Business Builders Blog

Category: Price for Profit

Pricing Pitfalls in Construction

In the contracting industry, a prevalent but deceptive notion persists – the idea that pursuing higher sales volumes at lower prices will lead to greater profits. This assumption may appear sensible on the surface — secure more contracts, increase your revenue, and anticipate a surge in profits.

Be aware that this myth could pose serious threats to your business’s profitability and success! You can grab this simple (FREE) guide, “Beyond Breakeven, to help you see from a numbers perspective why this is dangerous, but keep reading….

The Misleading Allure of Volume Over Margin

Imagine this: you’re selling more than ever, but your bank account tells a different story. This is the harsh reality I’ve seen countless contractors face. After 30 years in the business, I’ve witnessed too many go from profit to peril, chasing volume over margin.

Think about it – a single wrong move during a tough project can turn a profitable year into a catastrophic loss. I recall a client who plummeted from a $250,000 net profit to a staggering $500,000 loss by following this flawed volume-over-margin approach.

Sandy’s Cautionary Tale

Meet Sandy, a contractor whose story is all too familiar. His company’s revenue jumped from $2 million to $12 million, yet profits were nosediving. Why? Because Sandy fell into the trap of thinking lower-priced, larger projects would balance out. They didn’t. His profits dwindled as his gross profit margin shrank alarmingly.

Revitalizing Your Bottom Line

When Sandy and I sat down, I outlined the two fundamental ways to impact your bottom line: boost revenue or slash costs. You can only increase revenue by either selling more or charging more. To cut costs, you need to either increase production efficiency (by far the hardest of these 4 things) or reduce overhead. Sandy had upped his revenue but overlooked the essence of business – a healthy gross profit margin. Remember, it’s not just about making money; it’s about keeping a consistent profit.

Gross Profit Margin: Your Lifeline

As a contractor, your gross profit margin isn’t just a number; it’s your business’s heartbeat. Believing that lowering prices for higher sales will pump up your profits is a fast track to financial trouble. It’s a perilous misconception that can drain your business’s lifeblood.  When Sandy started focusing margin over volume, his business made a sharp turn-around and his bottom line started to grow!

Mastering Your Pricing Strategy

Before you even consider sending out a bid, pause. Do you have a strategy to ensure your bids align with your gross profit margin goals? Don’t let market trends push you around. Instead, arm yourself with a deep understanding of your business costs. Know your break-even point and aim for a healthy 10 to 12% net profit margin on your bottom line.  That’s what successful contractors set as their targets!

Watch the video to learn from Sandy how to avoid this pitfall in your business.  Make sure to check out the resources below to help you gain confidence in your numbers when pricing.

Empower Your Decision-Making

Get your real overhead breakeven percentage by following the steps in this simple (FREE) guide – “Beyond Breakeven.” It’ll guide you in understanding the correct overhead percentage you have to mark up bids JUST to break even, thus enabling you to make informed pricing decisions.

Also, explore our “Price for Profit” category on the Profit Builder blog for valuable resources to fine-tune your pricing strategy.

Your success as a contractor hinges on maintaining a solid gross profit margin – these resources will help you do just that!

uncover your true labor costs

In the construction industry, understanding your true labor cost is crucial. This was a hard-learned lesson for Mike, a seasoned contractor who thought he knew the full extent of his labor costs, but a detailed analysis revealed significant gaps in his calculations.

The Bidding Blind Spot

Mike’s first challenge was in his project bidding process. He based his labor cost estimates on easily visible factors, neglecting the deeper, hidden costs of his employees. This oversight led to bids that underrepresented the actual expenses, affecting the overall profitability of his projects.

Misleading Profit and Loss Statements

The second issue was in Mike’s financial reporting. His profit and loss statements gave an inflated view of his gross profit margin. The culprit? Rising employee benefits and a few other line items were not being allocated correctly. These should have been included in the cost of goods sold but were instead shown as overhead expenses.

Correcting the Course

To tackle these issues, we recalculated the labor costs in Mike’s bids to reflect the true cost of his employees. We then restructured his profit and loss statements to align these costs accurately under the cost of goods sold. This not only gave Mike a true picture of his gross profit margin but also guided him toward more accurate and profitable bidding.

Empowering Solutions

The below Video Tutorial and FREE Template I’ve provided here will guide you through the process of accurately calculating your fully burdened labor cost. Additionally, take advantage of the FREE Labor Cost Calculator template I’m offering. These tools are essential for ensuring your project bids encompass all relevant costs and your financial statements reflect the true health of your business.

Conclusion: Take Action for Financial Clarity

Now is the time to enhance your financial acumen. Watch the video, use the template, and start transforming your approach to project pricing and financial analysis. Share your insights with the construction community and let’s pave the way for a future of accurate costing and increased profitability!

Get your FREE Labor Cost Calculator Template and Watch the Tutorial Video now!

