7 STRATEGIES TO INCREASE NET PROFIT!

1. Find better customers and projects.

Rather than continue to seek and bid on the same kind of projects you’ve always worked on, start an attack program to look for better customers and projects with less competition and higher margins. The highest margin contractors generally have an edge over their competitors. For example, concrete contractors who have security clearance and drug tested workers, are certified to work in high risk situations, are certified by the power industry, and have passed tests for installation standards can get onto nuclear power plants and perform work at higher margins than concrete contractors who pour footings for home builders. General contractors who specialize in clean environments such as laboratories, computer chip factories, or food manufacturing facilities tend to have less competition and higher margins. And specialty contractors who do very high end work on high end super expensive custom homes, are generally recommended by designers, don’t have much competition, and make a lot more money than contractors who bid on low end homes and remodels against lots of cheap competition.

2. Increase your mark-up.

Stop pricing the same way you did when work was tight bidding against lots of competition. Those days are over. Be bold and ask for margins you deserve and require to provide full service and do an excellent job satisfying customers and meeting schedules. Bidding against too many competitors to customers who shop bids is no way to make big profits. Be more selective and only provide proposals on projects with three or less legitimate competitors. Or better yet, never bid and only negotiate with customers who need what you specialize in. Seek project and customer opportunities that require special expertise and skills, professionalism, a track record of performance, enhanced supervision, and other differentiating factors only your company can provide.

3. Don't cut your bid to win work.

Your customers need you more than ever now. Learn how to say ‘no’ and hold to your bottom-line. If you bid to the right customers who want to use your company, your price won’t matter as much as performance, trust, and expectation of a job well done. Customers want to hire the best service provider and contractors they trust. If asked to cut your bid, say ‘no’ and offer value added services, alternatives to the specifications, or other methods to reduce the price. Tell them if you want us to cut our bid, we will also have to also reduce something to pay for the reduction like providing less experienced supervision, lower quality workmanship, a slower schedule, reduced warranty, or eliminate site cleanup.

4. Stop using low ball subcontractors and suppliers.

Using super low priced untested or unqualified subcontractors is tempting. But it opens up the potential for lots of field problems. Plus, using cheap numbers in your bid, lowers your overall markup and the chance to make money when things go wrong. Don’t take extra risk to better your price and then give customers the benefit of your exposure to potential issues and losses. Explain to customers you have lower priced subcontractors available, but you aren’t willing to take the risk to save a few dollars for them. If customers want to take this risk, put an allowance in your contract to overcome any problems unqualified too low subcontractors or suppliers might cause.

5. Put enough supervision in your estimates.

To do a great job, meet your production budgets, and finish on-time, you need the right amount of money in your budget to provide for proper professional supervision. Too often contractors don’t add enough money in their bids for strong supervision. Good field supervisors will allow you to finish faster without call-backs, mistakes, re-work, or an uncompleted punch-list. Lack of proper supervision causes jobs to take longer and cost more. Good customers want jobs completed on-time and will pay for supervision to meet project goals. Tell your customers supervision is a job cost and will be included in your estimates.

6. Increase your change order rates.

As you get ready to start projects, first meet with your customer and review your change order or cost plus rates for extra additional work they might request your company to perform. Make sure your detailed rate sheet lists out everything you need to cover all your costs to do the work including your crew rate, labor, labor burden, supervision, project management, trucks, equipment, gas, fuel, insurance, large and small tools, move-on and off, temporary facilities, and utilities. Also include minimum time charged such as four hour minimum for equipment, two hour minimum crew rate, and a daily rate for all tools and smaller equipment. Think like a rental yard and price accordingly.

7. Stop giving away little things.

By giving away small items to demanding customers can add up to lots of money. Who in your company decides when things should be given away for free? First you need a maximum limit field supervisors and project managers are authorized to approve. When starting projects, meet with customers to discuss how extra additional work items will be handled. Read the contract together with particular emphasis on the change order clause. Most all contracts require prior written authorization to proceed on extra items. Before you start any project, make sure you’re on the same page with customers how changes will be authorized to avoid doing additional work without approvals or payment.