I got an interesting note from a young friend the other day. He, like so many others in the construction industry, has struggled to bring in business recently. But he is doing something about it. Here is part of his note:

“Last night I went out and bought some new slacks, shirts, ties and shoes. I bailed out on the shirt and tie during my last sales call (polo shirt and slacks are my standard digs) but as you noted, a remodeling project can be the second biggest investment in a family’s lifetime and for that, clients deserve a shirt and tie.

Still, it feels like overdressing but after spending quite a few C-notes on clothing, I guarantee they aren’t going to sit in the closet!”

By making a commitment to look professional, he has also, knowingly or not, made a commitment to improve his sales techniques, his communication, his entire approach to his customers. It will soon change his view of his business. He made this decision after reading Chapter 3 in the book, “Profitable Sales, A Contractor’s Guide“, where we discuss attributes of a successful salesperson.

He bought his clothes at a well-known clothing store with well-known tag line. I’m going to borrow their tag line - with this commitment to his family, his business, and his customers, our young friend will make it work. His sales will increase, “I guarantee it.”

Someone once said, “No man’s business is safe while the legislature is in session.” Here is another example.

I’m hearing that legislators in some states are trying to write laws that dictate what you must include in your contracts and disclose to your potential customers. The term they use is “transparency” – all too often, that’s a fancy, politically correct term for itemization.

I do believe many things should be disclosed to customers. Your contract should include details on exactly what you will be doing on their project, and that’s why one-page contracts don’t cut it. But your cost structure is proprietary information, and when the state starts telling you that you have to give an itemization of your costs, overhead and profit numbers to your customers, sorry, that is going way too far. That is no one’s business except the owner of the company.

If customers want to know what items cost, they can visit one of the big box stores, prowl the aisles and look at price tags. If they want to know your overhead expenses, let them start their own company and find out.

If some bureaucrat wants to write a law that dictates you must disclose your overhead numbers or what profit you want to make, then I would suggest that law apply across the board to all businesses. Let’s see how far they get with that.

If you are in an association, be sure you keep your political action committee aware of this type of legislation. If it comes up, be sure your lobbyist gets right after it. Don’t assume that this stuff will take care of itself or that these laws won’t get passed. Too many in our country have an anti-business and anti-profit mentality, and almost anything is possible.

Have you thought about the image you project to your buying public? It’s important to create an association between what you provide and what your potential client wants or needs. Is there a phrase you can use that says, “What you want is what we do best?”

Many years ago General Mills came up with a tag line for Wheaties. We still call it the “Breakfast of Champions.” One simple phrase endeared Wheaties to both athletes and athlete wanna-bees across the country.

“Can you hear me now?” Although cellular companies are filling more dead spaces across the country, when this Verizon Wireless ad came out it appealed to all of us who were tired of dropped calls.

Another oldie - “Have it your way”. Some of us can still sing the song! It’s a great line, I can see a construction-related company using a similar sentiment.

See how those little phrases stick in your mind? That is what a savvy contractor who wants a niche will find and promote.

As for us - we publish newsletters, post comments on this blog and offer products and services for construction-related businesses because “We like to see the good guys win”.

Can I take a minute here and cheer you up? No doom and gloom, we’ve all had enough of that nonsense; it’s time to be positive.

We saw a commercial on TV the other day advertising home improvement loans from one of the major commercial (and stable) banks. Yes! Finally, at least one bank has figured out their money doesn’t do any good sitting in their vaults with zero risk attached. That is a good sign. If one bank is doing it, hopefully the rest will follow.

Our coaching clients are telling me that their phones are starting to ring. Yes! Several of them are getting signed contracts for a number of jobs, and one actually complained to me yesterday that he is almost booked through the end of the year.

I believe many people have finally figured out that the time they spend worrying about the economy is nothing more than a waste of time. Individually, we all must live our lives and get on with things. We choose our own path. You must keep a good, positive mindset. Stay focused on sales, my friends, that will keep your mind off the negative.

