Why Contractors Should Be Profit Not Volume-Driven

Contractors should become profit-driven instead of volume-driven to help improve the bottom-line

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.
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.

What is your top business priority every day? Where do you spend your time? Is it attention to details, customer service, supervising, scheduling crews or subcontractors, ordering materials, pricing jobs, or paperwork? To improve your bottom-line, it shouldn’t be any of the above! Maximizing your profit must be the top priority in everything you do.

How do you reach your profit target? By becoming profit-driven. Profitability is the best indicator of your:

  • Leadership and management
  • Company organization
  • Field operations
  • Customer service
  • Quality workmanship
  • Marketing and sales
  • Your priorities
  • YOU!

Many business owners and managers are volume-driven instead of profit-driven. They wait for the phone to ring and take whatever work comes in. They let customers control their businesses and hope the bottom-line will work out when they (a) start Project X or (b) finish Project Y or (c) get paid on Project Z. Without clear profit targets, bad projects and headache customers accumulate. 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 specific 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 make lots of money, and making money is their top priority. They have precise targets and clear expectations for their people, projects and customers. They recognize that profit is calculated as return on investment and return on energy. Return on energy is just as important as financial return. Identify the type of projects you excel at, the market in which you flourish, the maximum and minimum job sizes you 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 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, Hedley Construction’s gross profit target is $2,000,000. With a break-even point (overhead) of $1,200,000, our net profit target is $800,000. 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. 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. What profit targets do your people aim at?

Make sure each member of your team knows exactly what their 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, profit and customer satisfaction. For your project superintendent, use exact goals for job schedule and quality standards. For the project administrator, use monthly deadlines for invoices, paperwork and shop drawing approvals. For your foreman, target specific quality, schedule, manpower, productivity and safety milestones that can be tracked and scored. For subcontractors, use mandatory requirements such as job meetings, inspections, notices and documentation. This is profit-driven in action.

Get focused

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 sales. 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. Make profit your number one business priority and you will proudly say: “I got profit!”

George Hedley works with contractors to build profitable growing companies. He is a professional business coach, popular speaker and best-selling author of “Get Your Business To Work!” available online at www.HardhatPresentations.com.  To sign-up for his free e-newsletter, join his next webinar, be part of a BIZCOACH program, or get a discount coupon for online classes at www.HardhatBizSchool.com, e-mail GH@HardhatPresentations.com