Bid-Hit Ratio: Every Construction Company’s Drive To Success
Written by Bridget Cooper
Although winning every construction project is impossible, construction companies often strive to win as many as possible. Winning contracts help increase cash flow and revenue for the company and improve its reputation. A client is likelier to trust a contractor with a proven track record than those without.
That’s where the bid-hit ratio comes in. General contractors use it to improve their bidding strategy and maximize project wins. This guide explains the bid-hit ratio in the construction industry and the best strategies to improve your ratio if it’s not ideal. We will also explain how you can calculate the ratio and why it's important to any construction company.
Note: if you want to improve your bid-hit ratio, try Downtobid. Our software uses AI to dissect project plans, and send personalized bid invites to contractors. Customers have experienced remarkable efficiency gains in bid management, with reports of halving bid preparation times. These improvements lead to faster project completions and notable cost reductions, delivering direct advantages to project managers and contractors. Click here to start today.
What is a Bid-Hit Ratio?
A bid-hit ratio is a measure of successful bids out of a total of proposals submitted. It’s expressed in ratios.
For instance, if you have a 5:1 bid-hit ratio, it means you win one bid for every five submitted.
The first digit of the ratio is the number of bids submitted, and the last number represents the bids won.
A construction company can know their bid-hit ratios by using this formula:
Bid-hit ratio = number of successful bids/ total number of bids.
Let’s use an example to explain this formula.
Suppose a company submits 50 bids and wins 15 contracts. Here’s how you’d calculate the bid-hit ratio:
Bid-hit ratio = 15/50
=0.3
=30%
This means that the company has a bid-hit ratio of 10:3. It means they win three (3) projects out of the ten (10) submitted.
Now that we know a bid-hit ratio, let’s see why it matters to a construction firm.
Why is a Bid-Hit Ratio Important?
A low bid-hit ratio is preferred over a higher one for several reasons. First, it proves the company is building a strong reputation and trust with clients. Second, it means the contractor understands the project scope better and provides an incredible methodology to handle the project.
It’s not a secret that many general contractors don’t track their bid-hit ratios. Failure to track your bid-hit ratio is equivalent to driving blindfolded. We will look at how you can track the bid-hit ratio later on, but first, let’s see why the ratio is important to a business.
Improving Bidding Strategy
Every contractor has a bidding strategy they prefer to use whenever they see an ideal project. However, there is no one-size-fits-all approach to winning every project as each bidding process is unique. A bid-hit ratio gives you an insight into your bidding approach, allowing you to fine-tune certain details.
Higher bid-hit ratios mean your proposals are overlooked, and the project owners prefer working with other contractors. Instead of being demoralized by this, it’s an opportunity to change your approach.
Try changing a few things, like construction methodology, in your next proposal. We will cover how you can improve your bid-hit ratio later on.
Market Competitiveness
The construction industry is competitive, with experienced contractors bidding on similar projects. A lower hit ratio helps a construction company stay competitive in the market for these projects.
Tracking and fine-tuning a bid ratio helps a construction company identify any problems in its bidding strategies and take the necessary measures to improve it.
The essence of any construction proposal is to convince the client you’re the right fit for the project. To achieve this, you must stand out from everyone else by demonstrating you understand the project better in your bid.
The Type of Projects to Bid On
A bid-hit ratio is a great indicator of which project your firm is likely to win. Bidding on a project takes time, energy, and time, which are resources that should be utilized wisely. Bidding on projects you’re qualified for ensures you channel all these resources and improve your chances of winning more projects.
For instance, if your construction firm wins more residential projects, you have more chances of success if you focus on that.
Now, let’s get to the fun part - how to track your bid-hit ratio.
First, you must collect all relevant data, like total bids submitted, bids won, project size, location, and time. You should also include the number of competitors for each construction bidding process and the estimated profit margin for every project.
Log this information in your preferred tracking application, either a spreadsheet or a project management tool.
Use the basic bid ratio formula to calculate your current ratio. Keep repeating this in every project you bid for, and make the necessary adjustments to improve every bid that comes after. Doing so will help you come up with a good bid-hit ratio, ensuring your business stays afloat in today's competitive market.
How to Improve the Bid-Hit Ratio
Lowering a hit ratio is every contractor’s goal, and luckily, there are some strategies to achieve this. They include:
Bid on the Right Projects
It’s tempting to bid on profitable projects as winning them guarantees steady cash flow. However, such contracts always attract higher competition, which reduces your chances of winning.
Instead, focus on projects you’re uniquely qualified for, as you have higher chances of winning them.
For instance, if your construction business is good at handling residential construction projects, you may have difficulty bidding for commercial projects since your portfolio shows a different mastery field. However, you can successfully bid on a residential project as you can demonstrate your success record in this field.
Optimize your Bid
The essence of any construction proposal is to reflect and meet the needs and requirements of the project.
Using a bidding template helps save time and costs included in the project bidding process. However, it makes your bid appear and read generic. With many contractors using this strategy, the client will have a high volume of generic and boring bids.
Instead, try to optimize your bid to stand out. Invest a few extra hours daily crafting the bid to reflect the projects. Read through the bid documents and include all the clients’ requested information. Use a simple language and speak directly to the client.
You’d be surprised how much extra effort can improve your chances of winning projects.
Bid Smarter
With the construction industry’s competitive nature, it makes sense why many contractors would bid cheaply for the project. Most of the time, the client chooses the lowest bid.
Although the strategy usually works, it’s best to adopt a different approach. Bid smarter and not cheaper.
Start by investing in accurate estimation. Accurate costs build trust and a reputation with clients. It also increases the win ratio and profitability. Rely on historical data from past projects similar to the one you’re bidding on. Also, invest in cost-estimating software for more accurate and updated data.
Since clients want projects delivered at an affordable rate without compromising quality, suggest alternative and cheaper materials to accomplish this. Doing so demonstrates your problem-solving capabilities.
And finally, showcase your qualifications. Do you have experience working on similar projects? Do you have qualified staff and workers who can handle the project? Are you certified? Do you have enough funds to run the project? Addressing these questions convinces the client you’re the right fit for the project.
Final Thoughts
The bid-hit ratio is an important metric to measure how many projects the contractor wins. It helps to shed light on their bidding strategy and presentation. Lower bid-hit ratios mean the contractor wins more contracts per every submission. A higher hit ratio means they’re winning fewer contracts per every construction bids submission.