Boost Your Bottom-Line!

by George Hedley


                                                                                                                                  

                                                         

 

            1. Buy Low & Still Sell High!

            2. Double Every Discount!

            3. Be Low & Then Charge More!

            4. Buy In Bulk!

            5. Get Another Quote!

            6. Mark-Up Your Mark-Up!

            7. Trash Your Tools!

            8. Estimators Are Not Professional Visitors!

            9. Empty Your Yard!

            10. Finish Faster Quicker!

 

            11. Clean Out The Dead Wood!

            12. Do More to Get More!

            13. Markup Smaller Bigger!

            14. Fire The Deadbeats!

            15. Collect Your Cash!

            16. Multiply Your Money!

            17. Stop Giving It Away!

            18. Two Heads Are Better Than One!

            19. Accurate General Conditions

            20. Motivate With Money!

 

 

I got a phone call the other day from a concrete slab finishing and placing company owner. His company is a subcontractor to concrete and general contractors. He supplies labor and equipment only to pour and finish concrete slabs and sells his services by the square foot of concrete finished. His customers are very cost conscious and decide if and when they want to do the finishing themselves or use his company's services on a job by job basis. Getting awarded a job is very competitive and price driven as he has several competitors who offer the exact same services. The price difference between his company and his competitors only varies by one or two cents a square foot. This leaves no room for error or much chance to make a reasonable profit. And now as the economy in his market is tougher, his problem of trying to be low bidder and making enough money are larger than normal.

 

I asked him what else his crew could do to offer more services to increase his price. He couldn't think of anything he wasn't already doing. Then I asked him how he could do business differently to improve his bottom-line. No answer again. I suggested he consider offering more services and getting into a more difficult type of construction contracting like tilt-up construction or decorative concrete where customers will pay more for expertise and quality. He struggled with the idea as he wasn't sure him crew could handle more difficult work and he didn't know how to price anything except flat slab labor. I then asked if he could increase his sales volume or reduce his overhead? He said his steady customers were slow and he was as lean as he could get without going out of business. He was bidding cheaper to keep his crew busy and his doors open. In my opinion, he was stuck and didn't know what to do next.

 

Are you stuck?

Doing the same old thing for years and expecting it to get better? Not willing to try new things, methods, or ideas? Too busy working to manage you business? And when the economy slows down, you don't have a clue how to keep it all going? Remember when you've gotten your car stuck in the snow. What did you do? You first try getting out of the rut by gunning the engines faster but it doesn't work. You're still stuck and now in an even deeper hole. Just like in business, trying the same things, working harder yourself at a faster pace won't get you going again in a positive direction. When you try new techniques, tools, ideas, tactics, and strategies you eventually get out of the hole and get back up to speed quickly. When your hole is getting deeper, what choice do you have but to try some new tools. Here are several business tools to try to boost your bottom-line in any economy. Take the time to implement them and you will make more money.

 

1. Buy Low & Still Sell High!

Most business owners focus 90% of their energy trying to cut their costs by being more efficient, working faster, buying cheaper, not wasting any money, keeping their crews busy, or doing all the pricing and ordering themselves. Spending all your time focused on cutting your costs won't improve your bottom-line much. Most contractors add up their material costs and mark them up at the same rate for every job. For example, when you get a 10% better price on material or a lower bid from a subcontractor, and then add your standard 20% mark-up for overhead and profit, the actual gross profit and final selling price and is lower than if the materials or subcontract had been ordered at the original higher price. Look at these examples:

 

                                                Original       Lower Quote    Sell Higher

            Material Price               $ 1,000            $   900             $    900

            OH & P Markup                 20%                20%                  33%

            Gross Profit                  $    200            $    180            $    300

            Sales Price                  $ 1,200            $ 1,080            $ 1,200

            Gross Margin                    16.7%              16.7%               25%

 

Review the above three examples. The 'Original' mark-up example shows the result of getting a material price of $1,000 and then selling it at $1,200. The next 'Lower Quote' example shows what happens when you work hard to get a lower price on items and then pass all of the savings on to your customer. The 'Sell Higher' example show what happens when you get a lower price for material and then still sell the item at the market value or what the customer is willing to pay for the work. Should you always offer your customer the lowest price on every bid and purchase on the job?

