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.
Most integrators find that labor is the hardest thing to estimate and track.
Typical errors include overestimating the effectiveness of the technicians (how many hours per day they're actually available for producing work) and overestimating the efficiency of the crew (how long it takes to complete each task). Requiring your field technicians to maintain time cards and tracking non-productive time (supply runs, drive time, setup and breakdown, meetings, etc.) can help you get a better handle on both effectiveness and efficiency. Creating schedules and sticking to them will allow you to better manage your time and your crews.
OVERHEAD COST: Review your overhead to see where there are wasted dollars. Most integrators have slashed overhead during the recession, but now may be the time to gear up your back-office processes—but only if it increases your productivity. Would hiring more office help make your jobs run more smoothly or keep your technicians on budget? Reconsider ways to reduce overhead by shopping around for insurance costs. å
Cut office expenses by going paperless. If payroll processing is outsourced, consider moving to a bi-weekly pay period to cut processing costs. If your company matches health care, be sure to match on a dollar amount instead of a percentage. That way, it won't automatically carry the burden of premium increases.
Do More Work
Unlike selling the same amount of work at a higher markup, the additional dollars you bring in by selling more jobs at the same markup do not automatically add to your bottom line. Why not? More jobs means more management and the potential to introduce inefficiencies as technicians bounce from job to job.
But if you increase your sales volume without increasing overhead costs, your overhead cost per sales dollar is reduced, adding additional dollars to the net profit. Only do more work if it is profitable. But now may be the time to focus on sales to bring in more work, as long as you can do that work with the same staffing level.
Look at your current jobs. Think about how you can better manage each job today to improve profits. Find ways to charge more, spend less and do more work—and see the dollars fall to the bottom line. •