It’s mid-November, the perfect time to begin planning for the coming year. Unless you want to be a non-profit, your goals for next year should include making a reasonable profit on the work you do.
To help you reach that goal, let me point out a few practices you should keep in mind that 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, you’re giving up some if not all the profit on that job and often part of the funds needed to cover overhead in the mistaken belief that you can make it up later. Trust me, later never happens. Make every job stand on its own; every sale needs to be profitable.
- Be aware of your competition but don’t worry about them. You can’t control how another company conducts business or what price they quote, so don’t waste time worrying about them. Your price needs to be the correct price for your business; if your competition wants to build it for less, let them. Your goal is to be profitable not competitive.
- Calculate the correct markup or gross margin for your business, then use it. Don’t cut it because you’re worried someone else will quote a lower price, or you don’t think the client can afford it. Your price is what you need to be profitable.
- If you’re used to lowering your price to close a sale, it’s time to learn how to sell. Sales is a skill, and skills can be learned. Start now because you’ll never make a profit as the lowest priced contractor.
- Don’t advertise the word “FREE.” Free attracts those looking for something for nothing.
- Keep a solid advertising program in place 24/7/365. It’s tempting if money gets tight, or if you have too many leads already, to save money by reducing your advertising. When you advertise less, fewer people get your message and that means fewer opportunities to sell your service. If leads are slowing down, review these videos for easy ideas to generate more leads.
- Maintain the highest reasonable pay scale for your employees. The best and highest-paid employees cause fewer problems for your company. They get the work done faster with fewer callbacks, and the time and problems they’ll save are worth the money.
- 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 the advantages/disadvantages of a cost-plus contract in this article, Cost Plus Contracts.
- Don’t send invoices and wait for payment. Include a payment schedule in your contracts and make sure your client reads and knows that schedule. Explain that they’ll be expected to have payment ready for you at those milestones, and you’ll stop the job if they don’t make payments when due. If you’re doing small jobs, collect payment before you leave the property.
- Know when to say no. Have the courage to 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.
There are a lot of people who want to tell you how to price your work. Some of them are experts in another field and they believe that makes them experts in construction. Others will tell you they used to be in construction; folks, there’s a reason they left. It’s easy to be in construction; it’s difficult to make money in it.
Don’t listen to them, and 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.
Recognize that what you do has value. Every job you build is one of a kind. It doesn’t matter if you’re a specialty contractor in roofing, siding, windows, or plumbing, or if you’re a remodeling contractor or a new home builder, what you build might be similar to what someone else would do but it’s always handmade and unique.
As the business owner you’re taking risks, so you deserve to be paid a fair salary and make a profit. This is how it gets done.
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