 

On the 'Sell Higher' example, you purchased material or subcontracted work for $900 and still sold it for $1,200. Your gross margin increases from 16.7% to 25%. A huge difference in your bottom-line! There are many instances when you work hard to get a lower price. Should your customer always get the full benefit of your efforts? What about on change orders? Should you present them as cost plus or as lump sum prices? Using lump sum at a higher selling price will increase your gross margins. Think about how you price work and sell your services. On a cost plus markup basis, you're actually going backwards the lower your sales price goes. Are you starting to realize how important selling and presentation skills play a major role in boosting your bottom-line!

 

2. Double Every Discount!

Always, always, always take every discount offered to your company by material suppliers and subcontractors. When they offer a 3% or 5% discount for prompt pay, take it! For example, if you purchase $10,000 of material for a job and are offered a 5% discount for full payment by the 10th of the next month, you will pay $500 less than what you bid and sold the job at. If materials add up to 40% of your total job costs for the year and you get discounts on all material purchases, you'll increase your bottom-line by 2%. This is big!

 

Professional business owners must have a bank line of credit to help them make money and grow their business. I recommend a bank line equal to two months of sales volume for most construction companies. If you don't have a bank business credit line, get one. Most banks charge an interest rate of prime plus one or two percent on borrowed funds.

 

Another bottom-line booster tool is to always ask your subcontractors and suppliers for discounts for early payment quicker than normal. Often they want or need to get paid faster than the contract or standard terms require. Offer to pay early in exchange for a 5% discount off the full amount owed.

 

            Amount Owed                                                              $40,000

            Discount                                                                                5%

            Amount Saved                                                              $   2,000

            Cost Of Money  $2,000 for 30 days @ 7.5% =        -  $      250

            Net Amount Saved                                                       $   1,750

 

Do the math. When you pay a subcontractor $40,000 before you get paid by your customer and get a 5% discount, you save $2,000 and get to keep it. On most jobs, you will likely get paid back by your customer within 30 days. To calculate what you actually made on an early payment, figure the cost of money. If you use your bank line of credit to borrow the $40,000 to take advantage of a 5% subcontractor discount, and you pay a 7.5% interest rate to your bank for borrowed funds, your cost of money on borrowing the $40,000 for 30 days is only $250. Wow! You just made $1,750 on your banker's money. Do this twenty times in a year and boost your bottom-line by another $35,000.

 

3. Be Low & Then Charge More!

On private work, the goal of every bid is to get a meeting with the decision maker to sit down and negotiate the final price and scope of work. Unless your customer is only getting a proposal from your company, you'll have some very competitive competition. The best way to get the meeting with a potential customer is to be the preferred supplier or contractor of choice or have a strong personal loyal relationship with them. But if you don't have an "in" with the customer on the specific job you're bidding, and all else is equal, your customer will want to meet with the low bidder first. So the second best way to get a meeting with a potential customer is to be the low bidder.

 

Your original bid proposal should be for the bare minimum required by the bid documents. No more/ If in doubt, leave it out and do not include additional items, gaps in the plans, improperly specified materials or methods, or upgrades from the minimum things needed to get the job done. If you have a better and more cost efficient way to supply or install do an item, include it in your proposal as an inclusion. For example if the painting specifications calls for 3 coats of paint, state that you have included 2 coats of paint on all surfaces to be painted. Or if you know the job will require door closers on all bathroom doors but the plans don't call for them, don't mention them as exclusions in your bid proposal. Remember your goal is to be low bid and get a meeting where you can then discuss these project problems in person with your customer. This tactic will keep your pricing lower, and will help you get that important meeting with the decision maker to review your proposal.

