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Don't Settle For Low Margins!

George Hedley

If I followed you around for a day, what would be your primary focus? Would you be spending time calling subcontractors or suppliers, scheduling crews, making sure materials get delivered, pricing bids, visiting job sites and telling supervisors what to do? Do your activities help improve margins, find better customers, win better contracts, or move you toward achieving your overall goals? Most construction business owners and managers work hard on tactics and never focus on what really matters to make their companies better.

Ask yourself this question before you start doing the many day-to-day activities it takes to run your construction business: What should my top daily priorities be to grow my business and increase our profit margins? Is there something else you should be doing to give you a higher return on your time and energy? If so, then someone else in your company should be doing what you're doing and you need to take care of the big picture strategic issues.

 

Are You a Money Maker or a Money Saver?

Money savers are focused on saving money, including getting work done for the cheapest price, maximizing field crew efficiency, reducing costs at every level, hiring low-cost employees, providing the minimum acceptable service required by contract, and running their business with too few people. Money makers are focused on making money including seeking profitable sales, developing loyal customers, implementing written standardized systems, building an accountable responsible management team, finding higher margin work against less competition, and investing in better ways to build their businesses.

What's your day-to-day priority? Do you try to save every dollar possible? Or are you focused on building a profitable construction company by investing in experienced managers, supervisors, employees, systems and finding perfect customers? Is your priority increasing the value of your company, identifying areas to fix, tracking company goals, meeting with your management team to stay on track, finding responsible managers to fill important positions, spending time with customers, training employees to improve field productivity, and reviewing job costs with project managers and supervisors?

 

Are You Satisfied with Low Margins?

The average construction business owner is satisfied only making between 2 and 4 percent pre-tax net profit. Why? Because they don't know their numbers, don't track job costs, or review financials on a regular basis. Another reason for low margins is because most contractors continually bid on projects that require minimal prequalification requirements to get on the bid lists. This strategy to win enough volume to keep busy with low-margin, high-competition work will stop you from having enough positive cash flow to grow your company.

In contrast, the top high-margin contractors make 5 to 10 percent net profit, or more. They set and track goals, have a management team to run the business, know their numbers, and have a business development action plan to find and keep high-margin customers. They don't bid on open bid lists against long bidder lists. They focus on securing customers who value expertise, qualifications, technical skills, engineering knowledge, professional field foreman and supervisors, screened qualified field workers, safety records, training programs, performance ratings, difficult project completion, reputation, financial strength and capacity to complete projects on time.

High-margin contractors focus on finding projects where their expertise and track record will set them apart from the competition. And they have an ongoing program to develop customer loyalty by building personal trusted relationships with their customers via spending time with them and working to meet their goals.

 

Decide What You Want!

To become a high margin contractor, you set goals to achieve what you want. Consider these decisions, options and choices you make every day:

  • Make high or low margins • Out of control or organized
  • Everything in my head or install written systems
  • Make all decisions or have strong management team
  • No accountable employees or hold regular meetings
  • Not enough help or have responsible people
  • No steady growth or set growth goals
  • No marketing or implement sales action plan
  • One-time customers or develop loyal customers
  • Sell low price or sell added value
  • No job cost tracking or know your numbers
  • No goals or track specific targets and goals

Decide what you need to do to build a high-margin business by deciding how you want your company to operate in the future. Make a list of what's working and not working. Take a step into the future and imagine how your high-margin company would operate if you could wave a magic wand.

To get started, take out a sheet of paper and write four headings across the top: Company, Operations, Business Development and Financial. Under each, make a list of what you want to achieve over the next year or more. Include everything you want to fix, improve, update, implement or accomplish to move toward becoming a high-margin business. Under Company, include your desire to set overall company goals, build a management team, find responsible employees and get in control of your future. Under Operations, list all the project management and fieldwork systems you want to fix or develop. Under Business Development, decide what type of customers you want to increase profit margins, develop customer loyalty, bid against less competition and grow your company with. Also decide how you'll market to potential customers and your sales plan to achieve your goals. Under Financial, set your annual goals for sales, overhead and net profit. Decide what you want to track on a regular basis including job costs, field productivity rates, equipment costs, crew costs or cash flow.

 

Focus On What You Want!

Most wealthy contractors got that way by spending time where they get the greatest return-finding great customers, doing more than their competition, developing a strategic edge in the marketplace, seeking high-margin work, investing time in the hard things that make the most money, building a strong management team and investing in strategic opportunities. What's your focus and where will you spend your time? Are you a high-margin money maker setting and tracking goals, fixing what doesn't work, developing a great team, tracking your numbers, developing written systems, and going after customers and markets where you can actually make a lot of money? Or are you continuing to put out fires, doing too much yourself, chasing cheap work, and not making any money to achieve your long-term goals?

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George Hedley is a professional construction BIZCOACH and popular industry speaker who helps contractors increase profits, grow and get their companies to work. To learn more, visit www.hardhatpresentations.com.