What Really Drives Profits

Running a construction business is never easy.  Just thinking about all the elements you dealing with can become overwhelming. That said, becoming a profitable construction business doesn’t have to be an overly complex or stressful experience.

Far too many contractors make critical mistakes because they lack the right feedback. When it comes to truly being profitable as a contractor, there are a handful of critical numbers that drive your success – and when you know what those are, you have more control over your business, your bottom line, and your life!

In my book, The Profit Bleed, I make it my goal to help contractors understand a handful of key numbers in each key area of a contracting business that drives profits. If you are tired of being perpetually exhausted and spending day after day stressing over a lack of adequate cash flow or organizational tension, good feedback and data may be your solution!

Clarity will give you confidence

It doesn’t take a mathematician or experienced accountant to understand that there are a few key numbers that ultimately translate to the success of a contracting business. As simple as it may seem when these important numbers are correctly understood it can open the door to a level of profitability you never thought possible. As you uncover the secrets of pricing, sales, production, feedback, and project management, you will find where profits are made and lost.

Before trying to understand where your contracting business might be bleeding, there is a very critical question you must ask yourself. What are my real costs? Unfortunately, far too many companies don’t understand what it actually costs them to complete a job. Real costs must be defined before any bidding can successfully take place. But, how do you determine them?

In my experience working with a variety of contracting companies, one stands out in particular – Constantine Construction. When Constantine was faced with an extremely high workload and seemingly insurmountable losses, they simply didn’t understand why they were failing. In the process of uncovering what might be going wrong, I found that they were ignoring some key numbers. While the number of jobs they successfully bid and won continued to grow, the idea of volume not equating to profit never became apparent. There is a distinct difference between creating revenue and actually making a profit. Before starting a bid, there is a very important percentage that must be determined. Do you know what your gross profit margin is?

What’s your strategy for making a profit?

Contracting companies who create a pricing strategy that has a target gross profit margin ultimately ignores the hearsay of the industry and relies on their individual needs are poised to be sustainable in today’s competitive marketplace.

Far too often, contractors price themselves into a job but out of a potential profit. That was what happened to Constantine.  Once they understood how to price for a profit, with clear gross profit margin goals, and solidly grounded in their numbers, their bottom line began to grow.

Comfort and trust come from knowing your numbers

Constantine learned that creating a level of transparency and coming across as authentic to clients is just as important as bottom-line profit. Businesses who are able to convey an expert knowledge of the bidding process and appropriate pricing are much more likely to develop long-term client relationships.

It is no secret that authenticity in today’s business world is essential. According to best-selling author Simon Sinek, “people are instinctively drawn to those who are considered more authentic than their competitors.” We live in a world where trusting relationships are sometimes hard to establish and those people seen as disingenuous may find it hard to be successful. When you operate a contracting business that has an authentic and sound knowledge of the critical numbers which make your company successful, clients are going to see you as authentic. As time goes on, you will become a trusted source for quality work and a level of expertise that cannot be replaced. In short, knowing your numbers make you more reliable.

Numbers illuminate so much about your business and though they seem to be something that can be changed or adjusted to fit short-term needs, they are something that must be taken ownership of. When thinking about the value of an understanding of numbers, it becomes clear that they don’t play favorites and are what they are. In order to achieve profitability as a contracting business, numbers should be seen relative to every aspect of your operation. They are the “vital signs” that can cause your company to either hemorrhage or position itself for long-term success.

If you want to illuminate the power of numbers and begin to understand how pricing, sales, production, feedback, and project management play integral roles in their implementation, The Profit Bleed will be your guide.