Embrace accuracy in your financial practices. Watch the video, apply the template, and join a community of savvy construction professionals dedicated to financial clarity and success. Your journey towards a more profitable business starts here!

Better Feedback for Soaring Contractor Profits

Welcome back – I’m thrilled to have you join me for our next video in the series on “Plugging the Profit Leaks in Your Contracting Business.” Today, we’re delving into the realm of accounting and job costing, unveiling the key to more efficient and timely project feedback—the ultimate tool for boosting project profitability.

Job costing can feel like a daunting task, making you want to avoid it altogether to save time. But picture this: an efficient and straightforward way to do job costing that not only saves you time but can also increase your profits by an impressive 5-10%!

Sound too good to be true? Let me assure you, it isn’t.

Over the years, I’ve had the honor of working with hundreds of contractors who’ve successfully tapped into this goldmine!

So, what’s the secret, you ask?

The answer lies with my distinguished guest, Diane Gilson from Info Plus Accounting. In this week’s video, you’ll get an insider look into how job costing can let you have more control over project costs, and how to kick-start the implementation of her tried and true job costing system.

The good news doesn’t stop there! Diane generously shares direct links to some priceless resources to help you get started on this journey. So, I urge you to take a moment, click and watch the video now.

Curious about the treasures Diane brings to this discussion? Here’s a sneak peek:

Watch the video, discover the secret to amplified profits, and start plugging the profit leaks in your contracting business today!

Stay tuned for the next video in our “Plugging the Profit Leaks in Your Contracting Business” series. We’ll be focusing on how to read and use your financial reports to improve the profitability and financial health of your contracting business. You won’t want to miss it!

Profit Leaks Exposed: Mastering Profitability in Construction

Running a construction business is not for the faint-hearted. I’ve experienced firsthand the risks and challenges that come with being a contractor. There are countless areas where profits can leak out, and regaining control can seem like an uphill battle.

Today, I’ll show you how to identify where the key profit leaks are and how to plug them!

What I’m sharing isn’t just theory, this is based on over 30 years of working with contractors and helping them to build businesses that experience sustained profits year over year – no matter what the economy is doing.

The secret is knowing the handful of places where you have the biggest risk and knowing how to control those factors.

Together, we’ll explore each area of your business, from marketing and estimating to sales, production, finance, reporting, and project management. Within each category, I’ll provide valuable insights on how to plug those profit leaks and minimize the risks and liabilities that contractors face on a daily basis.

Are you ready to seize the opportunity and transform your construction business?

Grab a pen and paper because you won’t want to miss a single detail. Together, we’ll pave the way to a more profitable future.

Click the link below to access the video and embark on this transformative journey:

Make sure to watch next week’s video as we dive into how to create a marketing strategy for your contracting business that will give you more focus and clarity about what can work for YOU in generating more of your ideal leads.

Get your FREE Business Health Assessment here, and identify the #1 place your contracting business is leaking profits!

And check out these other FREE resources “Beyond Breakeven – knowing your true overhead breakeven percentage” and the “Sales Process Toolkit” – to help you close more sales.” Enjoy!

 

contractors – don’t make this costly mistake

​We’ve all been there, underestimating the hours a job will take and leaving ourselves short on profit.

But the real danger comes when you don’t even know how much your employees are really costing you.

Without knowing the true cost, you’ll never be able to accurately set your markups, and that’s a quick way to blaze your way toward financial chaos.

But fear not – gaining clarity on your true costs is the key to unlocking sustainable growth for your contracting business, and that’s what today’s blog is all about!

Taking the right steps now can help you ensure those unexpected costs don’t come back and truly bite you in the future.

Put trust in the data that’s available to you by calculating your real labor costs, to have the right cost basis when bidding. Don’t let profitability slip through your fingers!

Watch this video and then go download your FREE labor cost calculator.  Watch to the end where you can get another amazing FREE offer that will provide you with a ton of great tools and resources to help you grow and thrive as a contractor!

understanding markup vs. margins for maximum profitability

As a contractor, understanding markup vs. margin is essential for your success.

Bidding on projects without properly calculating your markup can be a recipe for disaster. Knowing how to calculate markup and margins gives you more confidence when selling projects,  and is the first step to making a consistent profit.

In this blog post, I show you an easy approach to understanding markup and margin, as well as provide some free resources that will help you bid confidently knowing that your project will be profitable from day one!

Why Does Understanding Markup Matter?

You want projects to be profitable – that’s a given. To achieve this, it’s important to understand how markup works. If you don’t know how much you need to mark up on bids in order to reach the desired gross profit margin, you will likely bid too low and lose money before the project event starts!

How Can I Learn More About Markup vs. Margin?

Understanding markup and margins can be intimidating but once you understand the basics it becomes much easier! With the help of my video plus the FREE table I provide, you’ll have the knowledge needed for calculating accurate bids with confidence. Also, feel free to grab my article  “Markup vs. Margin Explained.”

Having a good grasp of these finance fundamentals means less stress in wondering whether or not your projects will be profitable.