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.
Clarity will give you confidence
It doesn’t take a mathematician or experienced accountant to understand that there are a few key numbers which 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 work-load 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 comes 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 as relative to every aspect of your operation. They are the “vital signs” which 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..
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p.p.s. If you want to learn more about the key numbers to look at in your business to help you make a consistent profit and increase cash flow, then check out my book, The Profit Bleed.