Got Profit? Get Profit-Driven!
What is your top business priority every day? Where do you spend most of your time? Is it attention to details, customer meetings, supervising your crews, scheduling subcontractors, ordering materials, pricing jobs, or doing project paperwork? To improve your bottom-line, it shouldn’t be any of the above!
Maximizing profit must be the top priority for every business owner reflected in everything you do!
How do you reach your profit targets? By becoming PROFIT-DRIVEN! Profitability is the best indicator of your:
- Leadership & Management
- Company Organization
- Field Production
- Customer Service
- Quality Workmanship
- Marketing & Sales
- Your Priorities
Many construction business owners and managers are volume-driven and task-driven instead of Profit-Driven. For example, rather than focus on business development activities to find profitable customers, they wait for the phone to ring and take whatever work comes in. This practice allows random referrals or any potential customer control of your business revenue stream. Then you can only hope your bottom-line works out when you… (a) get a chance to bid a project, (b) get lucky enough to win a job at a fair price, (c) start Project X, (d) finish Project Y, or (e) get paid on Project Z, and then (f) your do enough work at a high enough margin to cover your overhead and make some profit by yearend.
Without specific written customer, revenue, mark-up, and profit targets, bad projects and headache customers accumulate! Does your future ability to make money depend on luck or a thought out business plan? Do you know why you are working on Project X? Do you know how Project Y figures into your bottom-line for the year? Does your project team have a clear profit target for Project Z?
Make making money your top priority!
Profit-driven business owners and managers know exactly what they want. They know to reach their financial goals. They must have goals, and then make achieving them a top priority. They also have precise targets and clear expectations for their people, projects, revenue, profit margin, and customer types they want to do business with. Do you want to work for any customer, or customers who pay and pay you what you are worth, are easy to do business with, and will give you lots of repeat work over the next several years?
Profit is calculated as making a return on investment. You have an investment in your business as well as your experience, talent, tools, equipment, people, reputation, time, and energy. Return on time and energy are just as important as return on assets. You deserve to make a high profit margin if you do a good job and take risks to build your business. Therefore invest wisely in the right type of projects and customers you decide to do business with. Identify the type of projects you excel at, the market in which you flourish, the maximum and minimum job sizes you want to build and manage best, and your own capacity. Decide when to say “YES!” and more importantly, when to say “No!” This is being Profit-Driven.
Know your numbers!
Profit-Driven owners and managers know their numbers. What it takes everyday, every month, and on every job to make a profit. Start with overhead! Figure precisely what your annual break-even point is. Most companies don’t reach this point until the final quarter of their fiscal year. What profit do you want to make above the break-even point? Don’t calculate in percentages. Instead, focus your targets with numbers your people will understand and can hit.
For example, if your annual overhead is $800,000 and your gross overhead and profit margin you can average on your projects for the year is 20%, then your annual sales revenue required to break-even and cover all of your company overhead expenses is $ 4,000,000. Next, if your net profit goal is to make $200,000, you will need to reap $1,000,000 in total overhead and profit for the year. With a gross margin of 20%, you will then need to do $5,000,000 in sales to reach your total annual goal. Now your targets are clear and precise. You can only make it happen with exact numbers to shoot for.
Aim at a clear target!
Profit-Driven owners and managers are competitive. They need targets and score boards to keep track of their progress as the year moves ahead. You can’t win a basketball game without shooting at the basket and keeping score. You can’t win a golf match without holes and scorecards. You can’t reach your business goal by trying to work as hard or as fast as possible and not knowing where you are at. What profit targets do your track and aim at?
Make sure each member of your team knows exactly what their personal target is. For a general contracting company use precise targets for sales, overhead, profit, bid-hit ratio, working capital, average job size, and total number of jobs. For your architect, give them precise schedules with milestones and deadlines. For your project manager, use exact goals for job cost, gross profit, and customer satisfaction. For your project superintendent and foreman, use exact goals for production hours, equipment usage, job schedule, quality standards, and safety. For your foreman, target specific quality, schedule, manpower, productivity, and safety milestones that can be tracked and scored. For the project administrator, use monthly deadlines for invoices, paperwork, and shop drawing approvals. For subcontractors, use mandatory requirements such as job meetings, inspections, notices and documentation. This is Profit-Driven in action.
Profit-Driven construction company owners and managers focus on profitable projects, customers, and services. These give you a high return on your assets, time and energy. Profitability starts with pro-active sales and ends with producing desired project and company results. Controlling costs, expenses, quality, and purchases is easy. Selling is hard! Rather than devoting your time to daily operations, focus at least 25 percent of your time on getting the work. Look for profitable project targets, repeat loyal customers and referral opportunities.
The magic of making lots of profit starts with making lots of money! To get a copy of ‘Everything Contractors Know About Making A Profit!’ send an email to firstname.lastname@example.org. Make profit your number one business priority and you will proudly say: “I GOT PROFIT!”