your next pricing to see what your real rate needs to be to make margin.

In the business-to-business world you can't make it up in volume. Build in your burden rate for every bid and you'll find it easier to grow your business than ever before.

© 2008 JWH Consolidated Inc, All rights reserved.

Justin Hitt helps business-to-business executive make and keep more profit from every service opportunity. For ideas that grow your bottom-line, visit http://JustinHitt.com/

Posted by Justin Hitt on August 31, 2008 2:35 PM | Permalink

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