With the economy improving and employment at record highs, I have been wondering if drillers have looked at their pricing structure lately. With costs of materials, labor and fuel going up, it seems that a good look at what we charge might be a smart idea. Consider things like the possible import tariff on steel. If you run steel casing, the price is probably going to go up. Pump prices also rise with time. (Seems like every 15 minutes …) With a flush labor market, it is hard to hire qualified help and you are going to have to pay more to hire — and retain — good hands. Is this reflected in your bid?
A driller in Colorado needed a helper, so he put an ad in the paper. He listed what he would pay. He had 10 applicants. Nine of them failed the routine drug screen. They all said, “Pot is legal in Colorado.” He said, “Not in this company.” The 10th one passed, but was so dumb that it looked like drugs had already taken their toll. He re-ran his ad, offering more money. He got some good candidates and hired a hand the next day. This cost goes straight to the bottom line.
I know some drillers that are afraid to raise their prices because they might lose a job. This doesn’t make much sense. They will probably lose money on that job anyway. A better idea is to pass on the money-losing jobs, and concentrate on the jobs where profit is part of the deal. The guy down the road that does everything cheaper probably won’t be around long, anyway.
Many drillers have a problem seeing the difference between wages and profit. The driller might make a check at the end of the week and feel pretty good, but when his pump needs a rebuild and there’s no money in the bank, he’s going to wonder what happened. And heaven forbid that he needs a new rig! Where does that come from? These costs come from gross profits. Net profits come from what’s left over at the end of the year, if there are any.
To properly price a job, you should use a bidding spreadsheet. There are several good, free ones on the internet. Some of them are pretty generic, but some are tailored for the water well industry. They list everything that affects your bottom line. This allows you to see what a job really costs. For instance, a job 100 miles from the shop will obviously cost more than a job down the block. Many “flat price” drillers don’t take this into account, and wonder why they lost money on that job when they made money on the one down the block.
A bid sheet will ask you to consider mob-demob time, fuel, any extra labor or deliveries, and many other things that you had forgotten to consider. This can add up quickly. It often causes drillers to turn down otherwise profitable jobs because they didn’t know how to price them. Another line in a bid sheet is margin. This is the add-on to the wholesale price to make the proper bid amount. You may be able to get a special deal on a pump, but if you didn’t consider a margin, you haven’t made any money. Same goes for service calls. Labor plus fuel plus parts plus margin plus truck overhead, etc. It’s how we make a living.
Another important item is casing. Steel prices have wild swings in the best of times, and when I was bidding, I always called my supplier and locked in a price before I made a bid. Now that there is a good chance of a significant tariff on steel, who knows? What you may find out is that you have always used imported steel because domestic steel was too expensive. With the impending tariffs, those prices will probably be almost the same. Perfect time to switch to domestic steel and use it as a selling point to your customers.
The bottom line is, know your costs, decide on a margin and stick to it. This will help assure a profit on every job. For instance, if a customer asks you for a discount because you drilled him a well 10 years ago for less, or JunkRig Drilling will do it for less, pull out your bid sheet and see where you should cut to make his price. I guess you could “forget” to pay your help. That’ll save money, but won’t last long. Or you could forget to pay your supplier, or skip an insurance payment. You get the idea. With margins as slim as they are today, there is not much to cut.
Price properly, for a reasonable profit, and stick to it. Your jobs will be profitable, and the money-losing jobs will go down the road. I’ll tell you something about wells. I have never heard a customer say, “That’s such a good price. I’ll take two wells.” I have also yet to hear a customer say, “That’s just too high. I’ll go without water.” The same number of wells are going to be drilled. Might as well make a decent living drilling them.
For more Wayne Nash columns, visit www.nationaldriller.com/wayne.