We are here to help. If your business has not improved over the last 60 to 90 days that you have been working hard on it, then maybe it is time to get some outside help. All it takes is a phone call. 1-888-944-0044. Ask for the old guy with no hair.

Many of you are creating or reworking your websites. This is a “GOOD ON YOU” from Construction Programs & Results. You are making a major step forward in your marketing efforts. May I make a suggestion?

Pictures (to a degree) are good. (Not too many - you also have to tell your story in words.) Be darned sure that you use before, during and after pictures if you are a remodeling contractor. If you are a new home builder, use a series of pictures from start to finish. Specialty contractors, same goes for you. If you just use finished pictures, your website visitor won’t have any point of comparison.

Now if you really want those pictures to sell for you, tie them directly to a testimonial quote from the customer whose pictures you are displaying. A testimonial with pictures is as good as it gets.

In summer, people are thinking about BBQ’s, which means they are thinking about decks, hot tubs, pools and other outdoor activities in their backyard. Life, in spite of the economy, goes on.

It’s a little late this year, but for future reference check out this newsletter. We get calls every day from our friends, clients and others in this business looking for new ways to get their phone to ring. Publishing a newsletter like this is a great idea. It takes some work, but can be fruitful.

Hope this gets you thinking about new ways to help your customers, and our thanks to Michael Van at Outdoor Kitchen World in Tualatin, Oregon for letting us post his newsletter for your review.

I had a conversation with an electrical contractor over the weekend. He has been in this business about as many years as I have, so I was most interested in his opinions about his work, his customers and how his business was doing.

He related how his customers constantly find fault with his employees work. They blame his employees for all kinds of problems around their house or building, problems with things his electricians didn’t even work on. He related a number of other problems with customers, and then started in on his own people. Before he got too far down that path, I asked if we could back up and talk about his customers.

I asked if he had considered using a video to record the conditions in and around the work area before his people started their work. His response was, “Oh, I don’t have time for that. Besides, I would have to take a video of the entire house to protect myself. Nah, that would be a complete waste of my time.”

I asked him if he had ever used a flip video? Nope, didn’t know anything about flip videos and again, “I don’t have time for that stuff, I have a business to run.”

Why is it that some folks have tons of time to gripe and complain but they won’t take the time to prevent those problems by making minor changes in the way they do business?

I’ve had many calls over the last two weeks from contractors who have few or no projects working and are on the brink of bankruptcy.

Most of these contractors focused on building new homes over the past years. When the market dropped off they turned to remodeling to “take up the slack” as one put it. A few have tried to borrow against the lots and homes they have on the market to be able to keep making payments. It’s tough to hear - some of the contractors have been in this business for 25 and 30 years or more.

Unfortunately, many of them have waited too long to get help. And that is the subject of this post. If you think that you might need some help with your business, you probably do. Waiting won’t accomplish anything other than putting you farther in debt.

Our goal is to help the construction community in any way we can. You have read our motto, “We like to see the good guys win.” And it’s true, but the good guys have to help themselves along the way. I believe the Good Lord has given us the ability to move mountains, but gang - you have to bring your own shovel. Waiting won’t move the mountain. You must take action.

If you are in a bad spot, give us a call. Lay your cards on the table and tell us where you are really at, and I’ll let you know if we can help. If we can’t, I’ll tell you, I won’t beat around the bush and it won’t cost you any money. But we can’t get to that decision unless you call first.

1-888-944-0044. Hoping to hear from you soon -

Ever have employees who won’t or don’t seem able to follow directions? I’ve talked to a number of contractors recently with that problem.

Many old timers in this business will tell you to be slow to hire and quick to fire. That is just the opposite of what too many construction-related businesses do.

You need to have an employee manual with all your wants and needs clearly spelled out so your employees know the ground rules. This especially applies to following directions and company policies.

It is far cheaper to have an employee manual in place than face the expense of an irate employee who has filed a complaint with your state. State bureaucrats believe their job is to protect employees, and disgruntled employees make their job worthwhile. You won’t find anyone who believes it is their job to protect you and your business, so you’ll have to do it yourself. A well-written employee manual, reviewed and blessed by your attorney, signed by your employee, is your best protection.

If you don’t have an employee manual, trust me it is far easier and less expensive to buy one than trying to write your own. And you stand a far better chance of actually getting that employee manual implemented if you buy one to get you started. We have been told ours is one of the best available, and it’s fully customizable for only $60.

Upgrade that manual each year, and have every employee reread and sign off on it each year. If an employee won’t sign the manual, send them down the road. Before you hire anyone, make sure they sign the manual.

If you have given good directions to an employee and they don’t do the job you want done, send them back to do it right. Everyone can have a bad hair day. So if it is not right the first time, give them a second chance. However, if this happens more than 2 – 3 times, it is time for a talk. If the performance, or lack of it, continues, it is time to send them to your competition. There are too many good employees out there looking for successful companies to work for to put up with sub-standard performance from any employee.

He who has the gold makes the rules, and he who wants the gold had best follow those rules. Part of your job is to make sure they do.

The success of your business over the next year is going to depend a lot on your priorities. Where is your focus? Is it on making money or are you doing donkey work?

Your focus should be on sales, first, last and always. Getting the job(s) built will in almost all cases take care of itself. Sales will not.

You do not want to be involved in:

• Driving around, giving out bids with no commitment from the owner(s).
• Delivering materials to a job site
• Working on a job
• Fixing tools and equipment around your shop
• Cleaning up your shop / warehouse or your vehicles
• Going to association committee meetings
• Going out to lunch with others that are not potential customers
• Donating your time to public causes
• Or any number of other time wasting enterprises that take away from your potential sales time

You should also limit your time on the Internet, forums or even blogs like this one unless they will help you stay focused and sell your services.

Stay focused. We want you to make it through this crunch.

Remember the yellow pages? We have a few books sitting in our office, sometimes in frustration we pick one up to find a phone number. Looking up a phone number is faster, easier, and much more convenient on the Internet. When we want to reach a business we’ve worked with before, or find a new service in our local area, our first stop is the Internet.

If your business can’t be found on the Internet, it is costing you potential clients.

Over 90% of all new business will come to you via the telephone. If you are counting on the yellow pages for those phone calls, when someone in your local area looks for you they’ll find 40-100 (or more!) other contractors on the very same page, offering the very same service. The only way you’ll get their attention is with a large color ad – and what will that cost you?

But with a well-designed website, they can search for your specialty in your city and not only find your business, but learn who you are and how your business operates.

Studies have shown customers will look at your web page and check you out thoroughly before they call. Your web page needs to be at the top of its game when those prospective customers arrive. Your web page needs to tell your potential customers everything they need to know so they are comfortable in calling you. And your phone number needs to be prominently displayed on every page of that website. Make it easy for them to call.

When they stop by your website they will be thinking about their three fears. They want to know if you will do the job they want done, if you will do it on time and if it will be done on budget. When those three fears are answered, you will have gained credibility and they will call.

We all have the same wants and needs when it comes to spending our money. We want someone who will do what they say they are going to do, do it on time and at a fair price. Your web page needs to say that loud and clear. Get your website together and get found. Then listen to your phone ring.

Those people we hire every four years back in Washington D.C. have designated quite a large sum of money towards energy savings. This comes in a variety of forms and programs and it could be worth new business to you and your company.

For instance - if a homeowner installed a geothermal heat pump system in 2008 they could receive a maximum $2,000 tax credit. In 2009, they can receive a tax credit of 30% of the cost (with no upper limit).

You can find info on the Internet right now about these programs. If your business is a bit slow, you might want to start educating yourself on what part of this new economy you can get involved with.

It will take some effort and time on your part to do the research and get in tune with what is going on. Consider picking one or maybe two things that appeal to you and stay focused on developing those lines of service for you and your company. Focus - stay profitable.

During a recent survey we conducted, a few comments were made about price fixing. These comments referenced the Sherman Antitrust Act and association warnings about the appearance of price fixing.

