We received this note from a contractor recently, and it sounded familiar. We’ve heard this question phrased many different ways from many construction business owners.
I have customers constantly chiseling me down and everyone else is making money on the jobs I do except me. I provide a great service, however I won’t last long at this rate. I need help. What do you recommend?
One of the problems with owning the business is that you’re the last one who gets paid. And you’re right, if there isn’t enough money left for you after everyone else gets paid, something is wrong.
To make money in this business, you need to do three things. They are:
1) Accurately estimate your jobs.
Accurate estimating requires training and discipline. It isn’t fun or easy, but it’s a critical part of the job.
Too many contractors assume that if their actual job costs are within 10% of their estimate, that’s good enough. But a 10% error can eat all of your profit margin or more. With the right systems in place, you can do better.
A good friend was called in to review why a contractor in the Midwest was losing money on his jobs. He watched as the contractor estimated a room addition. My friend then estimated the same job. There was over $7,000 in difference between the two estimates. What was the contractor’s biggest problem? He was on and off his phone every few minutes while trying to estimate. His distractions increased his errors.
You can learn how to accurately estimate, or you can do the “by guess and by golly” method that too many use. Our program, Profitable Estimating Training will show you the systems needed to get your estimates done with an error factor of less than 1%. Accurate estimates are step one to making money in construction.
2) Correctly price those jobs to cover your job costs, overhead expenses and make a reasonable profit.
When you have your estimate complete, the next step is to use it to calculate your sales price. I’m a strong advocate of using a markup factor to calculate sales price – it’s simple and direct. I won’t go into all the reasons here because it’s covered in depth in this series of posts on our blog.
Once you calculate your markup, you have to use it. Consistently. Every job. Don’t use a lower markup because a client is pressuring you to reduce your price. Which brings us to the third thing.
3) Sell those jobs at that correct price.
Ahhhhh, the sweet discipline of sales. As Zig Ziglar used to say, “Sales is all about finding out what the customer wants and letting them buy it from you.”
The secret to effective sales in construction is asking questions. Lots and lots of questions. If you ask enough questions, at some point your potential client will realize that you’re serious about finding out what they want. When that happens, they will buy you. And, when they buy you, you now have their confidence, their trust and probably their business. That is when you start making sales.
But if you show up on a sales call talking away, giving all your opinions on every subject, you aren’t finding out what they want. If you find yourself answering their questions instead of asking your questions, you’re let them drive the wagon. That leads to them making demands for lower prices, telling you what other “quotes” are, pumping you for information about how to do things and in fact, trying to chisel you down on any price that you quote.
I wrote a whole book on the subject of sales, especially residential remodeling sales, titled Profitable Sales; A Contractor’s Guide. Probably one-third of that book deals with issues just like the ones we’re talking about here. Solve one of those issues, and you’ve paid for the book many times over.
I’ve been privileged to see some really great sales people at work. I’ve also seen some on the other end of the fence. It almost always boils down to attitude, discipline and the willingness to study the gentle art of sales. It doesn’t matter what part of the country you live in – it matters whether you’re willing to develop the discipline to use good sales techniques.
I know construction isn’t an easy business. But if you estimate your jobs correctly, calculate and use the right markup for your business, and learn to sell (or how to hire a capable salesperson), you’ll make it. Profitably.