 

At the meeting discuss every option to upgrade the project, improve the quality of materials, add-on additional items which will improve the project, or present prices for things required to fill the gaps and complete the work. To boost your bottom-line, offer these upgrades and additional items at a lump sum price including markup double your standard rate. As you present each additional item to your customer, carefully watch their face, expressions, body language, and reactions to the pricing your present. You can tell by your customer's reactions if you will be able to get the loaded costs for the additional items or when you might have to cut them to be awarded the project. I use the old slogan, 'don't ask, don't get!' You decide the final price at the meeting and can offer them a total package price for the added items they want. Your meeting goal is to get a commitment for the contract and get the work at a higher total markup percentage than you used on your base bid. If you can get an additional 15% markup on and additional 10% of work, this will increase your total bottom-line by 1.5%. Over the period of a year this bottom-line booster tool will add up to big bucks.

 

4. Buy In Bulk!

When I was remodeling our home, the contract with the electrician included an allowance for the number of light switches and power outlets we anticipated. When the walls were framed, I walked the job with him and located where we wanted the switches, lights, and outlets. He told me the final number was larger than the amount he had included in the contract. No problem for me. I still wanted them. He then told me he had already bought the switches and outlets included in the contract at a quantity discount and he would now have to charge me more per extra outlet because he couldn't get the same price from his supplier.

 

I was thinking, on every house built there are lots of switches and power outlets. If I was an electrician, I would buy them by the case, pallet or car load to get the best price I could and store them in my warehouse. The selling price would still be the same but I would make more money by buying them at a lower price in bulk. What can you buy in bulk to save money? Wealthy drywall contractors buy their drywall and metal studs by the train car load. The same for rebar, lumber, irrigation pipe, copper pipe, and all the other materials subcontractors and contractors need on every job. When you buy small amounts from wholesale houses, you pay 5 to 20% more for materials. Want to boost your bottom-line? Look at your annual purchases and start buying items you use over and over in bulk. This tool should make you at least 2% to 5% on your bottom-line

 

5. Get Another Quote!

Most contractors buy their materials and supplies from the same company year after year and never get additional quotes from other suppliers. When you have companies competing for your business, the price you pay will go down by a few percentage points. What supplier have you been using exclusively for a long time without checking their prices? Why haven't you taken the time to get another quote? I bet you're you too busy to hassle getting another quote or too comfortable using the same supply company. After all they give you a few tickets to the football game every year. Are you positive they are giving you the best possible price on every item you buy from them? I know service is important, but you'll get the same service at a better price if you keep them honest. Go to Home Depot and look at what retail buyers pay for the same products you use on a regular basis. Call three other suppliers and get quotes on items you buy all the time. A few phone calls and meetings with different suppliers will boost your bottom-line, even if you decide to stay with your old faithful you've use for years.

 

6. Mark-Up Your Mark-Up!

When pricing jobs, bidding work, and calculating the cost of change orders; most contractors leave lots of money on the table by using one total markup rate. When you blend your overhead and profit into one total markup like 25%, you're not marking up your fixed cost of doing business (your overhead). See the example below:

 

            Job Costs                                 $ 100,000

            OH & P Markup    @ 25%      $   25,000

            Total Bid Price             $ 125,000

            Gross Profit Margin                      20.00%

 

Smart profitable business owners understand the power of marking up the entire cost of doing work on a project. Overhead costs are a major part of every company. So, mark-up your overhead costs to boost your bottom-line. Using the same total markup for overhead and profit of 25%, look at the better way to markup your jobs:

 

            Job Costs                                 $ 100,000

            Overhead Markup @ 15%       $   15,000

            Sub-Total                                 $ 115,000       

            Profit Markup   @ 10%            $   11,500

            Total Bid Price             $ 126,500

            Gross Profit Margin                     20.94%

 

In the second example, you made an additional $1,500 or nearly 1% more gross profit. For every $1,000,000 of total sales volume for the year where you markup your markup, your bottom-line would increase by $9,400. Not bad for a little bit of extra math.

