By Mark Lenzer on December 20th, 2022
Successful contractors don’t cut corners or find cheap workarounds to boost profits year over year. Instead, they focus on educating clients on the value of what they do—from the quality of the materials to the skilled workmanship—and providing exceptional service. When clients understand the value of your work and the return they will get on their investment in the long term, they are far less likely to gawk at the price of a job.
But many contractors remain focused on shrinking their costs in order to become more profitable. Some will spend a lot of time battling for cheaper labor or materials thinking that this is the most effective approach. In reality, these cost saving measures will only increase annual profits by a small percentage. Not to mention the new costs they’ll incur when materials fail or dissatisfied clients call crews back for repairs.
First Get a Clear View of Your Business
To identify ways to increase revenue, you first need to forecast and project your overhead and income for the year. Take a look at your costs on a job-to-job basis and ask the following questions:
- What are my material costs?
- What are my labor costs?
- What additional overhead costs do I have? (e.g., administration, marketing, and sales costs)
- What is my gross profit for each job?
Now which of these numbers can you budge?
Material costs generally aren’t within your control; they tend to be a static figure. You can battle over pricing, but the impact to your net profit at the end of the year will be minimal. The half percent that you save here or there is likely not worth your time.
The same goes for labor costs. Opting for less skilled and experienced crew members will only affect a minor percentage of your annual profits, but will noticeably decrease the quality of your work, leading to dissatisfied customers, increased call-backs, and fewer contracts in the long term.
Focus Your Energy Where It Can Truly Make a Difference
The overhead and management costs to run your company are more worthwhile to analyze. If you want to realize significant cost savings, you need to implement best practices in administration, sales management, and accounting.
If you can look beyond just individual job costs and carefully account for all operations, expenses, and sales, you can assess your overhead and begin to target truly effective ways to drive profitability.
Start with regular reporting on cost trends and sales trends to get a solid baseline understanding of your overhead. Then determine your profit goals. For example, you might set a goal to make at least seven percent net profit at the end of the year.
Set a Net Profit Goal and Work Backwards
Now that you have a clear picture of your business and a clear target, you can work backwards to create a budget that enables you to reach your goals. If you set aside that seven percent for pure profit, how much revenue do you have left for administration, production, marketing, and other costs?
This is how you avoid overspend and laser-focus your spending on what will have the greatest impact on revenue, whether that’s a marketing push, investment in sales, or taking advantage of lead generation tools.
Drive Sales by Educating Clients on Your Value
Sales and customer education go hand in hand. The most successful companies differentiate from the competition by explaining how their work is going to benefit the client and save them money and headaches in the long run. This is very different than competing on price or trying to underbid your competitors.
When you first talk to a prospect, your number one job is to build trust. Your customers are risk averse and afraid to make a mistake. Instead of telling them you can do something cheaper or faster, convey how important the work is and the potential risks and costs of not doing thorough, high-quality work.
When you see the client or visit the site for an inspection, point out every little thing that you can do and use language they can relate to. This is the sweet spot where sales and education meet. For example, instead of simply talking about shingles, refer to roof protection. Or instead of talking about roof underlayment, talk about secondary vapor barriers. These words more clearly express why the components matter—and there is a good chance prospects didn’t hear your competitor say them.