It’s the middle of November, which means it’s time to begin planning for the coming year. Unless you’re a non-profit organization, I’m pretty sure your goals for next year will include making a reasonable profit on the work you do.
This week, I want to identify some of the practices that, when followed, will help you build a more profitable construction-related business.
- Recognize that every sale needs to be profitable. You can’t cut your sales price on one job and hope to make it up on the next job. When you discount the sales price on a job, you’re giving up some if not all of the profit on that job, and often part of the funds needed to cover overhead. You’ll never have that special job that lets you make up the overhead and profit you lost when you cut your price. Make every job stand on its own; every sale needs to be profitable.
- It’s okay to be aware of your competition, but don’t worry about them. You can’t control the other company’s quotes or how they conduct business, so don’t waste time worrying about them. Your goal is to be profitable, not competitive.
- Correctly calculate your markup or gross margin, then use it. Never adjust it because of worries about competition. If the others want to give their work away, that’s their problem, one they’ll soon have to fix. Don’t make it your problem.
- Never use the word “FREE” in any advertising. “Free” attracts those looking for something for nothing.
- Keep a solid advertising program in place 24/7/365. Know that cutting advertising is the worst thing you can do. When you cut your advertising, fewer people get your message and that means fewer opportunities to sell your service.
- Maintain the highest reasonable pay scale for all employees. The best and highest-paid employees cause fewer problems for your company. They get the work done faster with fewer callbacks. They take up less management time by asking fewer questions because they aren’t too lazy to think for themselves.
- Only work on a fixed-fee contract. Never work using a cost-plus contract, and only use time and material agreements for jobs under $2,500 or $3,000. You can read more about these issues here.
- Don’t spend time sending invoices and waiting for payment. Include your payment schedule in your contracts and make sure your client reads and knows the payment schedule. Explain that they will be expected to have payment ready for you on those milestones, and you’ll stop the job if they don’t follow the payment schedule. If you’re doing small jobs, collect payment before you leave the property. The only receivables a company should have are on jobs in progress.
- Know when to say no. Walk away from a potentially difficult client. Deny a change request that will cost you money. Do it nicely, don’t burn bridges, but say no when it’s needed. This is about business, not about making friends.
What you do has value. Every job you build is one of a kind. It doesn’t matter if you specialize in roofing, siding, windows, or plumbing, or if you’re a remodeling contractor or new home builder, what you build might be similar to what someone else would do but it’s always handmade and unique. You deserve to be paid for your work, and if you’re the business owner, that means you’re also taking the risks inherent in business and you deserve to make a profit.
There are a lot of people who tell you how to price your work. Some are experts in another field, which of course makes them experts in construction. Others will tell you they used to be in construction; there’s a reason they left. It’s easy to be in construction; it’s difficult to make money in it.
Don’t worry about what others say. Calculate the correct price for your work, based on your business’s needs. Learn how to sell what you provide so you can ask for and get that price. If your goals for next year include making a profit, that’s how it gets done.