The Order You Won Because You Costed It Wrong

The order came through on a Friday and the workshop was pleased. It was a good size, a customer you had been chasing for two years, and the quote had gone out fast.

Four months later, when the job finally closed, the margin was a third of what the quote assumed. Nobody could say exactly where it went. The general feeling was that this particular customer had been difficult.

They were not especially difficult. The quote was wrong before it was sent.

Optimistic costing is a losing machine

There is a specific danger in a business that quotes badly: it wins the wrong work. Underpriced quotes convert better. So the more you quote, the more of the underpriced ones you win, and the busier and less profitable you become.

A workshop running at full capacity on thin jobs is in a worse position than one running at seventy percent on properly priced ones, because it has no room to take the good work when it appears.

If your win rate went up and your margin went down, you did not get better at selling. You got cheaper without deciding to.

What quotes routinely leave out

When manufacturers reconstruct a job afterwards, the same omissions recur:

• Setup and changeover time, counted as zero because it is not cutting metal.
• Rework and scrap, which everyone knows happens and nobody builds in.
• Engineering and drawing time before the job starts.
• Material price movement between quoting and buying, on a quote held open for weeks.
• Machine time versus labour time, treated as one blended rate when they cost very differently.
• Freight, packing and inspection, absorbed as overhead rather than charged.
• Payment terms, where ninety-day settlement is real financing you are providing for free.

Each is small. Together they routinely account for the entire margin.

Cost the last ten jobs backwards

Before rebuilding anything, get evidence. Take ten completed jobs across your range and reconstruct what they actually consumed:

1. 1.Actual hours on the machine, from the operator, not the plan.
2. 2.Actual material issued, including what was scrapped.
3. 3.Setup and changeover time, honestly.
4. 4.Any rework, and who absorbed it.
5. 5.Days from delivery to payment.

Then compare each to the quote. Two things come out of this and both are useful: the average gap between quoted and actual, and the pattern of which job types are worst.

Almost every manufacturer that does this discovers a category of work that has been loss-making for years, disguised by being busy.

Build a rate that includes reality

A defensible rate is not a guess plus a margin. It is your annual cost base divided by the hours you can actually sell, which is far fewer than the hours you are open.

Work out available productive hours after holidays, maintenance, breakdowns and setup, then divide the full cost of running the place by that number. The rate this produces is usually higher than the one being used, and it is the one the business genuinely needs.

Separate machine rate from labour rate while you are at it. A job that is heavy on machine time and light on labour has a completely different cost shape to one that is the reverse, and a blended rate mis-prices both.

Then decide what you will not quote for

This is the part that requires nerve. Once you know which categories lose money, you have three options for each: reprice it, redesign how it is produced, or stop quoting for it.

Declining work feels like going backwards. It is not. Capacity released from loss-making jobs is capacity available for profitable ones, and quoting for everything is why the workshop is full and the account is not.

The follow-through that keeps it honest

Costing accuracy decays unless it is checked. Pick a small sample of completed jobs each month, compare quoted to actual, and put the variance in front of whoever prices the work.

That single feedback loop does more for margin than any pricing exercise, because it turns quoting from an estimate into something the business learns from. It is also the fastest route to knowing your real unit economics.

This work sits at the intersection of finance and pricing strategy and operations improvement, and it is one of the most common engagements we run with manufacturing and industrial businesses. If margins are thinner than they should be and nobody can say why, that is worth a conversation.