Before Your SME Accepts a Big Order, Check What It Will Cost

Winning a new customer is good news for a small business. But if the cost of delivering the work is higher than expected, a busy month can still leave the business short of money. For an SME, a large order can bring new opportunities. It can keep staff working, increase sales and open the door to repeat business. But accepting the work without checking the costs can create problems that only become clear after delivery.

A supplier might agree to a price before checking the latest stock costs. A catering business might underestimate the ingredients, staff hours and transport needed for an event. A contractor might win a job but discover that the client expects additional work that was never included in the quote. In each case, the business has won the customer. The question is whether it has priced the job properly.

A sale is not the same as a profit

Many small business owners focus on the value of the orders they win. Sales matter, but they do not tell the whole story. Every order has costs attached to it. These may include stock, materials, labour, packaging, transport and the time spent preparing and delivering the work. The business also has ongoing expenses such as rent, insurance, administration and equipment.

After deducting the direct costs of fulfilling an order, the amount left is called the contribution. That money helps cover the business's overheads. Profit is what remains after the relevant business expenses have also been accounted for. This distinction matters when deciding which jobs to accept. An order can generate strong sales but leave too little money to cover the cost of running the business.

Know your costs before quoting

SMEs do not always have the resources for a dedicated finance team. That makes a basic costing process even more important. Before sending a quote, check the price of materials and stock, the labour required, delivery arrangements and any additional work the customer may expect. Do not rely on what a similar job cost several months ago. Supplier prices, fuel costs and staffing requirements can change.

Also, be clear about what the quoted price covers. If a customer changes the specifications, requests an extra delivery or wants the job completed sooner, those changes may increase the cost. Agree on how additional work will be charged before it begins. Discounts need the same attention. Reducing a price to win a customer might make sense, particularly when repeat business is likely. But the owner should understand how the discount affects the amount left after costs.

Watch the payment terms

Even when an order is priced correctly, payment arrangements can put pressure on a small business. Some customers pay only after delivery or after an invoice has been processed. Meanwhile, the business may need to pay suppliers, buy stock and cover wages before receiving a cent.

Before accepting a large order, check when payment is due and whether the business has enough cash to complete the work. Where possible, negotiate a deposit, staged payments or terms that better match the costs of delivering the job. A sale that looks good on paper can become difficult to manage when the business has to fund the entire order out of its own pocket.

Review your biggest opportunities

SME owners can start with a simple exercise. Set aside an hour to review the three biggest orders or sales opportunities currently on the table. For each one, ask:

• Do we know the full cost of delivering the work?

• Is the price enough to cover those costs and contribute towards overheads?

• Could extra labour, transport or customer changes reduce the margin?

• Can we afford to fulfil the order before payment arrives?

• Have we agreed in writing on the scope of work and payment terms?

If the answers are unclear, get the missing information before committing the business. Once an order is complete, compare the actual costs with the original estimate. Pay particular attention to delivery, labour and materials. If the same costs keep coming in higher than expected, use that information to improve the next quote.

Build the habit into your business

Costing should not happen only when a large contract comes along. It should be part of the way an SME prices its products and services every day. Keep records of what jobs actually cost, review supplier prices regularly and check whether the work you are winning is contributing enough towards the business's running expenses. This will help you spot underpriced work before it becomes a recurring problem. The aim is not to turn down every order that comes with a tight margin. Some jobs may be worth accepting for strategic reasons, such as building a relationship with a reliable customer. But the decision should be deliberate.