Monday 11 January 2016

Are You in Business Just To Break Even?

Posted by at 6:31 PM in

You Can't Grow Restoration Business By Just Breaking Even!

I talk with hundreds of contractors and find that many seem satisfied with just breaking even. I say this because they admit they don’t do much to put an end to their profit killers and begin making more money. Particularly with rebuild services you should expect a 50% profit on every job nearly every time.

I understand that the larger the job, especially with large losses over $100,000, the lower the profit margin. But this too occurs mostly because of poor job management. Contractors lose sight of material costs and recklessly throw workers at the job just to get the job done while profits slip away. The result of all this is we just break even. Breaking even in the damage repair business means we make little more than Overhead and Profit.

That 20% is a given and is automatically added to the costs of the repair bill and is just about all the profit many contractors expect to receive - they just break even! So where are potential profits hiding and where are most commonly profits lost?

#1 – We lose profits on flooring.

Flooring is just too much of a hassle for most contractors so they give it away for a pittance of a profit compared to what they should earn. Flooring typically represents about one-third of a normal repair bill charges. Many contractors give away the flooring for a few measly hundred dollars.

When you get it together and really take control of flooring you should earn about 15% of the 50% you are trying to earn on the entire job. That makes flooring a huge factor in profit management. You get this by earning 45% - 50% profit on flooring material and labor. How do you do this? You buy the flooring material at wholesale pricing and you pay a reasonable wage for installation.

I can show you how to do both! So here it is - you have a $10,000 typical repair bill and a 20% profit margin given to you through Overhead & Profit. Flooring could add another 15% profit lifting you to an overall 35% profit per job. By taking charge of this single repair you are nearly at your per job 50% profit goal.

#2 – We lose profits on daily material purchases.

The issue here is that for many contractors they have NO controls in place for quantity or unit price material purchases. Every day and in every city contractors send their crews or subcontractors to buy materials for a job with nothing more than the personal estimate of how much drywall is needed or how much they should spend on that sink replacement. What does this produce? 15 sheets of drywall when the estimate called for only 10 and $210 for a kitchen sink when the estimate pays only $105. Each of these situations and so many more like them results in profit flying out the door and what is worse, nobody even knows it due to a lack of controls. This is a terrible profit killer and it needs to stop. This is the single biggest reason that contractors just break even with little more than Overhead and Profit for each job completed. And this is why contractors struggle every day with cash flow and cash reserves. They lose a lot of money that they should be earning.

#3 – We lose profits on taking subcontractor bids.

How do most contractors determine what to pay a subcontractor? Most often they don’t, the subcontractor does! The sub tells the contractor what they are willing to do the job for and when this occurs the contractor loses every time. Imagine a world where the contractor knows exactly what they are being paid – what the going rate for a particular combination of trades is for their area – and figures out exactly what they should pay for the type and amount of work to be completed? Welcome to the world of Xactimate. I would love to show you how to get that information and how it can help you take control of your subcontractor relationships and labor costs.

The bottom line is that once you have received your Overhead & Profit and your 15% profit on flooring you don’t have to save much more on material and labor costs to add another 15% and hit your 50% per job profit goal. It just isn’t that hard but it does take know how, personal discipline and consistency. Why else are you in business if not to make a profit and if you are going to make a profit why not make it the largest profit possible? Stop accepting less and being content with just breaking even. Step up, figure it out, take charge, and make some money!

Email me today to set up a time for a FREE 30 Minute Consultation and let’s talk about what it will take to accelerate your sales and improve your profit. You can reach me at 800.655.1598. Visit me at my website where you will find FREE eBooks such as HOW TO GROW YOUR RESTORATION BUSINESS and STOP YOUR PROFIT KILLERS DEAD IN THEIR TRACKS, and lots of other free material designed to help you on your way as you grow your restoration business at www.growmyrestorationbusiness.com.