Business Building: Simple Tips To Increase Your Profit!

George Hedley

Most business owners don’t really change much or do things differently. They just keep doing what they’ve always done - the same project types, services, systems, people, production, customers, markets, markup, and strategies. By continuing to stay the course, they remain satisfied with the same mediocre results and very low-profit margins. The average contractor only makes two or three percent net profit. This is significantly too small for the risk contractors take every day. Most unsuccessfully strive to make more money but aren’t willing to do what they need to do to make it happen. For whatever reason, they are afraid to change, hire, delegate, or try new ideas. Less than ten percent of construction companies make more than the average, while only the top ten percent ‘Best In Class’ contractors make from five to ten percent net profit. 

Double your net profit?

Are you willing to make the strategic moves required to double your company’s net profit over the next three years? Top contractors have experienced both positive sales revenue growth and increased net profits by making changes. By focusing on making improvements, implementing new strategies, finding better customers, and attacking higher margin opportunities, they’re able to improve and often double their bottom line. As the construction workload continues to shift up and down, now’s the time to make some positive choices to do better in the future. You can decide to continue to go after the same kind of work at the same margins or take a risk and go after better and different work at potentially higher margins. 

Tips To Double Your Net Profit! 

1. Find better customers and projects.

Rather than continue to seek and bid on the same kind of projects you’ve always worked on, start an attack program to look for better customers and projects with less competition and higher margins. The highest-margin contractors generally have an edge over their competitors. For example, concrete contractors who have security clearance and drug-tested workers, are certified to work in high-risk situations, are certified by the power industry, and have passed tests for installation standards can get onto nuclear power plants and perform work at higher margins than concrete contractors who pour footings for home builders. General contractors who specialize in clean environments, such as laboratories, computer chip factories, or food manufacturing facilities, tend to have less competition and higher margins. And specialty contractors who do very high-end work on super expensive custom homes are generally recommended by designers, don’t have much competition, and make a lot more money than contractors who bid on low-end homes and remodels against lots of cheap competition.

2. Increase your mark-up.

Stop pricing the same way you did when work was tight bidding against low-priced competition. Be bold and ask for the margins you deserve and require to provide full service and do an excellent job satisfying customers and meeting schedules. Bidding against too many competitors to customers who shop bids is no way to make big profits. Be more selective and only provide proposals on projects with three or less legitimate competitors. Or better yet, never bid and seek to only negotiate with customers who need what you specialize in. Seek project and customer opportunities that require special expertise and skills, professionalism, a track record of performance, enhanced supervision, and other differentiating factors only your company can provide.

3. Don't cut your bid to win work. 

Customers now need great top-notch contractors more than ever now, with high material prices, labor shortages, tighter budgets, and faster timelines. Learn how to say ‘no’ and hold to your bottom line. If you bid to the right customers who want to use your company, your price won’t matter as much as performance, trust, and expectation of a job well done. Customers want to hire the best service provider, contractors they trust, and companies who perform. If asked to cut your bid, say ‘no,’ and offer value-added services, alternatives to the specifications, or other methods to reduce the price. Tell them if you want us to cut our bid, we will also have to also reduce something to pay for the reduction, like providing less experienced supervision, lower quality workmanship, a slower schedule, reduced warranty, or reduced site cleanup.   

4. Stop using low ball subcontractors and suppliers.

Using super low-priced, untested or unqualified subcontractors is tempting. But it opens the potential for slower projects and lots of field problems. Plus, using cheap numbers in your bid lowers your overall markup and the chance to make money when things go wrong. Don’t take extra risks to better your price, and then give customers the benefit of your exposure to potential problems, issues, and losses. Explain to customers lower priced subcontractors are available, but you aren’t willing to take the risk of saving a few dollars for them. If customers want to take this risk, put an allowance in your contract to overcome any problems unqualified too low subcontractors or suppliers might cause.

