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Last weekend, our daughter and son-in-law asked our opinion about a home they’re considering buying. It’s across the country, so we looked at pics online while I pointed out all the things that could possibly go wrong.Rocky Road Ahead

When I warned them to check the chimney and make sure it wasn’t settling because it could fall on the house, Devon chuckled and reminded them that I can be a “doom-and-gloom” kind of person. It’s true, I have an eye for potential problems, but if you’ve been around enough older buildings you know that chimney settling happens, and it’s expensive to repair.

I’ve also been around the construction industry long enough to know that it isn’t always rosy. When a recession hits, construction is one of the early victims. That’s why today we’re going to review steps that you should take to protect your business from a downturn in the economy.

We discussed this a few weeks ago when we talked about the need to build a financial cushion to land on. You need an Operating Capital Reserve Account with enough funds to get you through a tough spell, and now is the time to get started.

There are a few other basics that you need to be in the habit of doing, so that when tough times hit, you have the skills needed to survive and your business has built a solid name and reputation that make it easier to sell jobs.

When it comes to skills, you need to estimate your jobs accurately. The only way you’ll know if your estimates are accurate is if you compare actual costs, after each job, with the estimate you created before the job. That’s called job costing. I’ve discovered that very few contractors are job costing. When I ask for a show of hands in my classes, it’s usually less than ten percent.

When you compare your actual costs to your estimated costs, you’ll discover your error factor. Almost always, the estimate is lower than the actual cost; very few estimators overestimate the costs of a project. If you have an error factor of four to six percent, which isn’t unusual, you’re spending much of what should be profit paying for job costs.

When you know your error factor, you need to do two things. First, you need to improve your estimating skills. Our estimating class has helped many contractors get their error factor under two percent. We know a few companies who’ve averaged a less than one percent error factor for the last two years. The goal, of course, is a zero percent error factor, but under two percent is pretty good.

The second thing you need to do while you’re improving your estimating skill is to adjust every estimate by your error factor. If you know, because you job cost every job, that your average error factor is seven percent, add seven percent to your estimated costs. As your estimates improve, reduce your error factor accordingly.

Every dime counts and if your error factor is low, you’re more apt to be profitable on every job. When you’re profitable, it’s easier to survive when times get tough.

Another skill you need to be honing is your sales skill. You don’t want to be in the habit of driving around giving out bids. That doesn’t work unless your goal is to be the cheapest. Know and practice how to ask the four basic questions, get the answers and move on to design agreements. Get a commitment before you do any plans, estimating or providing free advice.

The best way to practice your skills is on your family. Ask them to roleplay with you as you work through different scenarios, figuring out what to say and how to say it in your own words. We discuss this in our book, Profitable Sales; A Contractor’s Guide. If you have it, read it again.

Build your business in your community by marketing. Too many contractors depend on referrals when the market is strong, and that’s a mistake. Referrals are great, but they should be the icing on the cake, not the meat-and-potatoes of your marketing efforts. When times get tough, referrals dry up and you’ll have a tougher time attracting leads.

Now is the time to beef up your marketing and make your name known. Work on your website and make sure you can be found by those in your community who are looking for you. Use truck signs and job signs where possible, hand out business cards, help your local school district.

Finally, make every possession count. When asked why he thought that the Chicago Bulls basketball team was setting a record for total wins in one year, Michael Jordan said, “We make every possession count.” When you own a construction-related business, you make every possession count when you:

  • Return every phone call you get the same day or by 9 am the next day.
  • Show up for every appointment and on time.
  • Do exactly what you tell your customers you are going to do.
  • Send hand written thank you cards to those who’ve purchased from you or have helped you.
  • Keep in contact with all your old customers at least once each quarter.
  • Work on and build your referral network at every opportunity.
  • Hand out one business card each day to someone new.
  • Dress, speak and conduct yourself in a professional manner, always, in every setting. That includes online.

I sincerely hope we’re a long way away from the next downturn. That’s only a hope because we can’t control the national economy. We can control our own economy.

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