In every business, some things we do eat into our profitability. Sometimes it’s the things we don’t do. Once you see them, you can either start or stop doing those things and improve your bottom line.
This is the second in our discussion of issues that eat into company profits.
I read many articles on the construction industry looking for, among other things, information on how the construction industry is doing and what we can expect in the immediate and near future. One statistic that always interests me is the size of the average remodeling job.
Why does it matter?
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In my work as a business coach, I’ve found that remodeling companies with an average job size over $32,000 have an easier time making a reasonable profit. The owner gets paid on a regular basis, and it’s enough to cover their household needs. If their spouse works in the business, the spouse also gets paid. Subs, suppliers, employees, and every other bill that comes through the door is paid on time. In short, the owner isn’t distracted by financial worries.
That level of business stability isn’t just because of their average job size. It’s also other decisions they’re making concerning the jobs they take.
Is it possible for all contractors to get to that level of business stability? Yes, but it usually requires a mental adjustment and a bit of effort and redirection on the part of the owner.
You should avoid doing types of jobs that you haven’t done before. New jobs always have an extended learning curve, and that means more time involvement for both the construction crew and the owner. Instead, stick to the type of projects you do well and make money at. This will increase your profitability.
Always try to upsell when you are on a sales call. This will, everything else being equal, move your numbers up.
The owner of the company should avoid working on jobs. Owners make more money when they are working on their business and not in it. One reason is that when your time is spent running your business instead of building jobs, your value as perceived by your clients is much higher. They will pay you more for your time and expertise.
That is just one of many advantages to running your business instead of building jobs. When you’re spending your time physically working on the jobs, that’s time you can’t spend on sales, marketing, and managing the affairs of the company. It limits the number of jobs you have working at any one time, which limits your company profits. If I’m allowed to mention someone we’ve heard a lot about lately, I doubt Donald Trump deals cards at the blackjack table in his casinos.
You’ve heard of the 80/20 rule? I believe that many contractors spend 80% or more of their time on projects that will account for 20% of their business. They are spending too much time doing low-value jobs. Note that I didn’t say low-priced jobs; I said low-value jobs.
If that’s what you’re doing, try to refocus your time and energy on the jobs that will bring in more revenue and more profit. Things won’t improve overnight, but, over time, implementing a few changes in your jobs and your approach to those jobs will begin to improve your bottom line.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations.