A popular article on our website explains why you can’t focus on being competitive if you want to be profitable.
You want to be profitable because it’s why you’re in business. Unless you’re independently wealthy, you’re in business to keep a roof over your head and food on your table. You can’t do that when your business is losing money.
When you’re focused on being profitable, you might be aware of your competition but you don’t worry about them. Why? Because you know you can’t control the other company’s quotes or how they conduct business. Your priority is calculating and quoting a fair price for every project that allows you to pay all the direct job costs, all your overhead expenses, and make a reasonable profit.
To do that, you correctly calculate your markup or gross margin, and you use it on every job. That way you know you’re quoting the correct price for your work. Additionally, you never adjust your price because of the competition. If the other guys want to give their work away, that’s their problem. You don’t make it your problem.
When you focus on profitability, you’re able to pay your own bills and maintain a high pay scale for your employees. That helps you attract the best employees, the ones who get work done faster with few callbacks. They take up less of your time because they aren’t constantly asking questions; they know how to think for themselves, and you can trust them to get things done right. That also frees up more of your time to go out and sell your company services.
When selling, your job is to show potential clients why your company is the best one to build their project. You know it’s not possible to cut your sales price on one job and make up the difference on the next job. That doesn’t work: every job must stand on its own. When you reduce the sales price, you’re giving up some or all the profit from that job, and possibly some of the funds you need to pay overhead. You can’t be profitable when you do that.
When marketing, you don’t use the word “free” in any advertising. Using the word “free” attracts those who want something for nothing. Those are the wrong clients.
When you attract the wrong client, you know when to say no. You also know when to say no to a job change that will cost you money. You do it nicely without burning bridges, but you say no when it’s necessary.
When you focus on profitability, you continually advertise and market your business 24/7/365. You know that when the economy tightens up, advertising is even more critical so you can reach those who are still in the market for your services. Smart business owners know that cutting back on advertising is the worst thing you can do because fewer people will hear your message and that means fewer opportunities to sell your service. Referrals are great, but they’re the icing on the cake, not the main course. We talked about that last week.
You don’t waste time with invoicing and billing. Your payment schedule is in your contract so your clients know when payments are expected. They also know you’ll shut down their job if they don’t follow the payment schedule, and that’s written in the contract. Now, depending on the client, you may need to send a reminder of the upcoming payment due, but putting your payment schedule in your contract will reduce time you spend chasing payments. The only receivables you have are jobs in progress because every finished job has been paid in full.
You’re constantly working on your education to improve your business and sales skills. You recognize that even though your company might have done something one way for several years, you’re open to finding a new and better way to do it, whether it involves running your business, selling your services or building your jobs.
When your focus is on profitability, you develop a nose for money. You watch your business get stronger and you sleep better at night because you know you are taking good care of your family and your employees and their families.
That’s why you’re in business.
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.
Listen to the audio here, or select dots on the right to download:
The link on Planning for 2024 is available here.
wpDiscuz