The Doctor is In: 3 Steps to Improve Profits
Let's face it: Business has always been a challenge, made even more difficult over the last five years. While the economy appears to be improving, it's critical to look at how to push more dollars to your bottom line.
Consider all the revenue dollars that you sell. That revenue is used to:
• Pay for your project costs
• Cover overhead
• Contribute to net profit
Net profit can't be controlled directly; it's what's left over after you've paid for job costs and overhead. So that leaves three was to improve net profit:
• Charge more
• Spend less
• Do more work
Are you very busy? Too busy? Now might be the time to test an increase in your prices. Economics is based on the laws of supply and demand—if you are in demand, you might think about raising your prices. If you are working too hard for every dollar of net profit, perhaps
you should do less work that is more profitable. As you raise your prices, you can see what that does to your volume; soon you will find the right mix for today's economy.
Another way to charge more is to increase the revenue of each job. This can be done by controlling the scope of work more carefully and better managing change orders. In many cases, you are already doing the extra work; wouldn't it be nice if you could get paid for it?
There are two types of costs: job costs and overhead.
JOB COSTS: Reducing your job costs while invoicing the total contract will improve gross profit. Focusing on slippage (budget overruns) will improve profitability. With the majority of risk coming from labor, keeping on the labor budget can provide the biggest improvements in profits.