Tips to Double Your Net Profit
by Marcy Marro | 1 March 2021 12:00 am
Double Your Net Profit?
Are you willing to make the strategic moves required to double your company’s net profit over the next three years? By focusing on making improvements, implementing new strategies, finding better customers and attacking higher margin opportunities, they are able to improve and often double their bottom line.
As the construction workload continues to get better and there are more opportunities to win contracts, you are now lucky to have choices about your future. I recommend you make some strategic decisions to seek higher margin work, find better customers and make more money than ever before.
Tips to Double Your Net Profit!
1. Find better customers and projects.
Rather than continue to seek and bid on the same kind of projects you’ve always worked on, start an attack program to look for better customers and projects with less competition and higher margins. The highest margin contractors generally have an edge over their competitors.
2. Increase your mark-up.
Stop pricing the same way you did when work was tight. Those days are over. Be bold and ask for margins you deserve and require full service and do an excellent job satisfying customers and meeting schedules. Be selective and only provide proposals on projects with three or less legitimate competitors. Seek project opportunities that require special expertise and skills, professionalism, a track record of performance, enhanced supervision and other differentiating factors only your company can provide.
3. Don’t cut your bid to win work.
Your customers need you more than ever now. Learn how to say no and hold your bottom line. If you bid to the right customers, your price won’t matter as much as performance, trust and expectation of a job well done. Customers want to hire the best service contractors they trust. If asked to cut your bid, say no and offer value-added services, alternatives to the specifications or other methods to reduce the price.
4. Stop using low-ball subcontractors and suppliers.
Using super low-priced, untested or unqualified subcontractors is tempting. But it opens up the potential for lots of field problems. Don’t take extra risk to better your price and give customers the benefit of your exposure to potential issues and losses. Explain you have lower priced subcontractors available, but you aren’t willing to take the risk to save a few dollars for them.
5. Put enough supervision in your estimates.
To do a great job, meet your production budgets and finish on time, you need to provide for proper professional supervision. Good field supervisors will allow you to finish faster without call-backs, mistakes, re-work or an uncompleted punch-list. Lack of proper supervision causes jobs to take longer and cost more. Good customers want jobs completed on time and will pay for supervision to meet project goals. Tell your customers supervision is a job cost and will be included in your estimates.
6. Increase your change order rates.
As you get ready to start projects, meet with your customer and review your change order rates. Make sure your detailed rate sheet lists out everything you need to cover all your costs to do the work. Also include minimum time charged such as four-hour minimum for equipment, two-hour minimum crew rate, and a daily rate for all tools and smaller equipment.
7. Stop giving away little things.
Giving away small items to demanding customers can add up to lots of money. When starting projects, meet with customers to discuss how extra additional work items will be handled. Read the contract together with particular emphasis on the change order clause. Before you start any project, make sure you’re on the same page with customers how changes will be authorized to avoid doing additional work without approvals or payment.
Bonus step 8. Add regular personal development.
The top 10% of profitable contractors have one thing in common: they dedicate time and money to personal development for themselves and their management team. Consider one or several of these personal development solutions to increase your bottom-line profit margins:
- a. Get involved in your national and local industry association. Attend meetings and conventions. Take their training classes and workshops. Get on a committee and meet with other leaders on a regular basis. Learn what the top contractors do to make more money.
- b. Read or watch management and leadership books and videos. Take a few hours every week dedicated to continuous learning. There are hundreds of great business books available. Most authors have videos or a YouTube channel. Or look for TEDx talks for quick 10-minute programs outlining numerous topics to better your business.
- c. Hire a business coach or consultant. Investing a small amount of money in professional coaching or joining a business owner peer group will give you objective way to look at new ideas, be accountable and try new improvements to enhance your bottom line.
- d. Build a management team. Now is the time to build a strong management team to be accountable to win the work you need at the margins you want. Start by scheduling a management retreat to get everyone on the same page.
When companies don’t get the results they want, it’s not their competition, the economy or their people. It’s usually the leader who is afraid, has gotten stuck and is not willing to try new ideas or change! What strategic decisions are you willing to make to double your profit margin!
George Hedley, CSP, CPBC, helps contractors grow and profit as a professional business coach, popular speaker and peer group leader. He is the author of “Get Your Construction Business to Always Make a Profit!” and “Hardhat BIZSCHOOL Online University” available—on his website. Visit www.hardhatbizschool.com[1] for more information.
- www.hardhatbizschool.com: http://www.hardhatbizschool.com
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