We’ve heard this before – some groups and associations have refused to bring us in to speak because they think we are engaging in price fixing. Nothing could be further than the truth.

Wikipedia defines price fixing as an agreement between business competitors to sell the same product or service at the same price.

Same product or service, same price. No two contractors will sell the same product or service, and they won’t set the same price.

Our book, “Markup & Profit; A Contractor’s Guide” shows construction-related businesses how to calculate their markup and use that markup to determine the correct sales price for their work. Each business needs to set their markup based on their overhead and profit requirements - and every business has different requirements. When you know how to properly price your work, you realize it isn’t possible for someone to tell you what price to charge.

Even if two businesses happen to have the same markup, the job price is determined by applying your markup to your estimated job cost - and no two contractors will come up with the same estimated job cost.

In the series of 12 estimating classes that we are now recording, I comment frequently on the variables that arise when doing a takeoff. These variables are subject to interpretation by the estimator. I look at the estimating sheets contractors have sent me with pictures of the job, and see the takeoff differently than they do almost every time. That doesn’t mean either of us are right or wrong. It just means we see the job differently. Each of us comes from a different background with different job site experiences, and we deal with different labor rates and material and sub-contractor costs.

So, even if we use the same markup, we arrive at different job costs based on our own interpretation of the plans, physical evidence of the job and costs for labor, materials and subs, so our price would be different.

Price fixing can happen when one business sells the same product as another, but to claim price fixing on a construction related project, where pricing should be cost based, doesn’t work.

Unless . . . let’s talk about architects, project managers and city, county and state governments who put language in their spec sheets that state a contractor can only charge 10% overhead and 10% profit. Or documents that state a contractor agrees, if they are awarded the job, to do any and all change orders at cost with no ability to recover overhead expenses or make a profit on those changes. Isn’t that price fixing? Maybe it’s “reverse price fixing” – an agreement between buyers to force the price of a product as low as possible, eliminating profits for the seller?

Hey gang, take a look at this email that came into our office from ReUse Concrete Sealing in Overland Park, Kansas. I don’t know much about their company, but I do know they understand communication with their customers and all those they do business with.

This is one of the best notices we have ever received. Look close, they have everything on there that is needed:

Phone number, Address, City, State, Zip, Web site address, Email address

And they have a smiling face on the lady holding the phone. Notice, the phone is red to get your attention. This is as good as it gets.

Great job.

If you read the two previous blog posts (Markup, Margin and Why You Should Care and Using Gross Margin to Price Jobs? Better Use It Correctly), you understand how markup works and how gross margin works. Today we’ll look at the numbers to see how to avoid one of the major mistakes made by contractors in calculating the sales price for their work.

Are markup and gross margin interchangeable? Is a 1.55 markup the same as a 55% gross margin? No, here are a few examples using a job cost of $100.

Example 1:
Using a markup of 1.55 will give you a sales price of $155. ($100 x 1.55 = $155)
Using a margin of 55% will give you a sales price of $222. ($100 / .45 = $222)

Example 2:
Using a markup of 1.35 will give you a sales price of $135 ($100 x 1.35 = $135)
Using a margin of 35% will give you a sales price of $154 ($100 / .65 = $154)

(Remember that when using gross margin to calculate your sales price, you have to subtract your gross margin from 1, and divide your job costs by that figure. If your gross margin is 55%, subtract .55 from 1 to get .45, then divide your job costs by .45. This was covered in yesterday’s blog post.)

What if you want a 30% gross margin on the sale? If you mistakenly believe you can get that by multiplying your job cost of $100 by 1.30, you’ll get a sales price of $130. Using gross margin properly, divide $100 by .70, and you’ll get the correct sales price of $143.

As you can see, how you define the process and the number you’re after makes a huge difference in the resultant sales price of your work.

So which should you use? It doesn’t matter AS LONG AS you use it correctly. In my opinion, markup is easier to use. It is almost always easier to multiply than to divide, especially when you are with a potential client attempting to make some quick mental calculations.

