The time to get profit driven is now.
What is your top business priority every day? Where do you spend your time? Is it paying attention to details, the provision of customer service, supervising, scheduling crews or subcontractors, ordering materials, pricing jobs or paperwork? To improve your bottom line, it shouldn‚Äôt be any of the above. Maximizing your profit must be the top priority in everything you do.
You reach your profit target by becoming profit driven. Profitability is the best indicator of the following:
- Leadership and management
- Company organization
- Field operations
- Customer service
- Quality workmanship
- Marketing and sales
- Your priorities
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 business and hope the bottom line will work out when they start Project X, finish Project Y, or get paid on Project Z. Without clear profit targets, bad projects and headache-inducing 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?
Money as a 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 at which you excel, the market in which you flourish, the maximum and minimum job sizes you manage best, and your own capacity. Decide when to say ‚Äúyes‚Äù and, more importantly, when to say ‚Äúno.‚Äù This is being profit driven.
Know your numbers
Profit-driven owners and managers know their numbers: what it takes every day, every month, and on every job to make a profit. Start with overhead. Figure precisely what your breakeven point is. Most companies don‚Äôt reach this point until the final quarter of the fiscal year. What profit do you want to make above the breakeven point? Don‚Äôt calculate in percentages. Instead, focus your targets with numbers your people will understand and can hit. For example, Hedley Construction‚Äôs gross profit target is $2 million. With a breakeven point (overhead) of $1.2 million, our net profit target is $800,000, clear and precise. You only can make it happen with exact numbers for which to shoot.
Aim at a clear target
Profit-driven owners and managers are competitive. They need targets and score boards. You can‚Äôt win a basketball game without shooting at the basket and keeping score. You can‚Äôt win a golf match without holes and scorecards. You can‚Äôt reach your business goal by trying to work as hard or as fast as possible. At what profit targets do your people aim?
Assure each member of your team knows exactly what the 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 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. These are profit-driven actions.
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.