Last week we discussed why you can’t focus on being competitive and still expect to be profitable.
It’s important to be focused on profitability, because it’s why you’re in business. Unless you’re independently wealthy, you’re in business because you want to keep a roof over your head and food on your table. You can’t do that when your business is losing money.
When you’re focused on profitability, you might be aware of your competition, but you don’t worry about them. Why? Because you know you can’t control the other company’s quotes or how they conduct business. Your priority is setting a price that covers all of your direct job costs and all overhead expenses, and makes a reasonable profit. Your job is to explain to every potential client why your company is the best one to build their project.
You correctly calculate your markup or gross margin, and you never adjust it because of the competition. If the other guys want to give their work away, that’s their problem. You don’t make it your problem.
You know that you can’t cut your sales price on one job and hope to make it up on the next one. Each job must stand on its own. Cutting the sales price on one job means giving up some if not all of the profit on that job, and possibly some of the funds you need to pay overhead.
You don’t use the word “free” in any advertising. Using the word “free” attracts those who want something for nothing.
When you attract the wrong client, you know when to say no. You also know when to say no to a job change that will cost you money. You do it nicely, you don’t burn bridges, but you say no when it’s necessary.
You keep a strong advertising program in place 24/7/365. You know that when the economy tightens up, advertising is even more critical so you can reach those who are still in the market for your services. You also realize that cutting advertising is the worst thing you can do, because fewer people will hear your message and that means fewer opportunities to sell your service. Referrals are great, but they are the icing on the cake, not the main course. Referrals are also the first thing that dries up if the economy gets tight.
You don’t waste time with invoicing and billing. Your payment schedule is in your contract, and your clients know that’s when payments are expected. Your clients also know that you’ll shut down a job if they don’t follow the payment schedule. The only receivables you have are jobs in progress; every finished job has been paid in full.
When you focus on profitability, you’re able to pay your own bills and maintain a high pay scale for your employees. That helps you attract the best employees, the ones who get work done faster with few callbacks. They take up less of your time because they aren’t constantly asking questions; they know how to think for themselves and you can trust them to get things done right.
You’re constantly working on your education to improve your business skills. You know it’s important to look out for new and better ways of doing things. You recognize that even though your company might have done something one way for several years, you’re open to finding a new and better way to do it, whether it involves running your business, selling your services or building your jobs.
When your focus is on profitability, you develop a nose for money. You watch your business get stronger and you sleep better at night.
Let us know if we can help.