Let’s say you’re on a sales call, looking at a job, mentally trying to ballpark the price . . .

Using markup – “The job cost will probably be about $30,000, my markup is 1.60, that’s 6 x 3 or $18,000 added to $30,000, the job will probably run about $48,000.”

Using the equivalent gross margin – “The job cost will probably be about $30,000, my gross margin is about 38%, round it to 40%, that’s 4 x 3 = 12 or $12,000 added to $30,000, the job will probably run about $42,000. Wait! If it’s 40% I have to divide the job cost by .60, 30,000 divided by .60 . . . . “

Get the idea?

I’m a firm believer in keeping things simple. Gross margin works and will give you the correct sales price, but you are more apt to make a calculation mistake and that mistake can cost you money. In my opinion – use your Markup and Profit, or use your Margin and Lose.

On a scale of 1 to 10, with 1 being the easiest method to compute the sales price of your service or work, markup is easily # 1. Using a gross margin is at least a 6 on this scale and should be avoided. Let your bookkeeper and your CPA wrestle with the math and computing margins, etc. You are not in business to do math problems. You are in business to provide a service to your customer(s) and make a profit doing it.

Remember your markup and how to use it, then put your energy into staying focused on getting to the contract. Stay focused on sales, my friend, that is the way to make it through this crunch.

Yesterday markup – today gross margin. Let’s look at using your gross margin to calculate the correct sales price for your work.

Your gross margin is your gross profit as a percent of your sales price. If your gross profit on a $100,000 job is $25,000, your gross margin is 25%.

Gross profit is what is left after you pay all direct job costs. Gross profit is what you use to pay your overhead and your profit. Net profit is what you have AFTER you pay your overhead.

Let’s assume your company has an annual sales volume of $150,000, overhead is 25% or $37,500 and we make an 8% Net Profit. Our gross margin is 33% - the 25% overhead plus our 8% net profit.

A gross margin of 33% simply means that your total overhead and profit equals 33% of your total sales – and your job costs are 67% of your total sales.

Let’s use the same numbers we used in the markup scenario yesterday to calculate our sales price. Estimated cost of the job is $8,755. To use your gross margin, you have to divide your job costs by their percent of total sales – or,

$8,755 / .6700 = $13,067

Here is the mistake that happens when using gross margin. If you divide your job costs by .33, you end up with a sales price for your work of $26,530, which might put you a little high. You’ll probably catch that mistake.

But too many think it’s correct to multiply their job costs by their gross margin, and adding the result to their job costs. If we do that, we get $2,889 ($8,755 x .33) added to job costs of $8,755 you get a sales price of $11,644. That number leaves you $1,423 short of what you need for gross profit. How do I know?

Incorrect Calculation -
Sales price - $11,644
Job Cost - $8,755
Gross Profit - $2,889
Gross Margin – 24.8% (2,889 / 11,644)

Correct Calculation –
Sales price - $13,067
Job Cost - $8,755
Gross Profit - $4,312
Gross Margin – 33% (4,312 / 13,067)

If your business needs a gross margin of 33%, you need to use the correct calculation or you’ll be in trouble. Subtract your gross margin from 1 (1 - .33 equals .67), and divide your estimated job costs by that figure.

Here are the gross margin ranges that you should be within:

REMODELING = 34% – 42% +
SPECIALTY WORK = 26% – 34% +
NEW HOME CONST. = 21% – 25% +

I’m going to offer the same warning here that I mentioned in the post on markup. Don’t use any number below the left number above depending on the type of work you do.

Confused? It’s very easy to get confused when you’re messing around with gross margins. We’ll talk more about that tomorrow when we discuss why a markup of 1.55 is not the same as a gross margin of 55%.

I’m going to do a 3- part series on markup, gross margin and why you need to keep them separate. This markup vs. gross margin subject has too many confused. Based on the feedback that I get almost daily, a review of the difference between margin and gross margin is in order to get some poor souls back on track.

