Creating Predictable Profit in Your Contracting Business

Creating predictable profit in business is not just one thing. It’s a multitude of small things done incrementally and improved over time.

One of the single biggest areas in a contracting business to create substantial returns is in the area of managing your COGS (Cost of Goods Sold). The best place to start is with your quotes. You must have accurate quotes. So how do you accurately quote projects? Ask yourself if you have you dedicated anytime to learning this skill? Or do you base your quotes off what your competitors are doing?”

To be successful in winning bids and managing your COGS, you must be able to predict your costs. And in an ever-changing supply chain disruption environment its more important than ever to be able to deliver accurate quotes/RFQ’s. (Request For Quote)

Every construction or trade business has different costs, so you shouldn’t build your quotes based on what your competitors are charging. The best way is to know your own costs and manage your projects accordingly.

Here’s my take on how to do so…

I call this process the Kaizen (constant improvement) cycle:

In this cycle, you will create a process from planning to replanning. I know. As soon as I mentioned planning your eyes glazed over. Its OK! Its not complicated, rather its quite simple. But it will allow you to increase your profitability on your project immensely. (You can use this process in other areas of your business as well.)

Here are the steps:

1. Plan
2. Brief
3. Execute
4. Track & Measure
5. Debrief
6. Replan

Let me break them down for you.

1.????Plan: Or in this case build your best quote possible.

a.????Create a template on a spread sheet so you can use formulas to do the math for you, for things like mark ups and margins.

b.????Remember to add in a percentage for unexpected costs (10-20%)

c.?????As you get better at this your goal is to reduce the % of unexpected costs.

2.????Brief your team on the potential project. Have them review the quote for anything missed. (PM and foremen, anyone on your team with the right knowledge to give you feed back.)

3.????Execute: Work on the project as per scope to completion.

a.????Once you have been awarded the project, implement this Kaizen process into the Project and create your delivery plan.

b.????It will improve your profitability per project,

c.????It will improve team morale

d.????It will improve customer satisfaction in a huge way.

4.????Track and Measure: Track and monitor all costs (expenses) including time, allocated to each portion of the project.

5.????Debrief: This is the most important part. Get your team together and debrief the project.

a.????Review the project costs. Treat the quote as the project budget and compare it to the actual spending.

??????????????????????????????????????????????i.????Did your quote cover all the costs?

????????????????????????????????????????????ii.????Which - if any - did you miss, and how much should you add next time?

b.????Determine your gross profit margin as a percentage. (this will be your base line)

c.????Ask: What went well?

d.????Ask what didn’t go well?

e.????Ask what could be done differently or better?

f.?????Ask how do we implement these improvements?

Does all this take effort? Hell yes! At first, but as you use this process it actually makes your life easier. And the profit you make from it makes it all worth it.

As well, as an added bonus, you as the owner, can buy back some of your time to spend doing the things you love to do (like with your family)

?Figuring out what went right and what wrong is the most important thing. As you implement this process into your quoting and project delivery, you’ll find ways to improve your quotes and your projects.

In time you will become more profitable in this one area.

For more info or frame works of this process reach out to me at [email protected] or here on LinkedIn at: https://www.dhirubhai.net/in/weskowalchuk/