By The Profit Guys
Contractors are constantly seeking the “solve the puzzle” to increase profit for their businesses. It can be a never-ending journey. Maybe it’s time to identify the critical areas of opportunity in your contracting business and then become committed and focused on creating a way to exploit those opportunities.
Managing the construction process is complicated, intricate, and frequently arduous. However, some intelligent analyses will help you discover ways to save time and money.
Identify Your Key Performance Indicators
Start by creating a list of key performance indicators, and then evaluate how well your firm is measuring up against these indicators. Measurements and evaluations allow you to develop a more precise approach based on facts instead of assumptions.
Evaluate everything, including your planning methods, decision-making process, and the execution of job functions. Pay attention to the costs of labor, materials, overhead, logistics, and other job-related expenses. Make sure you know what it costs to run every part of your business, and then evaluate each area to ensure you’re running it as profitably as possible.
How do you do that?
- Define the status of your company’s profitability now.
- Understand what drives the profitability of your company.
- Determine where you want to take your company in the future and set a profitability goal.
Approach the process by answering these questions:
- How effective is your firm in developing new business and finding new projects in various end-use segments and geographic markets?
- Which vertical markets are most profitable for you?
- What percentage of your business is with GC’s and CM’s vs. owner direct?
- On what project types do you perform the best? Why?
- How much management time is required to execute the work in various vertical markets?
- On what type of projects are you most competitive? Why?
- How do you measure your jobs won vs. lost ratio and with what customers?
The Three Big Cost Centers for Contracting Businesses
Once you answer these questions, you have the information you need to evaluate the three big cost centers for any contracting business.
Business Development – How do you identify and secure new work? What’s your approach to strategic bidding and customer profitability by end-use market segment?
Strategic Purchasing – Do a supplier evaluation. Review your profit by product category. Does your supplier help reduce installation costs? Do they help with value engineering?
Operations – What does your project management look like? Are your labor costs in line? What are you spending to provide a safe workplace? What are your expenses for things like change order management, punch lists, reworks, and defects?
To increase your profits, you may want to focus your sales and business development selling activities on the most profitable segments, types of jobs, and customers that generate the highest profitability.
Also, keep a close eye on the quality and costs of project management, labor, and field supervision personnel.
Keep Going, and Be Consistent
Once you’ve started, keep going. It’s important to consistently and continually evaluate job profitability, customer relationships, bidding practices, negotiating techniques, and collection methods.
“Solving the puzzle” of profitability doesn’t have to be as tricky as a Rubik’s cube. With good analytics in place and careful, ongoing evaluation, you’ll know when, where, and how to solve any puzzle for your business.
Good luck! And let us know how we can help you reach your goals.