Providing Quotes for Product and Service Companies

Providing Quotes for Product and Service Companies
Monday, October 15th, 2012 Scott Bossart

                One thing I often see with businesses which provide custom products or services is their un-refined process for quoting.  The quoting process should be a documented, well defined function from which all profits are accounted for.  If the inadequacies of the quote are not realized until sometime after the job has been approved, the result becomes pure loss of profit.  The point to which it is a loss is solely up to the level of error to which the quote was originally written.  Also, often times, I see the quoting process only handled by the top organizational leaders, and mostly only by owners.  While this logic can be justified by assuming the depth of knowledge for the organization is best known at the highest level, for a larger business or high volume organization, this logic induces inefficiencies and high lag times between getting quotes out to customers as well as needed investigations for formulating the quote in the first place.

The basic quote is simply a listing of products or services offered by an organization to a customer.  Customers can be defined in many ways but in the simplest terms, the customer should be the person purchasing the product or service.  The collection of information and level of detail required to actually formulate a valid quote can be highly in-depth and dynamic as compared to others where a basic one line item can be all inclusive.  The more dynamic and the higher level of details required for determining a price can drive up the amount of time it takes to actually formulate a valid quote.  In all cases it becomes important to fully understand the profit margin related to each segment of the quote in order to ensure the full quote is profitable when the work is completed.  On top of every things else, the time element or labor hours involved in producing the final product or delivering the service, to be sold, can become more erratic or higher risk for profit loss than anything else in the quote.  In these cases, the person quoting needs to fully understand the full extent to which the staff or crew can actually produce the final product.

                So what is the best way to formulate a quote consistently and accurately?  The key is to what level you break the final product or service into.  It is the individual segments required to make a final product or service coupled with the right resource allocation.  If there are multiple machines or equipment required to be utilized and one is faster than the other, then poor or restricted scheduling can become a loss of profit if the wrong one was assumed in the original quote.  On the human side, if two different resources selected to work on the job work at different speeds or abilities, and the pay is essentially equal, producing a quote with the expectation of the faster resource being the primary worker can become a profit loss if the slower resource is used.  In those cases, the schedule needs to be fully understood as it relates to the expected deadline.  You may be saying this is why the owner or top leader is formulating the quotes because they are expected to have a full understanding of the organizations’ status.  If this is you, than I would ask to consider the time involved for quoting as it relates to taking a key organizational leader away from actually being a leader.  The time it takes to quote can eat up a majority of the hours or days required to actually running the business.  Just the process of breaking the final product down into individual segments for the purpose of quoting may uncover one detail facilitating an increase in profits.

                Quoting is a skilled function which should be performed by someone within the organization that knows all the components required to produce a product or service.  The level of customization determines the complexity to which the quote must be formulated around.  The process you select to formulate a quote is the one piece that can save time, control losses, and increase profits.  If you are using a simple calculator, pencil, and paper to formulate quotes, I will say you are wasting valuable time, inefficient, and more than likely, losing profits.  This method does not facilitate consistency and efficiency as the time it takes for this type of process typically is not captured in the quote itself as well as, based on trust issues, requires a high level leader to actually develop.  The more segmented and electronic you can become in your quotes, the more precise future quotes become and the more people which can be trusted to produce a consistent and valid quote.  Tracking results between the quote and actuals in the same system can also undercover trends for potential profit increases or uncover routine losses.  The more segmented and electronic the quoting process is, the easier and higher level of trust it becomes for others to quote, thus leaving valuable time for the leaders to actually perform the organizational leadership role.  Given the level of competition in your market, and fully understanding the individual segments for each product or service, being able to track the final cost to produce against the original quote at a segment level, can lead to defined areas for price adjustments.  These adjustments can make the difference between getting or losing the job.  In the end, the level of detail in the data coupled with the level of feedback between the initial and final products will determine potential profitability of the organization.  Furthermore, the more detailed and electronic the quoting process is, the more resources available to actually produce a quote with the level or confidence it will produce consistent profit margins.  It works well, if segmented properly.

Stay Well

Scott B.


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