 

7. Trash Your Tools!

Field labor is very efficient when they have the right tools and they work properly all the time. When is the last time you performed a tool inventory to determine which tools should be thrown out and replaced? On the jobsite your field crews often work with broken, bandaged, damaged, and old tools because they don't want to ask their boss for new ones. Plus, the boss doesn't want to hear about an employee who has broken a tool. So employees continue to use poor equipment and keep their mouths shut.

 

How much money are old or broken tools costing you? If you've got 10 people on your field crew and each person only loses 5 minutes per hour working with bad equipment, you're losing the equivalent of 6.7 total hours per day. Over a year this can add up to 1,700 hours of lost time. If you average $25.00 / hour per crew member, this totals $42,500 annually down the drain.

 

Invest in a pro-active tool management program and I bet your field efficiency will go up by double what you are losing. Instead of losing $42,500, you'll probably make an additional $85,000. How? Your employees will be proud to work for a company that cares about quality and is at the cutting edge of tools and techniques. Visit trade shows every year looking for new tools, equipment, and techniques that will make your crews more efficient and boost your bottom-line.

 

8. Estimators Are Not Professional Visitors!

One of the biggest goals of all estimators is to get profitable jobs at their price. Most estimators think they are paid to price work. They figure their job is complete when they fax or deliver bids and proposals to potential customers. Customers don't buy numbers on a piece of paper, unless the total price is significantly lower than other bidders. When the prices are about the same, customers make decisions on who to hire based on trust and what people and companies will do for them.

 

You can't present what your company will do for customers and projects on a bid form. It must be done in person by someone responsible for selling and closing the deal. If that person is you or the estimator in your company, they need to be trained on developing customer relationships, overcoming price objections, effective selling skills, negotiating tools, and winning presentation methods. They need to be taught that they're in 'show' business and how the bid is presented is often just as important as the price. If you can improve your bid proposal success hit ratio by as little as 15% to 20%, your top-line sales volume will go up and you can boost your bottom-line easily by as much as 100%. For example:

 

            Bid-Hit Ratio                      6 to 1                 5 to 1

            # Bids / Year                        100                    100

            # Jobs Awarded                   16.6                     20

            Average Job Size          $   50,000        $     50,000

            Total Annual Sales        $ 833,000        $1,000,000

            Job Costs @ 70%        $ 583,000        $   700,000     

            Annual Overhead          $ 200,000        $   200,000                                                     

            Net Profit                     $   50,000        $   100,000

 

By only improving your bid-hit success ratio a small amount, your bottom-line improved 100%. What can you do to improve your bid-hit ratio?

 

9. Empty Your Yard!

It amazes me the number of construction company owners who are married to their equipment. There must be something enticing about having a lot of yellow iron around to make you feel warm and fuzzy. To me, owning equipment is a necessary evil only if it makes financial sense. For example, owning a major piece of equipment is all about the numbers:

 

            Equipment Cost Over 5 Years

            Purchase Price                                     $ 100,000

            Financing Cost                          $   20,000

            Insurance 5 Years                                 $   20,000

            Maintenance & Tires 5 Years               $   20,000

            Repair Items                                         $     5,000

            Gas & Oil 5 Yrs                                   $   35,000

            Total Cost Over 5 Years                      $ 200,000

            Overhead & Profit Mark-Up @ 20%   $   40,000

            Total Cost Of Ownership 5 Years     $ 240,000       

 

The total cost of this equipment will cost you $240,000 to own for 5 years. The key is to now determine if you can make it worthwhile to own it, maintain it, store it, deliver it, service it, secure it, insure it, finance it, and deal with the hassle of owning it. The deciding factor is how many hours you can keep it busy on the jobsite.

 

                Billable Hours Per Year        Cost Per Hour       Rental Rate?