I know most of you know how to calculate the correct markup to use in establishing the sales price for your service or work. If you don’t, read the book, buy the software, or watch the class. Many of you also know how to calculate the correct gross margin to set your sales price if you prefer to do it that way.

I had a conversation yesterday with a friend about a job he quoted in excess of $200,000. The owner had a quote on the same job for less than what my friend estimated the total cost of materials to be. Of course, the owner liked the lower quote better – if the job actually gets built, both the owner and the low-balling contractor will get exactly what they deserve. Nuff said.

Markup is basically your sales for any given point in time divided by your job costs. Turned around, your markup multiplied by your job cost equals your sales price.

Once you know your markup it’s easy to reach the correct sales price for your work. Let’s assume that you have done an estimate; you have all your numbers for labor, materials, specialty contractors, etc. Let’s say the total estimated costs are $8,755.

You now multiply your job costs times your markup and you have the correct sales price. If your markup is 1.50, your sales price is: $8,755 x 1.50 = $13,132.50 or $13,133.

The two important figures, then are the job estimate and your markup. If your markup isn’t correct, or is based on a figure someone else gave you, you’ll have problems. You need to calculate your own markup based on your business needs.

You should be able to get all the numbers you need to calculate your markup from your own profit and loss statements. If you can’t, it’s time for a frank discussion with the person doing your books. It is difficult if not impossible to make financial decisions for your business if you don’t have good information. If you have a question about this, please give me a call to discuss.

Keep in mind that when you use your profit and loss statement to do these calculations, your last line on the P&L must have an 8% net profit. If you aren’t showing an 8% net profit now, you’ll have to adjust your markup so that you can achieve an 8% net profit in the future. I’ll cover how to do that adjustment in another post.

Unless there is something incredibly unique about your business (and there usually isn’t), these are the markup ranges that you should fall within:

Remodeling Contractors = 1.50 – 1.70 +
Specialty contractors = 1.35 – 1.50 +
New Home Builders = 1.26 – 1.30 +

Be forewarned, pilgrim, if your markup is below those ranges (i.e., less than 1.50 for remodeling, less than 1.35 for specialty contractors, less than 1.26 for new home contractors), you probably calculated something wrong. You will pay dearly for that problem and sooner rather than later. The large majority of contractors today who are going broke are not using these minimum numbers. In all of the 8 business cycles in construction that I have been a part of over the last 50+ years, I have never seen as many contractors going broke as there are today. Just by coincidence, I have never heard so many stories of guys cutting their prices to get jobs as I hear today.

Our next post will be on calculating your gross margin and how to use that number to arrive at the correct sales price for your work.

I’m Devon, Michael’s wife, business partner, editor and boss (if you don’t believe me, ask him). I hope you won’t mind if I make a comment on my own.

I am a major fan of Dr. Laura. I believe that what she is doing is changing our society and our culture, and I admire the courage she shows. What she says isn’t always popular and it certainly isn’t politically correct, but she’s usually right. I’ve read a few of her books and have given copies to family and friends.

Yesterday, while working on a project Michael and I are doing, I remembered an incident that happened a year or two ago and thought of how well it fit Dr. Laura’s new book (”In Praise of Stay-at-Home Moms“). On a whim, I wrote a quick letter to her titled “May I Brag About My Husband?”. To my surprise, she read my letter on the air and this morning we received a note from a listener who knows Michael, asking if the letter was ours (you can read the letter here).

Michael doesn’t say women have to stay home or shouldn’t be working. Michael’s concern is for women who HAVE to work because their husband’s construction business isn’t making any money. This is a dirty little secret in the construction world, and it happens way too often. Michael’s encouragement is to the men to learn how to run their business so it will be profitable and their wives have a choice.

Unfortunately, most leaders in the construction industry don’t have the courage to address this issue because:

• It’s not something anyone wants to admit
• They haven’t spent enough hands-on time in the construction industry to know it’s happening
• It can be misinterpreted and make the speaker look politically incorrect (as it did)
• It primarily impacts small, family-owned construction businesses

I’m grateful Michael supported my desire to stay home when our girls were young, and I know that if I’d chosen to keep working, he would have supported that as well. I’m proud of the work Michael is doing to help contractors run successful business so their families can also make choices. I also know that Michael is making a difference in many lives and that’s what matters the most.

