“Listen, we were bidding like crazy before we lowered our prices and weren’t closing enough work. Now that you’re telling us to raise our prices, I’m concerned I’m going to have to go back to bidding twice as much work just to get the same number of projects.”
In my experience helping construction companies close more sales and increase profit margins, the above statement is not unique. It can simply become difficult for business owners to wrap their minds around the idea that raising prices can actually help land more contracts. The sales process is multi-faceted and about much more than just the price.
Construction companies should strive to be different and see pricing wars as not a strategy for landing the next job, but rather an opportunity to deliver a great experience and value to customers. Unfortunately, playing the pricing game can be a downward spiral that leads many construction companies to price themselves out of business. Consumers become accustomed to paying such a low price that it almost becomes a demand and causes business owners to ultimately scramble to survive. They are forced to keep their prices at a point where they are actually losing money.
It was a simple question… “How’s your year going?” As I watched his expression change and heard the strain in Bob’s voice as he spoke, the angst was palpable.
“Nearly a whole month of not being able to work on projects, and a slow start back, with unexpected setbacks dictated by circumstances out of my control, has taken its toll,” he said slowly. His eyes reflected defeat. As we talked it was evident Bob felt a lack of control in his business.
Almost every business owner I’ve talked with over the past two months can relate to this experience at some level. (more…)
Running a business is never easy. Just thinking about all the necessary elements of a successful company can become overwhelming. That said, becoming a profitable business shouldn’t be an overly complex or stressful experience. In the contracting industry, far too many companies make a critical mistake which only perpetuates this stress. When it comes to truly becoming profitable as a contractor, there is no substitute for the value of understanding the critical elements of your business. In my book, The Profit Bleed, I make it my goal to help contractors understand a handful of key numbers which can make or break their business. If you are tired of being perpetually exhausted and spend day after day stressing over a lack of adequate cash flow or organizational tension, numbers may be the solution.
Can you relate?
Your Balance Sheet is a powerful management tool if you know how to read and interpret what the numbers are telling you. In fact – two key numbers. Just like having the right tools when working on a project can help you produce better results, the same is true of your company’s financial reports.
What kind of results? Sufficient cash in the bank when you need and want it. Cash reserves on hand when unexpected events occur – like a pandemic or downturn in the economy. While no one could have predicted a pandemic, the clients I work with who have cash reserves did and will continue to fair much better during this time than those who didn’t.
In this week’s video, I walk you through how to read and use your Balance Sheet as a powerful management tool. I show you the 2 most important numbers to look at that will let you keep your finger on the pulse of your company’s financial health. In the process, you’ll learn what targets successful contractors use in their business to manage these numbers.
Let’s face it, every contractor strives to attain profitability. You want financial stability, success, and freedom. There’s absolutely no shame in that. When we own a business, we focus on providing great service, building a remarkable reputation, which in turn, should lead to a strong client base, and a highly profitable company, at least in theory.
Yet, time and time again, contractors run into walls. Despite the best of intentions and all that hard work, their income is barely covering overhead costs.
In hopes of reaching a higher profit, they end up taking on more work, chasing after anything they can get their hands on, which leads them into a vicious cycle. Seemingly overnight, they’re giving up weekends; abandoning their own health, relationships, and happiness in exchange for endless coffee sipping and yet another late night at the office.
Sound familiar? read more…
Contractors live and die by gross profit margin. And if you don’t learn how to control that one element in the bidding stage, you will always be chasing after profits.
The contractors I know who have learned to manage gross margin when bidding, nail project profits right from the start, and the result is a construction business that produces a consistent profit.
Gross profit dollars vs. gross profit margin:
Gross profit dollars are the difference between your bid price and your project costs. Often I see that contractors only look at that number before a bid goes out.
The gross profit margin is your rate of return and is measured as a percentage. It’s that percentage that you want to learn to manage in the bidding stage in order to make a more consistent profit in your business.
