Saturday 7 March 2015

Higher Profit or Greater Revenue?

Posted by at 9:02 PM in

To grow restoration business a company can achieve both higher profit and greater revenue, but if you had to choose one or the other, which would it be? Would it be greater top line revenue or higher bottom line profit?

As contractors we typically take our bragging rights from the yardstick of revenue. Have you ever heard a contractor boast, “I just broke into the million dollar club,” or “We’re a $5 million company.” We establish our identity among other contractors by our gross revenue. We’re all a little vain that way. However, we gain our personal wealth not from revenue, but from higher profits. That is the one piece of information we hold tight to the chest and in confidence from competitors, crew, and even family. Why? We have come to understand that this is the number of greatest value to us because at the end of the day, when all else is said and done, this is yours! So, which would you rather be?

  • A $5 million company earning 10% profit, netting $500,000 profit, or
  • A $2.5 million company earning 20% profit, netting $500,000 profit

Everyone knows, it is easier to get to $5 million, than it is for a $5 million company to double and get to $10 million.

It is easier to double your profit than to double your revenue through 5 easy steps!

  • Set profit margin goals for each major revenue source. For example, you should be able to regularly achieve 50% profit on damage repair build back. Set the goal and see what happens. Immediately, intuitively, your desire to reach the goal begins to grow! You instinctively begin to assess your internal operational efficiencies to determine how well they are aligned to achieve this profit goal. You begin to find operations that aren’t contributing well to the goal so you make changes, some minor and others that are major structural changes. You are already on the road to higher profits.
  • Secure wholesale sources for your major high dollar building materials. For example, you can be introduced to the Shaw Industries wholesale distributor that provides Shaw flooring materials at 35% - 50% below retail prices. Since flooring is the single largest line item on most damage repair estimates this savings adds another notch to your efforts to improve profits.
  • Assess how well your estimators are estimating. Nearly every contractor I talk to believes their estimators are leaving money on the table. But, they don’t know where, how much, or how to find it. So profits continue to fly out the door. Owners, you or someone you designate must become an exceptional estimate reviewer. Learn Xactimate inside and out. Regularly review estimates and you will save big to your bottom line.
  • Control labor and material costs. This is huge! No other deficiency costs you more than your own crew and managers who fail to control these costs. As a successful restoration owner I didn’t pay more for materials than I was being paid and I never took bids from subcontractors. The key to each was the use of internal, and largely unnoticed features within Xactimate that helped me take control of these two vital areas. As part of my Restoration Entrepreneur’s Management Series I present a process I describe simply as “How to Use Xactimate as a Key Management Tool” that shows owners how to really take charge of their labor and materials costs to stop the bleed and net the most!!
  • Job cost everything. There is no other way to determine the overall impact of your internal operations on per job profits than through job costing. If this is done through one of the great job processing programs available today the program will automatically calculate per job profit for you. You can simply scan the list and find those jobs with lower than required profit margins so you can assess the reasons and fix the problem!

Finding profit killers is easy. It just takes some time and effort. Fixing the problem is the real challenge since it takes consistent discipline and constant monitoring. The only factors that an owner has control over that produce immediate profit results are the internal factors of their business.  Set your goal, assess your efforts, fix what’s wrong, and grow your profits. Start today! Visit my website for additional valuable blogs, podcasts and webinars that will help you grow your restoration business at http://www.growmyrestorationbusiness.com/blog