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.
Do you yearn for a time when your team will produce more consistent results?
And do you ever get tired of the revenue rollercoaster that comes from inconsistent results?
One way to achieve consistency is by putting systems and processes in place with your team. I talked about this in my last post Creating a Culture Where Great People Want to Work.
The other important way is what we’re going to talk about today – training people to develop their skills and advance in the ranks so both they and the company are more successful.
But if you’ve never created a training program before, it can be hard to know where to begin.
In a time like we are in now, where there is a limited talent pool out there, the burden is on us as managers and leaders to develop our teams and make them great. Not only that but investing in training your people can actually add dollars to your bottom line because they’re better equipped to do their job efficiently with fewer mistakes.
Today in my interview with Todd Liles of Service Excellence Training and host of The Service Contractor podcast, he explains how to create a training plan so you can feel confident developing your team.
Todd and I will talk about:
- The 3 keys to a successful training program
- How to structure training
- What to cover so that you can teach your team your way to get the job done right.
When we think about work culture, some people think of mission statements and vision. Other people think it means touchy-feely stuff. Still others think it’s about rounds of beers. But I believe it’s about the environment you create that sets up a structure for consistent, excellent results, and creating an environment where great people want to work.
Many people in the building and remodeling industry started their businesses as one-man operations, or just a few people. They didn’t start out wanting to manage a team or even learn how to be a great leader. They just wanted to do good work, make great money, and have control over their own destiny. Then as they grew, they added people, and now find they spend a lot of their time managing, and not as much time doing what they love, and often, not making the money they want.
Truth is, managing people can be hard work. Yet building great teams is so important to the success of your business, it’s critical we talk about how you can do it well by shifting some of your management practices.
In today’s video I talk with Kyle Hunt, host of the Remodelers on the Rise , about how you can transform your company culture and build the kind of business great people want to work for with just a few changes.
When asked what their biggest frustration was, over 30% of managers surveyed said they wish they were better at hiring.
In the early stages of my career, I remember feeling that way as a manager. I was hiring a lot of people who, in the interview, came across as a good fit., but once they started workingand we got past the honeymoon phase, it became clear they weren’t the right fit. It was super frustrating.
Can you relate?
It’s all too easy to hire the wrong person. You quickly size up the candidate, you think of yourself as a good judge of character, and your busy, so you can’t take all day getting to know someone.
But those mistakes in the hiring process affect your bottom line in lost production and inefficiencies. Also, it costs $25,000 or more on average to turn over a new employee.
I learned from my early mistakes and in the process, I created a hiring and on-boarding process that is proven (by not just me but hundreds of clients) to get much better qualified and long-term employees.
In today’s video (and in the text below) we’ll talk about how you can get more insight into whether a candidate is the right fit, has the right skills, and will succeed in the job for years to come.
When I first started my business, I’ll be honest: I was a horrible manager. I look back and cringe at how I begged and threatened people to get them to do what I wanted.
What I gave employees was a task list. I thought of each of them as a helper.
Then I started reading Stephen Covey’s books and I realized leadership is not about using people like tools. It’s about helping people reach their greatest potential.
This might sound fluffy, but it’s actually not.
In fact, what all of us want as leaders is to make more money, have more time in our day, and get back to loving what we do. Your most direct path to that is putting good team management practices in place.
I shifted my thinking to seeing employees as partners who could be accountable to specific results. My job as a leader was to tap into my team’s potential and set them up to win.
Today’s video is a discussion with Spencer Powell, host of the Builder Funnel Radio podcast.
I’ll explain how to shift from thinking of employees as helpers to seeing them as partners, what structures and systems you need to put in place for everyone to succeed, and how to motivate people to care about the job they do.
These practices not only free up your time and bring in more revenue, they also will have people knocking down your door to work for you.