One of our readers sent in this note this morning:

“I have a promotional campaign just starting involving a golf league I have been playing in for a number of years. The league plays every Wednesday from May to September broken up into 6 or 7 week sessions. I started a par 3 contest for each session with prizes to be purchased at the Pro Shop ($15-20 ) and a grand prize winner at the end for overall low score ($50). It seems like a winner for everyone-I have one lead so far. If it proves successful I will probably expand on it next year.”

Great idea for lead generation and by the end of the summer, his cost per lead will be less than his normal advertising cost per lead.

Anybody else want to share their ideas?

Our blog article on April 24, “A Fair Price For Your Work” hit a nerve with a number of contractors and they posted some excellent comments. In a follow-up comment, I listed two questions that should be asked of every potential client.

One response:

“Michael — I am going to take your two questions above, type them in the biggest font I can and tape them all over our office. Some people act like we’re going to cheat them out of something if they tell us what their budget is (that’s if they even have one).”

The key point I was making was that unless you know the start or completion date and the budget for their job, you will not get the commitment from the customer to move ahead with the project.

Clients who are serious have a start date or a completion date. The rest are, frankly, wasting your time (if you let them). They have a budget for their job. Guaranteed, they know what they want to spend.

Do they know what the job or project will cost? Nope, and neither do you. That isn’t the issue or the question you asked. The question is about their budget. Just as it says in chapter 7 of “Profitable Sales, A Contractor’s Guide“, if they won’t share their budget, give them a range to choose from, then button up and wait for their response. If they won’t choose a range, you are wasting your time. Get on your horse and head for home.

“Profitable Sales, A Contractor’s Guide” discusses the four basic questions you need answered on a sales call. Those four questions help you pinpoint the job and learn how serious your prospects are. Without answers, you stand a good chance of wasting time.

Sales is not nearly as difficult as most contractors make it. If you ask the right questions and stay focused on getting a commitment, you will get a sale about one in three sales calls you go on.

Stay focused my friends and may the profits be with you.

I recently heard from two different contractors on the same day who told me a similar story. They both told me exactly what I don’t want to hear, and put knots in my stomach.

Both companies had sold jobs in the mid six-digit range. Both had used a markup of 1.20 times their cost. When I asked why (nicely of course) they both gave me the same answer. They told me their business was different and that they knew their numbers well enough that they could cut their markup to get the job.

Oh my!

I forgot to mention that they both have our Markup and Profit book and claim to have read it. They may have read our book, but they don’t believe it. They are going to pay a penalty for those sales in the next few months. Had they read the first paragraph on page 70 or reviewed the graph on page 38, we would not have had that discussion.

As your sales price goes up, your overhead expenses also go up, not down. Look at your own books and you will see that. Don’t believe me, ask your CPA. You can’t cut your markup on larger jobs. Set your markup on the largest job you do, and increase it as the jobs get smaller.

Example: (adjust as necessary, of course, to match your overhead and profit needs)

$300,000 to $750,000 = 1.50
$100,000 to $300,000 = 1.55
$ 75,000 to $100,000 = 1.60
$ 50,000 to $ 75,000 = 1.65
$ 25,000 to $ 50,000 = 1.70
$ 15,000 to $ 25,000 = 1.80
$ 5,000 to $ 15,000 = 1.90
$ 0 to $ 5,000 = 2.00

Now, let’s not hear any of that nonsense that you won’t be able to sell your work using those markups. It is true that you won’t be able to give your work away using those markups. You need to be able to show your potential client the value you provide. You might consider purchasing our book, “Profitable Sales, A Contractor’s Guide” to polish your sales skills and learn how to sell rather than take orders based on price.

Not to be mean or nasty here, but there are far too many companies out there selling jobs at the markup they need for their business to claim it can’t be done.

