Benjamin Dyer of Powered Now examines how to avoid living hand-to-mouth by boosting your profit.
Construction is a hard business and although some people are relatively happy to just survive, that doesn’t allow for things ever going wrong. If you’re either in the “lifestyle matters” camp or among those who are
Some people have modest aims for their business. They just want a degree of freedom and to enjoy their work. The problem is, even if you are of this mind-set, profit is still essential for survival. This is due to the fact that you not only need to pay yourself, you also need to buy tools, run a van and go on the odd course. And all of that is before you allow for the occasional loss-making problem job which could otherwise ruin your reputation.
In contrast, some construction companies are ambitious to grow. That means that as well as covering normal running costs, they need ever more working capital. That’s on top of funding the up-front costs of marketing and additional staff.
The bottom line is that everyone needs to make a profit.
If there is one issue that causes the most problems with profitability it is pricing too low.
I am assuming here that you already do excellent work, else all other bets are off. But having said that, charging a decent price and earning a profit is the next most important thing.
The price that you quote should include: the total cost of materials; enough to pay yourself and your staff a decent rate; an allowance for things going wrong; overheads; and critically some profit after all that.
You might think that this will mean you won’t win any business. But the fact that the roads aren’t exclusively full of Kia Matiz’s (described by Jeremy Clarkson as “cheaper than walking”) shows that price isn’t the only thing people think about when it comes to buying. The large numbers of Audis, BMWs and Mercedes that you see on the roads illustrates this point perfectly.
However, it’s not always easy to raise your prices. This is why it’s important to do everything you can to come across as totally professional. That makes customers more willing to pay a premium. Turning up on time, being dressed smartly and treating customers highly professionally are all factors that will help you to achieve higher pricing with all but the most cost-conscious.
Finally, remember that if you never lose on price you are probably pitching too low.
Being well organised
Being brilliantly organised undoubtedly helps profits. It’s all about efficiency rather than cost because, for instance, employing cheap but poorly trained staff or using cheap tools often costs more in the long run.
Reliable vans that look smart can also earn their keep.
The final suggestion here is to use some of the new technology that is being developed. My company, Powered Now, is one of many investing millions to make life easier for builders. James Chandler runs Chandler Building on the Isle of Wight. He explains his view: “You can’t ignore technology, even in the building trade. Builders that want to be successful must move on.”
Keeping your costs down
Obviously, lower costs should lead to higher profits. Some ideas for cost savings might be:
Look at your biggest costs first. Shopping around for best price on a new tool may take more time than doing the same for materials which you use in large quantities every week. Don’t ever bother looking at anything if buying it for 50% less wouldn’t be noticeable. Concentrate on what matters.
Open trade accounts and get the best payment terms with any supplier that you use regularly.
Work hard at getting prices down at your builders merchant. The quoted price is usually a rip off, and most branch managers have huge discretion over pricing. So don’t let yourself be one of the mugs.
Plan your materials carefully and make sure they are on site in time. Trips to Wickes from site and then paying retail prices wastes both time and money.
Making a fair profit isn’t as easy as writing an article about it! Clearly if you price too high you may find you hardly win any business. However, provided you do good work, this isn’t the mistake most builders make. No or little profit can result in huge headaches and often drives sole traders out of business and back into employment. For larger companies it creates the risk of going bust.
Each passing hour means missed opportunities so I hope that some of these points have rung a bell. It just remains for me to wish you the best of luck.
About the author
Benjamin Dyer is CEO and co-founder of Powered Now Powered Now aims to take the pain out of paperwork for construction companies including gas engineers, electricians and other trades.