President’s Letter – April 2018
Last month we talked about best practices for estimating. This month, let’s look at procedures that can help us reduce estimating costs, making us more focused and profitable.
As we all know, our trade is often price-driven when that’s all the homeowner or a general contractor wants to consider. Rather than joining the rush to the bottom by competing on price alone, look at your company and evaluate its strengths in your marketplace.
Now let’s take a closer look at one of the common practices of companies that are high-performing “Best in Class” contractors and take the challenge of joining them: evaluating bid
Keep in mind the 80/20 rule: most of your profit is probably coming from a smaller segment of all your projects. Begin looking at projects and evaluating their compatibility with your strengths. Let’s face it, some types of projects are a breeze and some are a struggle from day one. All that’s needed is to begin to move away from those that seem to always be a challenge. The three largest components of this filtering process are easy to follow.
- Determine what market segments hit your sweet spot. Is it new residential or remodel? Is it custom homes or tract homes? If you’re in the commercial area, is retail up-fit and restaurant your best fit or office and institutional?
- Determine your best geographic range and project size. If your team is not designed for a continuous flow of out-of-town work, then you should keep them close to home most of the time or suffer the consequences of high turnover and low margins. I’ve seen the advertising pitch, “No Job Too Small or Too Big” many times. If you can make the same profit margin on a $2,000 and a $1,000,000 job, you are a unique company. Yet you should still ask yourself the question, “Where in this range do I most often make the most margin?” That’s the range where you should focus
- Determine your best customers. Simply identify which customers you almost always make profit working with and which ones you frequently lose money working for. This is simple and easy to figure out, and you can probably name the good customers off the top of your head. All you need to do now is stop working for those that cost you money on every job.
Analyze your approach to business and see if you are scattering your resources or homing in with laser-like focus. If you scatter your resources aiming at everything that moves, you will sell less and efficiency in your organization will only be a dream. The more focused you can be in directing your job procurement efforts, the more efficient and effective the results, with a higher return on investment.
The goal is to know your strengths as much as possible and put yourself in position to capitalize on them more frequently. This requires some analysis and study of where you have been in the last year or two so that you can chart a course toward higher profitability, team morale and success. This is a trait of “Best in Class” contractors. My goal is to help every NTCA member raise the bar in professionalism, craftsmanship and integrity to become more successful.
Keep on tiling!