As my hero Yoda (of Star Wars fame) says, “Do or do not, there is no try.”

Almost all of our calls today are from contractors who want to know how to get their phone to ring, how to increase sales.

Got an article in from Brian Tracy the other day. In part, he said:

“Study after study shows that companies that maintain or increase their marketing efforts during a recession experience higher sales during the recession and for at least two years following the recession. On average, companies that avoided cutting their marketing had sales at least 50% greater than their competitors.”

4% to 5% of your sales should go back to the task of creating more sales, my friends. Keep marketing.

By the way, you have heard me talk about Brian Tracy many times. His endorsement of our book, “Profitable Sales, A Contractor’s Guide” means more to me than you can imagine.

He has excellent good advice for those of us in the small business world. His advice works construction-related businesses as well as other businesses. You can sign up for his various newsletters here. Here is a link to his “free stuff” page where you can sign up for his various newsletters. It’s well worth your time.

I read this morning that some economists say we have about reached the bottom of this housing market slump. I don’t know if that’s true or not, I certainly hope it is, but some contractors are telling me that they are getting more phone calls now than in several months. That’s great news.

More phone calls mean more potential sales. So let’s talk about your sales presentation. I want to talk about a little item that may be biting you in the behind during a sales presentation to your potential customers. It’s your language.

Please avoid use of the words “deal” or “contract”.

“Deal” can make you sound like a con artist, a dude (or dudette) who is about to unload a scam. It’s a great word and it did well by Monty Hall (”Let’s Make a Deal” for you young-uns), but it gives your customer a lousy perception.

Discussing a “contract” is overwhelming. It’s the correct word, but a better term in discussion with a potential client would be “agreement”. They’re willing to reach an agreement, but signing a contract conjures up images of attorneys and courtrooms.

Other terms such as “Let me be honest with you” are just as bad. When someone says that to me, my first thought is, “Oh, you have been lying to me and now it’s time to tell me the truth?”

Don’t take a chance on alienating potential clients, unless you have more clients than you need. Take the time to work on your sales presentation, and your vocabulary is a major part of it. Think about what you will say on a sales call - work it out mentally while you are driving, when you are in the shower, while you mow the lawn. Practice it mentally over and over so that when you are in front of a potential client, it rolls out naturally.

When you go on a sales call, you want to make the sale. Be prepared.

With the announcement of the “economic stimulus package”, much has been said about rebuilding our infrastructure to help America get back on its financial feet. I heard one wag says, “We are going to rebuild America.”

While the construction industry anxiously awaits money to start flowing that will create all kinds of new projects which in turn create all kinds of new jobs, may I make an observation?

The projects that are going to be funded will be one of two types. They will either be union-only projects or Davis-Bacon (prevailing wage) work. Remember that the decisions will be made by politicians and their number one goal is to get reelected. Their focus will not be on the construction industry as a whole, their focus will be on the specific groups who will, in turn, get them reelected.

So the new jobs will affect a small number of construction companies, those who are either union or performing Davis-Bacon work. The vast majority of the construction industry will not be able to take part. If you have ideas that you might be able to land some of these jobs, start planning now on how you can climb into that trough and participate. But don’t get your hopes up.

And keep in mind that these jobs will most likely be awarded based on who gives the governmental agency the lowest price.

We recently received a copy of the Oregon Remodelers Association’s monthly newsletter. Phil Peach, ORA President and his staff do an excellent job keeping their membership informed on what they need to know.

On page one, Phil said, “One thing that never slows down, regardless of the economy, is the legislature. Many bills are being considered that will have an effect on ORA/NARI members. This includes license fee increases, lead safety certification requirements . . . and a bill to require every contractor to tour the project with the client and go over every cost of every detail prior to starting the work.”

This shows two things. 1 - you can’t turn your back on your legislature. When you aren’t looking, someone will propose an absurd bill that will cause you no end of grief. And, 2 - having an association that looks out for you is invaluable. While you are busy running your business, it helps to have someone in your court, keeping an eye on what your government (and other entities) are doing that can help or hurt you.