                        2,000 hours                       $ 24.00               $______

                        1,500 hours                       $ 32.00               $______

                        1,000 hours                       $ 48.00               $______ 

                           500 hours                       $ 96.00               $______ 

 

By doing the math, it is easy to determine if you should own or rent equipment. If you can keep it working enough billable hours per year to make money and cost you less than renting, it makes sense to own equipment. Call the local rental companies to compare your cost of ownership to their rental rates. I'm sure you'll discover which equipment you should or shouldn't own. Sell the unprofitable equipment, take the cash and boost your bottom-line by investing it in assets like real estate that grow in value every year.

 

Also think about what equipment you can own that doesn't require a lot of maintenance where you can get a big return on your investment. Used job office trailers only cost $5,000 to $7,500 to buy. And you can rent them to your projects at $350 to $450 per month. That is more than a 75% annual return on your money. Take a hard look at your equipment program. Get rid of your underutilized equipment. Do the math and boost your bottom-line.

 

10. Finish Faster Quicker!

I was visiting one of our jobsites a few years ago in mid August. We were building a large 75,000 square foot concrete tilt-up industrial building. I was discussing the schedule with our project superintendent and concrete foreman. I asked when they were planning on tilting up the concrete wall panels. They told me they had scheduled the crane to erect the panels in mid-November. I was thinking: '3 more months. That seems a bit too long!' I asked them how they arrived at mid-November. They said they decided that was doable and easy to make sure they would be ready for the crane.

 

I then asked them if they could move the date up a few weeks. They hesitated and shook their heads 'no' in protest. Then I offered them both a $1,000 incentive if they tilted-up all the walls by October 31st. Guess what? They both changed their tune in a hurry and said they could guarantee they finish 2 weeks faster. Not a bad investment: a $2,000 bet versus 20 men working for 2 weeks ($40,000 minimum plus on-site costs). The end of the story is they actually tilted-up the walls on October 26th. I gave the superintendent and foreman $1,000 each and every crew member a day off with pay.

 

What games and incentives can you offer to entice your crews to work faster and boost your bottom-line? Faster jobs equal more money in your pocket. Try different incentives like competitions between crews, games to beat the budget, challenges to finish ahead of schedule, hardware store coupons for no defect or punch-list items, catered barbequed jobsite lunches for meeting milestones, dinner gift cards for crews who hit important targets, winter jackets for no jobsite accidents, or anything else that will keep work fun, exciting, interesting, and competitive. 

 

 

Make it your priority to tell your people how difficult it is to actually make a profit. Explain that these little bottom-line boosters can make a big difference. Your job is to make it your priority to focus on the positive factors you can influence instead of complaining about the economy or your competition. In the next article, I will explore 10 more ways to boost your bottom-line. Let me know if you have additional ideas that have worked for you.

 

 

 

 

---------------------------------------------------------------------------------------------------------------------

 

Entrepreneur, best selling author, and professional speaker George Hedley helps business owners and contractors build businesses that work. He is the author of the "The Business Success Blueprint Series" available in 8-workbook & audio CD sets. Contact him to speak to your organization on his proven system to build profits, people, customers and wealth. Construction company owners are invited to attend his 2-day 'Profit-Builder Circle' boot camps. E-mail George at gh@hardhatpresentations.com to receive a free copy of his book "Everything Contractors Know About Making A Profit" or signup for his free monthly e-newsletter. Visit his website and on-line bookstore at www.hardhatpresentations.com.

 

 

George Hedley   HARDHAT Presentations

3300 Irvine Avenue #135
Newport Beach, CA 92660
Phone (949) 852-2005
   Fax (949) 852-3002

Email: gh@hardhatpresentations.com     website: www.hardhatpresentations.com

 

 


George Hedley owns a $75 million construction and development company and Hardhat Presentations.  He speaks to companies on building profitable businesses, leadership, and loyal customers.  He holds 3-day in-depth "Profit-Builder Circles" open to construction company owners in an interactive roundtable format every 3 months.  His "Profit-Builder System" includes proven tools to always make a profit, build equity, create wealth, win profitable jobs, motivate your people, and enjoy the benefits of owning a profitable company.