Profit

Net profit is the bottom line—it’s your report card! A responsible estimate will include a reasonable amount for profit. If your estimate is complete and you manage your company efficiently, you don’t need much profit to stay in business. In a normal business climate, a reasonable profit margin would be between 10—30 percent of break-even cost, but in today’s market, this may not be realistic.

• Strive for profit, not sales volume
• Evaluate the risk involved
• Increase profits by increasing efficiency, not by increasing prices

Let’s review some factors that have a significant impact upon the achievement of profit, and what you can do to ensure that you remain profitable.

Factors essential to achieve profit:

• Be confident that you are entitled to make money on EVERY job
• Maintain cost control of all jobs particularly labor hours, overhead, and higher priced materials.
• Motivate your employees to be efficient so that the company is profitable; this ensures that they have a job. Perhaps consider a profit sharing incentive.
• Plan to make a profit by building it into the Bid.
• Establish a collection procedure and be sure you ALWAYS get paid.
• Establish a fair price, stick to it, and sell your price!
• Strive to increase your profit margins by increasing efficiency, not by increasing your prices.
• Maintain a consistent sales effort to ensure that you have a greater opportunity to get the profit margin you desire.
• Be organized at all levels of business, this includes all employees.
• Commit to be profitable on every job.
• Don’t meet the competition on price; sell the job at your price.
• Never engage in the practice of "low-balling" on bids and estimates as that is a recipe for disaster and will only serve to destroy your reputation and eventually put you out of business.
• Maintain a consistent training program to ensure your employees are efficient and are working as a team.
• Understand markup vs profit. (We’ll discuss this at another time.)
• When you bid a job, evaluate the risk involved and adjust your profit accordingly.
• Remain cognizant of your demographics and bid according to "what the market can bear".

Profitability has several added benefits besides the obvious. It will help you establish bank credit and give your employees confidence that they will have a job in the future. Remember, businesses have (and need to maintain) credit scores too!

The economy is cyclical and you will not make money every year, so you need to build up your financial reserves to offset the financial losses that will occur during the bad years. If you have not done this in the past, now would be a good time to start.

The above content is extracted from Mike Holt's Business Management Skills program.

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Mike Holt is an author, businessman, educator, speaker, publisher and National Electrical Code? expert. He has written hundreds of electrical training books and articles, founded three successful businesses, and has taught thousands of electrical code seminars across the US and internationally. His company, Mike Holt Enterprises, has been serving the electrical industry for over 40 years, creating and publishing books, DVDs, online training and curriculum support for electrical trainers, students, organizations, and electrical professionals. 

Mike has devoted his career to studying and understanding the National Electrical Code and finding the easiest, most direct way to share that knowledge with others. He has taught over 1,000 classes on over 40 different electrical-related subjects to tens of thousands of students. His knowledge of the subject matter, coupled with his dynamic and animated teaching style, has made him sought after from companies like Generac, IAEI, IBEW, ICBO, NECA, and Fortune 500 companies such as IBM, Boeing, Motorola, and AT&T. He is a contributing Editor for Electrical Construction and Maintenance Magazine (EC&M) and formerly Construction Editor to Electrical Design and Installation Magazine (EDI). His articles have been seen in CEE News, Electrical Contractor (EC) International Association of Electrical Inspectors (IAEI News), The Electrical Distributor (TED) and Power Quality Magazine (PQ).