So how do you manage gross profit margin? In the video and the post below I show you how.
In over 25 years of working with contractors, there is one number that a lot of folks I meet don’t understand – and getting that one number wrong is killing their profits!
What sparked this post was a recent call with Joe – a remodeling contractor. We were barely on the phone for two minutes, when Joe launched into a rant about how he felt he’d been doing all the right things in his business, and yet, his bottom line and bank account were not showing the return for all his hard work!
Maybe you’ve been there too at some point? It’s super frustrating.
Making a profit begins with the markups in your bid
When I asked Joe his strategy for marking up his costs in bidding he replied – “I mark up what I think I can get. I mark up according to what I hear other contractors in my area are marking up, like 10% and 5%, or 15% and 10% on some projects.”
This was part of Joe’s problem. I explained to Joe that unless you have a large company, your overhead percentage is never that low. I know this because in the past 25 years I’ve worked with hundreds of small to mid-sized contractors, and I see their numbers.
I could see the irritated look on Joe’s face as I spoke. “Well, then how the hell do people who only mark up that much on their bids make any money? And how am I supposed to compete against those guys?”
As I asked Joe more questions, I could see he was not clear on the one number I knew was a factor in how he priced his work, and ultimately in the profits, he was or was not making.
Watch today’s video and learn what Joe and I figured out in his business that allowed him to start being more strategic in his bidding, and let him start adding more profits to his bottom line. You can also read more below.
It was 2005, the economy was booming, and my appointment calendar was full nearly every day. I was grateful for the abundance of work, but at the same time, I was weary. I’d been working non-stop for two years and longed to work fewer hours. “Teach a course!” my business coach suggested cheerily. “That way you can work with “one-on-many” vs. just “one-on-one”, then you could cut down on your hours.”
The thought of developing a course when I was already working so many hours sounded daunting and exhausting. For several months I kept objecting and explaining all the reasons why it wouldn’t work. But she didn’t give up and each time I complained about working too many hours, she would remind me that I had other options.
In late 2005, tired of hearing myself complain, I relented and agreed to build the course. In the 1st quarter of 2006, the first Business Boot Camp course was launched. A course designed to help contractors create better systems for increased profits. As I wrote each new lesson plan it made me stop and think through what I do with clients when working one-on-one. As I wrote and then taught each session, the most amazing thing happened in my business…
During this time, many contractors are feeling a lack of control over their business. Being forced to stop working and shelter in place can feel like someone else is driving your destiny.
I get it. And while this can be super frustrating, there IS something you can do to have more control.
The one thing that always gives us more control is information. Information give us..
Clarity so we can have…
Confidences, so we can take…
Today’s video is an interview I did with Devon Tilly, host of the podcast, Art of Construction. In this interview Devon starts out bay asking me…
How do you see contractors are being controlled by their business?
As you watch and listen, here are a few questions to ask yourself…
What DO I know and how can I get more clarity?
How CAN I plan for the unknown?
What choices do I have now?
Want to hear what other contractors are doing right now to improve their businesses? Join me next Wednesday 4/15 as I interview 6 contractors who are using this time to make their companies better.
Wishing you good health, well-being and success!
Have you ever lost money on a project and thought it was primarily caused by your team’s lack of performance?
Do you ever feel like it’s hard to get your team to produce consistent results?
You know that when you’re building a house, you start with a solid foundation. You can’t build the first floor without a solid concrete slab in place.
And yet, many business owners get tripped up in the pitfalls that come from not having a solid foundation in place with their teams.
In today’s video, Randall Soules, David Hawke, and I talk about building solid foundations with teams that produce consistent profits. This episode was originally aired on their Remodeling Business Blueprint Podcast.
When you watch, you’ll discover a few things you can do to start making more profits on projects and get more consistent results from your team. You’ll also find out how to become the kind of company people are begging to work for, even in today’s competitive job market.