It Really Is a Simple Business
Contracting really is a simple business. Notice I did not say easy, I said simple. The more networking groups I facilitate the more of an impact I see the basics making. Getting contractors to practice the basic fundamentals can have an immediate impact on their profitability. It is not uncommon to find a contractor with five to eight employees making $50,000 or so a year and the next year jump to over $100,000 in salary and income.
So what are those simple components which every contractor should get right?
• Know the numbers.
• Sell at a premium price.
• Offer great service.
• Make the phone ring with the right kind of customers.
• Be productive.
Knowing the numbers: Many contractors do not like paperwork and bookkeeping. They are Marlboro men, a working man’s man. (If you are one the many successful women that run a contracting business or a person who prides yourself as a business person, please forgive me while I pound the stereotype.) To be successful you must be interested in the business and not just your trade. If not, you should work for someone else. You will make more money and work fewer hours.
For years, I did not know a single contractor who is successful that does know his or her numbers. However, the booming economy of the late 1990s and early 2000s did create some profitable companies who were merely surviving on volume and pricing jobs at what the market would bare. With the 2007 recession, those days of blind success are now long gone. Knowing your numbers is simpler than you might think. Start with a budget. Take a few minutes to add up all your expenses for the year. It is important to keep score the same way you estimate. Your accounting format should look something like Figure 1.
You can have as many categories in each area as you like, but follow this pattern. When bidding jobs, contractors are calculating their direct costs and then adding mark-up. By following this pattern, you can see if your margins are being maintained and accurate. It is not uncommon for a contractor to send us a 10-page statement with a comment that he or she does not understand it. My response is always the same: I don’t understand it either. If you are going to go to the trouble to keep records, you might as well keep records that are useful.
Sell at a premium price: You cannot survive as the low priced contractor in your market. There is always a guy with a pickup truck, ladder rack and shovel who is cheaper than you are. Know your costs and what it takes to do the job right. Nothing improves sales better than knowing your price and what you have to charge to do a professional job and stay in business. Let’s suppose you are looking at 10 jobs. Two or three of those jobs are probably “give me’s,” another three or four are “maybes,” and two or three are “heck no’s.” By charging a realistic price, you are at least going to make a profit on the give me’s. Improving your sales skills will allow you to gain a few of the maybe’s, and the heck no’s are people you should not even be marketing to.
I know, you are thinking the market is competitive. Sure it is, but if you are going to try and survive on price alone, you are not going to make it. People will pay more for your services if you can show them value and differentiate what you are offering. It is not the customer’s responsibility to determine the difference between you and your competitor’s proposals.
Offer great service: Get the basics right. There is no question you need lettered trucks, job signs, uniforms, proposal packets will improve sales by driving more point of sales referrals and help the customer feel good about the experience. Go further than that and make fans out of your customers. Do your best to make point of sale customer contact an exceptional experience. Repeats and referrals are your most profitable source of work. Closing ratios are high and there are no advertising costs required to generate the lead. Practice good introductory and departure procedures. Have foremen introduce themselves and ask polite questions such as where to park the truck and are there any pets to look out for. Perform a walk through with the customer prior to leaving the job. This will cut down on call backs, improve quality and develop job ownership with the crew. With commercial customers, make sure you adhere to all of their safety and on-site requirements.
Do you have trouble finding dependable people to work on your car, your boat, your electronics and your computers? Sure you do and you are willing to pay a little more for headache free service.
Make the phone ring with the right kind of customers: Yes, everybody needs good service and contracting, but common sense tells us that people who are premium buyers are better customers. You can find those people by targeting your marketing. Focusing on neighborhood marketing makes sense because people of a feather tend to flock together. Neighborhoods are made up of people with similar incomes and needs. Quit trying to be everything to everybody and thereby end up being nothing to nobody. Internet leads growth can make this even worse. Internet inquiries can be much like the yellow pages, with too many price shoppers who are spread out all over town. Know your target customer and qualify leads.
Be productive: Every contractor thinks they are productive but there is always room for improvement. Each job should have hours budgeted and those hours tracked. Each and every hour should be posted somewhere and accounted for. Contractors spend thousands on job costing which no one reads. Look at a cross section of jobs and try to determine common characteristics between the winning and losing jobs. You probably have either a bad estimator, unproductive employees or are disorganized. You do not have to be a rocket scientist to figure it out. Just look at the common characteristics of poorly performing jobs. Many of the contractors we know who do this increase profits anywhere from $1 to $3 per man hour, which equates to $2,000 to $6,000 per year.
Yes, contracting is not a rocket science. You simply must get the basics right. We have many a networking member who does $500,000 in sales and makes over $100,000 a year, yet we’ve also met other contractors with $3 million in sales that only make $50,000. Why? Because one is getting the basics right and the other isn’t.