5. Put enough supervision in your estimates.

To do a great job, meet your production budgets, and finish projects on time, you need the right amount of money in your budget to provide for proper professional supervision. Too often, low-performance contractors don’t add enough money in their bids for strong supervision. Good full-time and full-charge field supervisors will allow you to finish faster without callbacks, mistakes, re-work, or uncompleted punch lists. Lack of proper supervision causes jobs to take longer and cost more. Good customers want jobs completed on time and will pay for supervision to meet project goals. Tell customers supervision and project management are job costs and will be included in your estimates.

6. Increase your change order rates. 

As you get ready to start projects, first meet with your customer and review your change order or cost-plus rates for extra additional work they might request your company to perform. Make sure your detailed rate sheets list out everything you need to cover all your costs to do the work, including your crew rate, labor, labor burden, supervision, project management, trucks, equipment, gas, fuel, insurance, large and small tools, move-on and off, temporary facilities, and utilities. Also include minimum time charged, such as four-hour minimum for equipment, two-hour minimum crew rate, and a daily rate for all tools and smaller equipment. Think like a rental yard and price accordingly. 

7. Stop giving away little things.

By giving away small items to demanding customers, it can add up to lots of money. Who in your company decides when things should be given away for free? You must have a maximum limit where field supervisors and project managers are authorized to approve. When starting projects, meet with customers to discuss how extra additional work items will be handled. Read the contract together with particular emphasis on the change order clause. Most all contracts require prior written authorization to proceed on extra items. Also, review how many move-ins are included in your contract and explain the cost for additional move-ins, general conditions, supervision, and delays. Before you start any project, make sure you’re on the same page with customers how changes will be authorized to avoid doing additional work without approval or payment.

Bonus step 8. Add regular personal development.

The top ten percent of profitable contractors have one thing in common. They dedicate time and money to personal development for themselves and their management team. Consider one or several of these personal development solutions to increasing your bottom-line profit margins:

a. Get involved in your national and local industry association. Attend their meetings and conventions. Take their training classes and workshops. Get on a committee and meet with other leaders on a regular basis. Learn what the top contractors do to make more money.

b. Read or watch management and leadership books and videos. Take a few hours every week dedicated to continuous learning. There are hundreds of great business books and training videos available at the click of a mouse. Also, most coaches or trainers have a video or YouTube channel to watch. Or look for TEDx talks for quick ten-minute programs outlining numerous topics to better your business.

c. Hire a business coach or consultant. The one thing ‘Best In Class’ company owners and leaders have is an ongoing method to get advice and help with their strategy, challenges, and issues. Investing a small amount of money in professional coaching or joining a business owner peer group will give you an objective way to look at new ideas, be accountable, and learn new improvements to enhance your bottom line.

d. Build a management team. Trying to make all the decisions yourself and running your business alone is stressful and futile. You can’t do it alone! Now is the time to build a strong management team to be accountable to win the work you need at the margins you want and be accountable to get the work done on budget and on time. Start by scheduling a management retreat to get everyone on the same page headed in the right direction.

e. Get your free copy of “10 Things Contractors Must Do To Must Do To Grow & Increase Profits!’ by emailing GH@HardhatPresentations.com.

Construction industry business owners and managers continue to be stuck in the past! They fail to realize that squeezing out the last drop of productivity, cutting their overhead and costs to the bone, working harder, and continuing to do business the same way with the same old customers and project types won't improve their profits. When companies don't get the results they want, it's not their competition, the economy, or their people. It's usually the leader who is afraid, has gotten stuck, and is not willing to try new ideas or change! What strategic decisions are you willing to make to double your profit margin?

ABOUT THE AUTHOR

George Hedley CPBC is a certified professional construction BIZCOACH and popular speaker. He helps contractors build profitable companies, grow, get organized, improve field productivity, and get their businesses to work. He is the author of “Get Your Construction Business To Always Make A Profit!” available on Amazon.com.  To start a BIZCOACH program, sign-up for his newsletter, attend a webinar or workshop, or get a discount at HardhatBIZSCHOOL.com online university, visit HardhatBIZCOACH.com or e-mail GH@HardhatBIZCOACH.com.
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